Wise Words

"Some of the best trades come when everyone gets very panicky. The crowd can often act very stupidly in the markets. You can picture price fluctuations around an equilibrium level as a rubber band being stretched – if it gets pulled too far, eventually it will snap back. As a short-term trader, I try to wait until the rubber band is stretched to its extreme point."

- Linda Bradford Raschke

Taz Trader Blog For Swing Traders

Written on 14-09-2008 10:25 am by Craig

Don't Be Afraid to Buy on Down Days in the Market

I got into a discussion with a new trader via email about the concept of buying weakness and selling strength. He said that he was hesitant to buy on down days in the market. When I asked him why he said, "I don't know. It just makes me nervous."

This "nervousness" is probably caused by watching too much CNBC! Anyway, I promised him that I would post a chart...

SP 500 Down Days

On the chart above, you can see that any major down day (green arrow) in the market is usually followed by an up day! And sometimes, this up day, turns into a 2 to 3 day rally. There will likely not be very many sellers left after a big down day in the market.

This can provide us with a good buying opportunity. What should you look for? Look for stocks with relative strength. These stocks will likely be the winners when the market reverses.

And the market will reverse. It always does.

Learn a simple swing trading strategy.

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