bottom pick and top pick two dangerous strategies

It can be very painful to bottom pick or top pick. Even though it is very dangerous there are still a large number of investors who try it.

When a stock is trending up it is more likely that the stock will keep heading up then start trending down. But the most investors seem to think the other way. For example, when oil went to $100 it was all over the net. You could read hundreds of blogs throughout the internet that said oil was too high and it is has to come down. People shorted it left and right. Well a couple months later oil was in the $140s.

People seem to overlook the fact that there is no level that a stock has to top out on. It is not necessarily that the stock hits the top of the graph you have it plotted on so it must go down. No, the stock will continue to go up until it stops.

This rule applies to down trending stocks. Trying to buy a down trending stock is like catching a falling knife, it’s not going to be fun. This can be true even if you think the company has a great long term perspective. There are a number of instances were companies that were thought of to be strong crashed and then went bankrupt shortly after.

Jessie Livermore was considered the best trader who ever lived and he believed that there was no level at which a stock was too low to short and no level at which a stock was too high to buy. He stood by that mentality by buying stocks when the market was going up and shorting stocks when the market was going down.

Basically it can be very risky to go against the trend of a given security. Stocks at a discount offer a high risk way of trading.

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