When it comes to investing and the markets, there will always be one that got away.
That is, the security that was rock-bottom cheap, but you couldn’t see it if it swallowed your head whole. For example, a single bitcoin BTCUSD, >+0.26% in 2010 cost a few pennies, but now that same bitcoin will set you back $2,000.
And how about MarketWatch’s Ryan Vlastelica, who could have made a bundle on Netflix NFLX, >-0.50% if he’d ignored his dad and invested back in 2007. But hey, that’s got nothing on Ronald Wayne, who infamously sold his Apple AAPL, >+0.17% shares in 1976 for $800 and gave up billions in the process.
So is there a trick to not missing the deal of a lifetime? Irrelevant Investor blogger Michael Batnick seems to think so, and he’s offered up several tips on catching a bottom, and even a place to look.
The first stop: retailers. And he likes the “Death by Amazon” Index from Bespoke as a reference. That index of 54 retail names, including Macy’s M, >+4.85% is down 20% this year.
But Macy’s offers up the first lesson for bottom fishers: It’s probably best not to try to catch one at all, so know what you’re getting into. The embattled retailer, for example, has rallied three times — 30% each — on its way to that 70% decline, as seen in the chart Batnick points out:
But if you must, then at least heed Rule #2: Don’t rush in after a massive down day. “The stock market is not perfectly efficient, but when a $15 billion company falls by double-digits in a single day, it’s usually for a good reason,” wrote Batnick.
That’s why you quickly move on to Rule #3: Wait for a higher low, which you will see near every actual bottom.
Here’s another rule for bottom fishers: If you want to know where the bottom is roughly, wait for the exchange-traded fund to be created. For example, he notes that Proshares has recently filed for double and triple-levered ETFs — such ETFs are considered highly speculative and carry bigger risk — for retail stocks.
“New ETFs are the new magazine indicators,” says Batnick.
Rule #5 is an oldie and a goodie: Put in a stop loss. “Pick a dollar amount, or percentage amount that you’re willing to lose, and stick to it.” You can find more information on stop-loss orders here at Investopedia.
Batnick has plenty more rules to go over in his blog post. Check it out here.
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Source : http://www.marketwatch.com/story/if-you-cant-resist-the-lure-of-bottom-fishing-this-market-at-least-follow-these-five-rules-2017-07-17