I am sure many of use have had experience buying into a share at the wrong time. (E.g. Falling knife or bull trap) In such case, we can actually utilise volatility in the markets to buy in at separate intervals to curb losses. In this post, we will go through a few effective methods to detect when to buy back shares and when to sell?

Disclaimer: Not exploring a short position due to high borrowing costs in SGX

Allow me to show you what does an actual long term downtrend look like. See below

A Bear run situation on a weekly candlestick chart looks like this. The price of the shares fall almost 50% from July 2018 to Sept 2019. However in the chart, it clearly showed some recovery or short coverings in some weeks. That is when you can leverage on volatility to cover your own losses.

1. Knowing The Share Counter Well

When you have bought into a wrong share counter, do not just exit immediately after price depreciated. Do some homework to find out upcoming events such as financial reporting, expansion plans, business development, market research and lastly, empirical checks on the share counter.

Dates to look out for for a potential spike in share price
– Dividend (Cum-Dividend, Ex-Dividend, Pay date)
– Annual General Meeting
– Financial report release date

These dates are potentially dates which “Shortist” (short positions) also look out for to close their short position thus causing a release of falling price pressures. As such, many shortist might “pump and dump” a few days before the announcements to grab a quick buck before returning to short the stock.

This shows that buying a share at a wrong timing does not mean that you will not be able to turn the situation around. Learn to make small losses if you do not think that entry is a wise one after the fact. Re-enter at a suitable price and sell at a suitable profit and wait for the next opportunity.

2. Support lines

Whether the stock price is going to continue falling, we must always take into account support lines. Click here to find out more about support/resistance lines. When a price hits a support line, there will usually be quite a bit of inertia to cross it, depending on the thickness of the support line.

This will also be a good time for re-entry to “pump and dump” and recover some losses. Below is a rough example for your reference.

Understanding charts will help us understand why prices does not always follow logical trends. Click here for more info on Technical Analysis.

3. Calling it quits

Any veteran investor would admit that they have once made wrong decisions in their trading career. After a few rebounds and recovering a few percentage, my recommendation is to sell the stock even if it means a small realised loss. This small loss will go a long way if you are willing to admit to your errors or judgement. Furthermore, there will always be re-entry points for all share counters.

All charts are screenshot from Investingnote.com