Ask Colin

I have trouble buying new highs when a stock is rising strongly, can you help?

The detailed question was:

Have been following your system via BWTS for a few years now and have encountered a recent problem. 

When I look at increasing my position in a stock or buying into an established trend I have hesitated on a quite few occasions over the last few months. 

I have read Dr Elders book ‘The new sell & sell short’ and the phrase ‘greater fool than thou’ comes to mind when looking at the price chart to see that the prospective stock is far above it’s 26EMA. 

I also look at the number of weekly up bars and get the feeling that this cannot continue even though there in no sign of trend reversal. Mainly it’s the former.  

I wonder if I am getting confused by studying different trading/investing systems but then again it’s all technical analysis. Your BWTS book does not seem to consider the moving average just the stock making a new high [along with other things].

 

I see from your question that you are on the journey I described in my talk to the AIA on 27 August 2010 – “Make Better Investment Decisions’ – access it on the Presentations page on the members website.

You are at a typical early stage where you are:

  1. Trying to simply adopt my investment plan. That will not work for you – something I never tire of trying to explain. You and I are different. So my plan suits who I am. Your plan must suit who you are. I can’t tell you what your plan should be. You have to work it out for yourself. This is vital, because it is the process of thinking it through that is so valuable in developing deep understanding and having a plan you will stick to under pressure. That is the good news. The bad news is that it will take  years of hard thought and it is never completely finished because things could change around you. Also  you will change in the process of the thinking and gaining greater experience.

  2. Reading lots of different approaches. This is good. But the process is one in which the more you read the more confused it all seems to get. That is natural. Everyone goes through it. You have to keep working at it – thinking, meditation, ruminating on the problems and eventually it will sort itself out. There is no quick solution and nobody can help you with it – you just have to make the journey.

  3. You seem unclear on the difference between investing and trading. I am an investor and Alex Elder is a trader. There are some overlaps in money management, timing and management of investments/trades. But way before that, they are totally different ways to make money in the markets. I talk about this a lot, so see some of my presentations. I will also be talking about it in Perth in the next month, so watch for those presentations. Investing is buying part ownership of a business to secure an income stream and capital growth over time. Trading is exploiting changes in price. Investing should provide better returns because of the enormous power of reinvesting dividends.

As for your question on buying new highs, there is no right or wrong answer, so I cannot give you one. It depends a great deal on:

  1. Whether you are a trader or an investor

  2. What your trading or investing plan is

  3. What you are trying to do in the trade or investment

  4. What your risk management and trade/investment management strategies are

  5. And much more

You will never find a “right” answer, but you should work towards thinking out what works for you in the context of every other part of your trading or investing plan. In many, many ways, it isn’t the answer you settle on that is important, it is the process of reaching that point that is the key to growth as a trader or investor.  

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