Thursday, November 04, 2010

Trends tend to persist

Even though the general market is in an uptrend, occasionally you come across a stock that is hell bent on trending the other way. I've attached a chart of Allied Irish Bank, showing a beautiful downtrend that would have been very profitable on the short side, and a loser for anyone trying to pick a bottom.

Going against the main market trend is a doubly sure sign of relative strength or weakness in a particular stock, and one should be extremely wary of attempting to pick a turning point.

Charts like these are one reason why I only buy on a new high, or sell on a new low, when in line with the general market. I do not have a bottomless pit of money (who does?), and this very simple rule ensures that I put the odds in my favour when I enter a trade.

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