One general mistake for most people is that they tend to grasp the falling knife like they will grasp a round stick- surrounding your fingers on the knife.. Ouch!
The proper way is to line up the flat side (not the edge) of the falling knife so it is parallel to your palm; then you slap both of your palms together on to the blade. Obviously, you may get some minor cut which depended on how well your palms are parallel to the flat side of the blade, As in any human response to feeling a sting (pain from the knife cut), you should immediately let go of the knife by opening up your palms to avoid a deeper cut.
Market translation:
Instead of just buying blindly because the price of your favorite stocks are down to a level “you think” is attractive (grasping the knife with your fingers), you should look at the chart to see where the likely supports are in multiple time frames (such as monthly, weekly, daily, and hourly for swing trade). By paying attention to the popular techniques for recognizing support & resistance such as 50ma & 200ma, Bollinger bands, Keltner bands, or previous pivotal lows etc.; you are instinctively lining up your palms to the blade of the knife so to speak.
Knowing when to clap your palms together will require some timing devices; momentum indicators such as Stochastic, RSI, MACD, etc.may come in handy.
Of course, as in all risk taking endeavor, techniques from the study of technical analysis are only to help you increase your “confidence”; it doesn’t guarantee success. So it is absolutely important that you let go of the knife the moment you feel the sting; in other words, DUMP that loser of the stock if it kept doing down after your purchase WITHOUT hesitation!
Nevertheless, this is not for everyone. And PLEASE, do not try it at home! This is only for those who already cultured discipline from years of practice. If you don’t believe me, just look at all those fingers or hands lying on the floor at the marketplace. It is quite a bloody sight!
Good Hunting!
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Good introduction.
Dude, this market is a double sided ax with diamond blades. There is no catch, sell, horde cash. This is the only safe play.
Rhino,
Thanks for bringing up a good point. The shape of the knife is in the eye of the beholder. If you see a double-sided ax with diamond blades, obviously you should stay away from catching the ax.
However, at some point in the future, you will start to see a knife instead of an ax. By then, following the steps in catching the knife with your palms will be a good idea.
Good hunting!
I agree with Rhino. What’s the opportunity cost of cash right now? I’d say it’s pretty low. The trend in US stocks is down on many time frames.
There is probably still time to “Do the Hugh” in the US.
This is the time to be safe. The time to buy equities will come. You just need to have patience and the capital to buy near the bottom when that time comes.
Yogi,
You are absolutely right. If your interpretation of the multiple time frames is down, meaning you haven’t seen any support yet; it is not the time to try catching the falling knife.
Like I said, catching the falling knife is not for the fainted heart. You have to determine the “WHEN” based on your interpretation of the technical analysis and the market environment.
Btw, I didn’t say now is the time to buy; I’m only saying that for those who believe when the time is right to buy; don’t just grasp the knife; pay attention to the correct techniques in doing so.
Good hunting!