In the weekly technical article published on July 02, 2017, we discussed about “How to Preserve your Hard-Earned Money.” We hope you found the article useful. Today, we move on to a new topic, where we talk about “When Should You Get Back In.”
You bought a stock that had all the right qualities to become a multibagger. You saw it rise steadily to a double-digit gain, and then were forced to sell for a small gain, or break even as the stock plunged back to the proper buy point. Have you ever faced this situation?
Well, this sort of experience can be especially frustrating for new investors who follow CANSLIM method for selecting, buying, and selling the best stocks. Turn that frustration into determination. The beauty of stocks is that you are not penalized for buying a stock back.
You might have seen that in some cases, a stock may give back all of its post-breakout gains, then go into a long consolidation to form a brand-new base. Such movements are known as a base-on-base pattern, or a base next to a base. In the former, the lows of the second base hold near the top of the first base. In the latter, the lows of the second base may be deep in the belly of the prior base.
Regardless of the pattern, always know this: the market can change direction as fast as the wind. So don’t let feelings of anger, disappointment, disgust, or frustration block you from making a fantastic second buy.
“So the first thing I learned about how to get superior performance is not to buy stocks that are near their lows, but to buy stocks that are coming out of broad bases and beginning to make new highs…” – William J. O’Neil, MarketSmith Founder