Ask Colin

When you make the original purchase of a stock after the breakout has occurred and then you are waiting for the correction ... do you continue to wait for a correction if the stock is trending strongly or do you abandon the stock?

The reason that I buy the breakout rather than waiting for a correction is that sometimes a stock just goes up and up without a correction and it is better to have some money on it than none at all.

So, if the stock continues to go straight up without a correction, I sit with my original position first of all. It then becomes a matter of judgement. There is enormous psychological pressure on us in this situation to buy more. However, I don't think this is a good idea generally, though there will always be exceptions in hindsight. Nothing goes straight up for very long. The longer it does, the greater the odds that the run has finished. It is really buying on the "greater fool" theory - that you pay a silly price for something in the hope that a greater fool will pay a higher price to you. That is not playing with the odds on your side.

Now, there is a difference in terminology here between my answer and your question. I am talking about something that goes straight up without a correction. However, you asked about trending strongly. It may be pedantic, but to me a trend is higher peaks and higher troughs. There cannot be a trend if there are no peaks and troughs. If there are peaks and troughs then the troughs will have been formed by a correction. In this case my second and third entry positions would have occurred.

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