Anonymous
Why is it discouraged to "catch a falling knife"?
This assumes that the stock has good fundamentals (good player in the market, huge business for growth and profitability...)
Supposing you have sufficient capital for investing into stocks, and this stock is currently in a downtrend, why do people discourage buying in as prices go down?
In fact, this seems to be DCA, even in a downtrend.
If you are able to stomach the paper loss while downtrend is still in play, is this not a good technique to get the stock at good prices?
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I normally wont describe a good fundamental company with very wide moat "catch a falling knife"
BABA been DCA-ing down. Because is a great company, like fb is a great company lawsuit in 2018, i am DCA-ing down. They will eventually bounce back.
I will normally describe "catching falling knife" for horrible companies. Like SIA, Singtel etc. Long term down trend/ stagnent with some bad news it fell sharply. Because there is high probablilty wont go back to where it used to be.
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This refers to trading/trend following which is what I do. If the stock/market is in a confirmed downtrend, I would typically taking a bearish bias and short it/stay away until the trend has reversed into a clear uptrend.
Sure, you can average down like what you suggested, that is fine too, it really depends on your strategy. For traders like me we enter and exit based on certain criteria’s, if it hits our stop loss, boom we just get out. But for investing sure you can buy and hold