The mountain trekking rules on SPX
For those of us who had gone trekking the mountains before, we know that to reach the peak , it is not a linear path. Often, we have to manage the steep downhill , climb the uneven uphill and these will go on for umpteen times before we get to the peak.
The stock chart acts in a similar way, imo. You can see the red arrows showing the downhill where we have to accept and climb down. This does not mean for us to sell our positions unless you are a short term trader. Often, this is a resting point for us to accumulate else accept it as part and parcel of the trekking journey.
The current rally since Oct last year has not had a meaningful downhill of sort so I had drawn several support level where it might revisit before continuing its uphill task.
So you can buy-in tranches something like 10% at support level 1, 25% at support level 2 and 40% at support level 3. The % is based on your size of the capital invested so it may differs from each individual.
Note that each time the price action visit the green dotted line (bullish trend) , it will nicely rebound again, sometimes touching and sometimes not. That is why it is even more important to be in the market than to TIME the market. Of course, if we can all predict with 100% accuracy, then all will show hand at support level 3 or even lower but Mr Market is smarter and more emotional than we.
It could touch support level one and then continue its way up without giving the late comers another chance. Then, if you missed it, you will be buying at the next higher price. By bying in tranches based on the % above , you allow yourself a good opportunity to do dollar cost averaging and ensuring that you participate in the bullish trend RATHER than awaiting at the bottom (hoping) to scoop at lower price.
The gap that remained to be filled up can be misleading as well. It can take weeks, months or even years before it is filled up , nobody knows for sure. And awaiting blindly for it make take you out of the market for a much longer time than anticipated.
And that makes chart reading an interesting game and that is it is not 100% accurate despite all the tools available.
The stock chart acts in a similar way, imo. You can see the red arrows showing the downhill where we have to accept and climb down. This does not mean for us to sell our positions unless you are a short term trader. Often, this is a resting point for us to accumulate else accept it as part and parcel of the trekking journey.
The current rally since Oct last year has not had a meaningful downhill of sort so I had drawn several support level where it might revisit before continuing its uphill task.
So you can buy-in tranches something like 10% at support level 1, 25% at support level 2 and 40% at support level 3. The % is based on your size of the capital invested so it may differs from each individual.
Note that each time the price action visit the green dotted line (bullish trend) , it will nicely rebound again, sometimes touching and sometimes not. That is why it is even more important to be in the market than to TIME the market. Of course, if we can all predict with 100% accuracy, then all will show hand at support level 3 or even lower but Mr Market is smarter and more emotional than we.
It could touch support level one and then continue its way up without giving the late comers another chance. Then, if you missed it, you will be buying at the next higher price. By bying in tranches based on the % above , you allow yourself a good opportunity to do dollar cost averaging and ensuring that you participate in the bullish trend RATHER than awaiting at the bottom (hoping) to scoop at lower price.
The gap that remained to be filled up can be misleading as well. It can take weeks, months or even years before it is filled up , nobody knows for sure. And awaiting blindly for it make take you out of the market for a much longer time than anticipated.
And that makes chart reading an interesting game and that is it is not 100% accurate despite all the tools available.
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