Waiting for the bounce, or not?

One of the ways to catch a stock is by catching it as it falls on support.  When a stock hits support it is normally a good sign that it will go up.  But should you wait for the bounce or not?

It depends on your own personality.  There are advantages and disadvantages to waiting for the bounce. Let’s look at each of them.

1.       Waiting For The Bounce

If you wait for the bounce it is more conservative and the odds that the stock will move in your direction are greater because the move has already started.  Chances are that if you wait for the bounce you will be right more often than you would be if you didn’t, which is always a good thing.

The disadvantage is that you will have a smaller gain, if you are right because you already let the stock move up a little bit before you entered it.  That is not the only disadvantage; you also increase your risk. 

If you get in after the stock has bounced and have a stop below support it may pull back and you would take a larger loss then if you didn’t wait.

2.       Not Waiting for the bounce

The major advantage of not waiting for the bounce is your ability to have a very tight stop n the stock.  If the stock is at support you know if it breaks it will most likely keep going down, so you can set your stop to cut your losses if support breaks.

You also don’t miss the big move.  If the stock does make a big move, you can catch the whole move as opposed to just catching most of it.

The disadvantage is that you will be wrong a lot move by not waiting for the bounce.

So in the end it depends on the trader, and how much risk you want to take.

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