I'm not too sure if this has already been posted before, I did do a search, but got no hits.
Anyway I thought I'd add this as a sort of a continuation to Tech's and Boggo's fantastic contribution to the 'Breakout Thread'
So what's Bullish Bias? And how does one keep it in check when trading? Or do we need to keep it in check?
It's an older technique of charting, something I learnt in the days when we use to draw charts by hand. Price scales and time periods were usually left out on these charts, and they would be used as a training aid to traders.
Nowdays most trading software will let you invert your charts. If not then you can save the chart in say Paintbrush and invert it there for study.
We all know that cutting losses is important. We also know that we want to let our profits run. We also want to catch the next big trend and ride it all the way to the top. Todays 'Rough Diamond' tomorrows 'Superstock'. We all want that don't we? Is this type of trading possible? I do know people who have, not many mind you, but they are out there. What would be the odds of one person buying in at 0.05 cents and have the same person still holding at $50? I don't know, I've never done it. "Why haven't I done it?" I ask myself this from time to time. And for me the answer is in the contradiction of 'Cutting Losses' and 'Letting Profits Run'. This contradiction would be a mute point if all stocks travelled steadily from left to right climbing in a straight line. Of course they don't, and there are many dips and bumps along the way. The long term chart is a seductive thing. We open a 30 year chart of BHP, and all of us would like what we see.
So lets look at the first step of my contradiction 'Cutting Losses'. Why do we say this time and time again? I know I say it all the time. So how can a trader ride the big waves in the stockmarket? Afterall you have done the research, it is sound and fundamentally and technically perfect. So lets look at a chart and work out what we see.
In the chart below lets say you bought the stock at the bottom of the trend. Do you think it will continue? You might say that my position has developed nicely and I can give the stock a little more room to move and the uptrend should continue. Or are you thinking trend is over and your self presevation and your will to 'Survive' in the markets kicks in and it's time to take some profit? Or do you buy more if the price moves lower? Or do you do both, take some profit and then buy some more if the price softens? Lots of decisions to make. Which one is Right? Are they all right? I don't know, I'd like you to tell me before we move to the next stage.