If you are buying a stock with the expectation it will go up, you should, I think, also have an idea how much it is going to go up. Stocks don't just go continually up. The worst thing that can happen to you in the stock market is seeing a stock you just bought go down, and down, and down. I mean, it's not that bad a thing if you knew you were taking a chance and didn't put in too much money, so I'm not trying to scare you away from investing. But that chance you take is part of investing. At any rate, another painful thing that can happen to you in the stock market is when the stock you bought goes up, and nicely up, but you don't sell it, and it goes down again. When you're in that situation, it's painful, because, for one thing, you could have sold the stock for a nice profit, but now you can't any longer. At best, you are going to have to wait for another opportunity to sell for a profit, plus, you've still got the risk the stock will now go down, below where you bought it, and maybe never recover. Failing to sell at a top is a missed opportunity in more than one way. It bites.
But can you predict tops? Weeeeellllll ... why not?
I'm predicting AMBT is going to 3, and quick. Then it's going to slow down, and after that it's going go down, so I say sell it at 3, as soon as it gets there.
I don't know if I want to go into how I "know" AMBT is going to 3, or how I know it's not going much past 3, but the prediction is based on what's in this chart, so maybe you can absorb the logic of the prediction by looking at the chart.
There are a couple of interesting aspects to this prediction. One is, this is a real trading type situation. Based on this chart - with, in particular (in addition to the fact that the price is way down) its "pick" pattern at the end (see previous post) - I'm predicting a rapid advance, and soon. So here's a question: is trading like this, in, and soon, if it works out, out again, is that investing? I say it is. It's part of the market mechanism. There are reasons why the market is structured so as to make the trading opportunity possible.
There's this question, which is much discussed, which is how do you distinguish trading from investing. I'm proposing a definition of investing. Investing is where your investment has a larger purpose than just personal gain. I mean, personal gain is one reason you should invest, but it's a legitimate activity because it supports industry and innovation. Supporting industry and innovation is the market's basic function, so, if you are participating in the market, you are doing that. I mean, it's possible to destroy industry and innovation by, say, trading, but that would be a deliberate choice that would shape your activities. Not all trading is destructive. As I say, trading is a fundamental part of the way the market works. Without it, the market wouldn't work. If you practice trading with a deliberate intent to contribute to the market's basic function of supporting industry and innovation, you are an investor, and, also, you might prosper.
But there's another thing about investing - all investing. It's a form of gambling. When you make an investment you are doing what Warren Buffett calls "placing a bet". He always calls it that. So, if you're going into this, you have to go into it with a gambler's mind set. Well, I've tried to study what successful traders do. They talk about what they do, so I listen. I mean, these people say they're successful, and quite successful. They could be lying, but I don't think they actually are. Anyway, what they all say they do is use stops. So here's the thing: I don't know how to use stops. I haven't been able to figure it out. So, when I pick a stock, there's no stop. Stops are a mechanism for limiting losses. Using stops, after you place a bet, you can monitor it, and if you don't like the way it's going, you can change your mind, while your losses are still small. That possibility of taking back a bet is a feature of the market ... but it's tricky. It's also, I suspect, something that can be learned - something that can actually be used to good effect - a good thing to learn ... but, if you don't know how to do it, how to use stops, can you still trade? The system I'm using is like picking ripe fruit by eye. You don't know for sure that watermelon is ripe, but you try to guess based on how it looks. If you're careful, you have a decent chance of picking a tasty melon. Is that really how melon is spelled?
Maybe the thing to say is, you need to practice. If you place a lot of small bets, and see them through, you will get a feel for the market, or you might, and then you might be able to increase your bets. There's also paper trading, where you don't actually place bets, or you place pretend bets. You can use these blog posts as a kind of paper trading resource. For the updating version of this chart, which will tell you, in a few weeks, how my prediction worked out (and also for the prediction), read the previous post, or the next one.
My system tries to address a question: to what extent can we predict the future with only partial information? I could discuss additional information about this stock, but, in this instance, I won't. In this situation, I'm going with my feel for the dice. Can you feel them? In a few weeks we'll know what that feeling meant.
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