RE: Where is the bottom?15 Oct 2020 18:38
Hedged, I think this is where a lot of people go wrong. Its immaterial whether or not the individual is "confident" a support level will hold (in this example 294p). It either will or it won't.
What a Chartist does is to wait for a support level to arrive and then make a decision whether to buy on it. The reason you wait is because if it carries on falling then you get out at say, 290p because the market is telling you, you have made the wrong decision in expecting it to go up from 294p. That is a 50/50 bet but some indicators in conjunction with that pretty crude support/resistance chart can also support (or contradict) the original buy decision. If that indicator has a good ratio of being right it starts to push the odds now maybe 70-30 in the buyers favour. You may have a 3rd indicator and if they all line up you may feel very confident that the chances of a reversal are in place and you will profit very well from the trade.
Even however, if you just use the chart and nothing else and its 50/50 at least if you are wrong it costs you very little of your capital when you exit at 290p
Traders must never think they can "forecast" what's going to happen, what they should always do, with every trade, is have a valid reason for buying where they do (whatever methodology they use), have an exit price if they are wrong and a target price to sell if they are right so they can look at how much they potentially might lose against their expected gain.
The it becomes clear if the risk reward is worth the trade. All of these target prices, the buy and the 2 exits, must have some reasoning behind them. Not just arbitrary , "finger in the air" guesses.