Top 5 Stock Entry Decisions: #3 - 52-Wk High
Because of people’s greed and fear, the stock market moves up and down in waves. No stock rises or falls to infinity; each had a soft ceiling that is not impossible, but difficult, to break.
This wavelike behavior inherently gives an advantage to the trader that does not fear investing in a dip, and that controls his greed by selling in a spike.
The 52-week high is a good tool in understanding if the stock is in a dip or spike. A stock reaching new 52-week highs is generally near the peak of emotional greed and has a high likelihood of correcting downwards, while a stock trading at only 50% of its 52-week high has a high likelihood of correcting upwards.
Keep in mind that the 52-week high is an important tool, however it should always be used in conjunction with fundamental factors. Never invest in an overvalued company, even if it is in a dip.
As stated in my book, “Control your own emotions and profit from those who cannot.”
More to come over the next few days….