Captured from Ooi Teik Bee's comment on "Stock Pick Challenge - [LBS-WA] by OTB":

Buy high sell higher rule 

I just want to explain it in TA way. 

Reason 1 - avoid buying down trending stock. 
You notice I will only select stock which is breaking new high i.e. breakout stock. I will never select stock which is breaking new low to avoid down trending stock. e.g. I said LBS-WA will hit our target once 0.525 is crossed convincingly. 

Reason 2 - avoid double losses. 
Normally. I will buy this stock in 2 batches. First batch, I will buy it at 0.49 and Second batch at 0.53. Once 0.525 is crossed, my first batch purchase is already in the money. It is safe to buy Second batch because the price is confirmed in up trending. The chance of losing money is slim. 
You will notice I will never buy Second batch if the price is lower than 0.49 e.g. 0.45. The reason is once the price is lower than 0.49 and assume I buy second batch at 0.45. Assume cut loss point is 0.39, in this case I will lose 2 batches of purchases if I cut loss at 0.39 i.e. double losses. 
This is called money management. 

Reason 3 - want fast moving stock and avoid waiting too long. 
Assume you are driving a BMW car, there is a traffic light turning Red in just 100 meters away. There is no reason to speed your car. It is more useful if you speed your car after this (Red) traffic light. 
In Technical Analysis chart, it is better for you to buy after the price crosses major resistant line. e.g. It is better to buy LBS-WA after the price crossed 0.525 so that the price can sky rocket up (slogan sky is the limit) and there is no resistance to cross after 0.525. You can see that the price moved up very fast after it crossed 0.525. 

In all aforesaid 3 examples, I will buy at a higher price than 0.49. I will never buy when the price is lower than 0.49. 

Buy high sell higher is the rule in Technical Analysis but not in FA. Hope it explains and every one can understand it. 

Thank you. 
Ooi

Posted by Ooi Teik Bee at Aug 9, 2013 12:32 AM