| |
| |
|
Investing Information |
|
|
|
Overbought/Oversold
Has your broker ever told you that a stock is "overbought" or "oversold"? He probably went on the explain that the stock you own (I hope you didn't) had gone down so far that it now was oversold and due for a rally. He might also have encouraged you to buy an equal amount to "dollar cost average" your position so that when ("if"- he didn't say that, I did)) it did go back up you could "get out even". He might even say you "could make a fortune". Waiting to get out even is the great trap that is preached by all the big Maul Street brokerage houses. What is even worse is most brokers and financial planners believe it. What happened to all those beautiful company reports sent to you telling how wonderful this stock was before you bought it. Maybe you better read those back to him. Brokerage companies do not want you to sell. When any stock is going either up or down for any extended period of time it does seem logical that it can become overbought or oversold, but let's examine what that means to your ownership. The reason a stock started up is because the underlying profit projection is going to produce substantial profits that will make the stock more valuable. At some point it is going to reach a true valuation and should stop advancing. What usually happens is it goes beyond true valuation to what could be called overbought (over valued) and then starts down. You may be encouraged to buy when a particular stock becomes "hot" and everyone is buying it. When all the sheep are buying you want to be a seller or you will also be sheared. Suppose all this was in anticipation of future profits that did not materialize? Then the rise would turn over and head down. This would be more likely for a smaller company than one of the giants, but giants have been toppled. If any fraud was involved the company might even go bankrupt. Think back to WorldCom that went to the moon and was finally flushed down the sewer. Did it EVER while it was tanking become oversold for a rally? Not hardly because there was no value. Unless you truly understand how to trade overbought and oversold situations the best thing to do is keep your hands in your pockets. Beauty is in the eye of the beholder. Overbought and oversold is in the mind of the buyer/seller. About The Author Copyright 2004 All rights reserved. Albert W. Thomas Former 17 year exchange member, floor trader and brokerage company owner. F*R*E*E investment letter www.mutualfundmagic.com. Author of best seller "IF IT DOESN'T GO UP, DON'T BUY IT!"
MORE RESOURCES:
Google News |
|
|
|
RELATED ARTICLES
Reading Between The Lines In Annual Proxy Statements Upper Saddle River, N.J. Love The Thrill of Risk? Invest in an Annuity! With the stock market in steep decline, people are looking for safe places to invest their savings. Many banks and investment companies are pushing annuities. Trend Following Trend following also called momentum trading is the simplest and safest method of stock market investing. It puts you in stocks and mutual funds that are going up and gets you out when they start down. Beta Factors: How They Can Be Used In The Current Situation Ever since the turn of the century, world stock markets have been very volatile. In other words there have been significant movements (up or down) in share prices. Just Say NO to Your Stock Broker We have all heard that slogan that started back when Nancy Reagan was in Washington. It was all about drugs. For Entrepreneurs A SIMPLE Plan May Be Best Q: I own a small decorating business and I'll be the first to admit that I don't know anything about taxes or retirement plans. I'd like to set up a 401(k) or an IRA or some other kind of retirement plan for me and my three employees. Going Against the Conventional Investment Wisdom First of all, I want to give everyone the disclaimer that I am not a registered financial advisor and I don't play one on TV. Therefore, I cannot legally provide financial advice and I will not do so. Stocks: Reduce Risk Yet Maximize Profits It is important to note that every smart investor wants to minimize risk while maximizing profit potential. Yet conventional investment theory tells us that in order to increase returns, you have to increase risk. Investing and Understanding What You Buy "There is nothing more frightful than ignorance in action!"Johann Wolfgang von Goethe (1749 - 1832)I don't really know how cars actually work. Not really! I know how to drive them, but if you asked me how they work, I would not really know how to definitely explain it. A Gadfly On A Dinosaurs Butt, Or The Hood-winking Of The American Investor Have you ever noticed how some words in the English language are so perfectly named for what they describe? And how some words seem to be, I guess you could say, backwards? For instance, the word sunflower! How wonderfully aptly named is the sunflower, that beautiful yellow flower that follows the sun from sunrise to sunset.And then there are those words in the English language where there meaning appears to be backward, so to speak - like parkway and driveway. Day Traders and Swing Traders and Options? Maybe! Typical day traders and swing traders look for stocks with quick,short term movements, and are not in the business of holdingpositions overnight let alone a week or two. So the use ofoptions has not usually been a component of their tradingstrategies. Emotions: A Traders Worst Enemy; Get Rid of Fear and Greed - Youll be Glad You Did You hear it over and over and over in books, forums, and chatrooms. Fear and greed, fear and greed, fear and greed. Choosing A Financial Advisor With so many financial advisors trying to woo you with their qualifications and experience, how do find one you can trust your finances with? 'Trust' is the keyword here, as you will depend on him/her for your future financial security. A good financial advisor can help you determine which investments are best suited for you, based on your financial goals. 401(k) Plans I've been in and interested in the stock market so long (one year shy of forty years) I can remember when the mutual fund pages in my home town paper were just one page! Now it looks like there are more mutual funds then there are stocks listed on the New York stock exchange.I wonder how many billions of investor dollars are supporting these funds. The Economys Greatest Depression Downturn Ever Is Now Just A Few Years Away What really controls the economy? Forget interest rates, forget deficits, forget the Fed, forget IRAQ, forget which party is in office. In fact, forget just about everything that permeates the news. Justify Social Security ... Dont Save for Retirement It is a common question when investors review their retirement plan-should we include social security benefits into our retirement income projections?It seems the closer an investor is to retirement, the more likely he/she will include social security benefits into the analysis. Younger investors, however, may feel compelled to omit such benefits. The Basics of Tax-Free UK Financial Spread Betting Financial Spread Betting (or Trading) offers a tax free method of speculating on financial markets.Quite simply, if you think a particular index, share, commodity, currency or sector will rise, you place an UP bet. Annuity Help Many people today are looking for annuity help. The biggest challenge seems to be that most of the help is biased. Makin The Sauce Let's face it, you're on a roll. After getting down to your attorney's office to sign the new Living Trust and then diligently tracking down your assets to fund the trust, you should be congratulated. The Difference Between Investing and Trading Investing and Trading are not the same thing. The returns you seek, the length of time it takes to achieve those returns, the amount of risk one is prepared to take, and the commitment one can make to monitor the investments dictate the strategy of whether to invest or trade.
|
