What is Chasing a Stock?

If you follow Twitter, Stocktwits, or any other A.D.D. driven social media, you’ve probably seen ‘I own this, but don’t chase here’. What a kick in the balls eh? You feel like a total idiot because you didn’t catch the stock while this other genius brags about the money he’s printing. Suddenly, you tweet back “I own it too!”. What the hell just happened? You knew the stock was extended, the guy even told you not to chase…but your fingers took over and entered a buy order.

Lately, quite a few stocks have had significant moves past their reasonable buy point. When the market is in an uptrend and breadth is supporting the move, your cat can look like a super trader. When market breadth begins to deteriorate, that’s when the bad habits will come back to bite you. In an effort to help those who can’t or won’t recognize an overbought stock, below are a few examples of reasonable entry points versus chasing.

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The next time you see some guy bragging about his latest big winner follow these steps:

1. Take a deep breath.
2. Bring up the chart.
3. Ask yourself “Is there a better entry in the past 5 days?” If no, you’re good to go, otherwise you should just let it go.

The best way to avoid chasing stocks is to refine your skills in identifying the best entry point. If your using a tool like Telechart apply a relative strength scan (C / C252) to all common stocks and sort from highest to lowest. This will give you a list of high flyers to browse and identify the lowest risk entry point. You can even do it across different time periods using the Custom Date Sort function.

Increasing confidence in your own ability will make you less likely to chase that next tweet. Good Luck.

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