Trading the Trend – is it time to go long?

I’ve read before that you should never begin an article with a question, as it offers the reader a chance to say “no” and not read the article. But 1) I am not a journalist, and 2) this is a very relevant question for all of us. In fact, it’s a question I ask myself every day as stocks fall further. Certainly the risk/reward is much better when shorting at the start of the move. But does that mean we shouldn’t short lower down? Should we be buying? Well, volatility often increases as shares fall further. This is all to do with human psychology. When shares begin to fall, investors go through various phases. The phases are as follows: The “buy the dip” phaseThe “this is starting to worry me and I’m not going to add yet” phaseThe “wow, this is really tanking” phase, where investors begin to throw in the towelThe “I can’t take it anymore” phase, which is the capitulation stage The first stage has historically proven a good strategy over the long term. Quality stocks are often correlated (over the long term) with rising share prices. However, this builds a conditioning not only…