Events such as
where a sequence of AIM buys occurs and draws down cash reserves to zero prior to further declines can be alleviated with a bottom fishing style.
If we ignore the first four (three sells, one buy) trades in the above chart and focus on the next 6 buys we see that AIM would have burned all of cash before the lowest low, which in turn severely impacted overall results.
If you take a trade timing type route then you might either use a 'arrive late, leave early' style and look to join a trend once a clear upward trend is evident and take profits as that trend continues, or alternatively you can bottom-fish and attempt to place many sequential buy orders all at the same time near to the bottom price level (and/or similarly look to sell many sequential sells orders collectively near the top).
You'll generally trade in and out more with such a bottom/top fishing style, accepting relatively small losses against individual positions, but equally you may avoid larger amounts of losses (or smaller gains) should the prevailing trend continue.
For example in the above chart the 6 buy trades occur around an average amount somewhere between 150 and 250 price level and result in all of cash being utilised too early, whereas with bottom fishing you might have bought all 6 at a much closer price to that of the (approx) 50 low price.
Using those 6 buy trades as an example and assuming $1000 trade size amounts, $15 trade cost and 5% ($50) stop loss then on the first false bottom buy we invest $1000 and perhaps the next (or even same) day sell out again at a total cost of $80 (two $15 trade fees and a 5% worse price ($50 loss)). The next buy, being two sequential buys ($2000) incurs a $130 cost, the third ($3000) a $180 cost, the 4th a $230 cost, the 5th a $280 cost before perhaps the 6th turns out to be at or around the bottom price level.
So bottom-fishing doesn't come cheap. In total in the previous example we would have endured a $2340 cost/loss against the $6000 sum (6 buys) in order to get all 6 in at or around the bottom price level. Equally however instead of perhaps an average price of 200 against $6000 invested (comparable to 30 stocks) we'd instead have perhaps $3600 invested at around a 50 price (comparable to 72 stocks).
The other benefit of the bottom-fish in this context is that going forward the conventional style would be deeply out of the money, awaiting a substantial recovery before any selling would resume, whilst the bottom-fish style would be better placed to take advantage of any price rebounds.
A long winded post I know, but perhaps one that might help some preserve their cash reserves in view of current market characteristics.
Good luck with your fishing.
where a sequence of AIM buys occurs and draws down cash reserves to zero prior to further declines can be alleviated with a bottom fishing style.
If we ignore the first four (three sells, one buy) trades in the above chart and focus on the next 6 buys we see that AIM would have burned all of cash before the lowest low, which in turn severely impacted overall results.
If you take a trade timing type route then you might either use a 'arrive late, leave early' style and look to join a trend once a clear upward trend is evident and take profits as that trend continues, or alternatively you can bottom-fish and attempt to place many sequential buy orders all at the same time near to the bottom price level (and/or similarly look to sell many sequential sells orders collectively near the top).
You'll generally trade in and out more with such a bottom/top fishing style, accepting relatively small losses against individual positions, but equally you may avoid larger amounts of losses (or smaller gains) should the prevailing trend continue.
For example in the above chart the 6 buy trades occur around an average amount somewhere between 150 and 250 price level and result in all of cash being utilised too early, whereas with bottom fishing you might have bought all 6 at a much closer price to that of the (approx) 50 low price.
Using those 6 buy trades as an example and assuming $1000 trade size amounts, $15 trade cost and 5% ($50) stop loss then on the first false bottom buy we invest $1000 and perhaps the next (or even same) day sell out again at a total cost of $80 (two $15 trade fees and a 5% worse price ($50 loss)). The next buy, being two sequential buys ($2000) incurs a $130 cost, the third ($3000) a $180 cost, the 4th a $230 cost, the 5th a $280 cost before perhaps the 6th turns out to be at or around the bottom price level.
So bottom-fishing doesn't come cheap. In total in the previous example we would have endured a $2340 cost/loss against the $6000 sum (6 buys) in order to get all 6 in at or around the bottom price level. Equally however instead of perhaps an average price of 200 against $6000 invested (comparable to 30 stocks) we'd instead have perhaps $3600 invested at around a 50 price (comparable to 72 stocks).
The other benefit of the bottom-fish in this context is that going forward the conventional style would be deeply out of the money, awaiting a substantial recovery before any selling would resume, whilst the bottom-fish style would be better placed to take advantage of any price rebounds.
A long winded post I know, but perhaps one that might help some preserve their cash reserves in view of current market characteristics.
Good luck with your fishing.
Stocks/Bonds/Managed Futures
Join the InvestorsHub Community
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
