Hey It’s Sasha Evdakov and welcome to Tradersfly where I share with you some ideas about investing the stock market and also trading.
Now in this week's episode what I'd like to do is share with you the concept of Bottom Fishing. First off what is bottom fishing? Should you do it? Is it important to do it? Does it matter if you do it? when is the right time to do it? So it's all these questions are kind of running through your mind that's what I'm going to try and guide you on in today's video lesson.
First off what is bottom fishing? Bottom fishing is the act of trying to find the bottom of a stock and this is typically done with stocks that used to be at a higher price so let's say a stock was at $100 and now it's down at $10 if you're trying to bottom the fish stock you’re trying to catch the bottom of it in order for purchasing it so that way it can continue moving higher or to the upside. Meaning in the end you're trying to get a really good deal on the stock or get a lowest price or get a really good bargain on that stock.
Typically Bottom Fishing is a really bad idea unless you really understand what you're doing and what's going on and this is because novice investors or a novice traders people who are just starting out try to bottom fish and catch that low point of a stock and that stock just continues to head lower or never get out of that lower levels so just typically stays there is for years and years at a time.
Now I think right now we're coming into an interesting time in the stock market having a selloff over the last couple of weeks and also showing some weakness over the last few months. You know it starts to become attractive especially on certain stock that used to be at a very high price and now that they're much lower they start to get attractive especially if they've been selling off for multiple years but the problem with stocks that have been selling off for multiple years and if you're trying to catch that bottom hoping that they'll go back up to the upside is that there's going to be a lot of overhead supplies there’s going to be a lot of people weigh up at higher prices just hoping and praying to get out at a higher price.
As that stock starts coming back up all those other people that are above you are going to sell their shares in order to just minimize their losses so it's kind of one of the main disadvantages when it comes to bottom fishing but it doesn’t mean that you can't do it properly.
The better approach to bottom fishing is to watch for that stock level to digest to consolidate for a good amount of time and then watch for higher highs and higher lows so as you start seeing that trend line moving up off of that solid bounce maybe a monthly chart or a quarterly chart or a yearly chart then you'll get to see where is the true bottom and you probably won't catch it at the lowest point getting it at you know the best deal possible in the stock market but if you can get it somewhere within that five to ten percent range where it is the bottom it might be a good longer-term investment and that's really where you want to bottom fish in those scenarios it’s if you're looking for something for the long term.
If you're looking for something maybe two or three years out maybe five or six years out it might be a good idea to bottom fish because you're planning to hold it for a good amount of time and you're catching that stock or that equity at a very low price alright so before I share with you some examples about bottom fishing on the charts and what you could be thinking about while bottom fishing on the charts I do want to give you a disclaimer that I personally don't like to bottom fish that much unless I'm planning to hold that stock for a longer period of time.
That is because I want high valuable companies I want to stocks that are continuing to make higher highs rather than trying to find a cheaper price. I want stocks continuing to break out to higher prices and that's my personal strategy that's my goal however there are times where I may start nibbling a few shares or you know trading and putting on the light positions at a low price point for stocks or equities or for my retirement fund where stocks are at a low price.
Let's take a look at a few companies and take a look at bottom fishing within these charts so take a look at this position on FCX, if you take a look at this chart this chart shows you that this company was at a very high price in the past and now it's coming into another's support region or level. Now the question is it going to bounce at this level or is it going to continue lower because sometimes these stocks continue moving lower and lower and never get back up to higher prices and that's one of the dangers when it comes to bottom fishing.
Here’s POTASH another very powerful company that used to be very high-priced and now as you can see moving lower and still at a low point.
Here is Groupon which is relatively a recent IPO and you can see that this stock had a much higher price in the past and now it's hovering under the $10 region so could you consider that this stock would be a value play for the future if you really believe in the company it technically could but for me from my standpoint it isn't because it's staying low and typically stocks that are cheap are cheap for a reason and you have to be really careful with this because some of these companies will never get back up to higher prices.
For example take a look at AMD right here where this stock has been under that $10 region for multiple years and can you imagine how many people attempted to catch the bottom in this one it's going to take a lot more time and energy and a lot of great news catalyst to get this stock out of that Gut or out of these low point but you can see that it was making very good high prices in the past however these previous high prices do not determine future high prices so always be mindful and be careful.
To summarize it up for you bottom fishing is really about trying to find a value or getting very cheap price on a stock or equity and you have to be mindful of where that value is if you're talking about Proctor and Gamble, Colgate or Pepsi or McDonald's which sold off but safe for a year or five years then chances are those are the companies that I would want invest on to try and find a bottom because those are stable companies those are companies that I project will do very well into the future those are typically safer companies.
Think of Walmart now they are slow moving but if they had a massive selloff those would be the companies that you would want to bottom fish in but there's always risk regardless of how big the company is think about GM which actually even got delisted off at the stock market.
Be mindful if you’re trying to bottom fish look for the longer term play and actually try and find it when there's a bounce off of a support line.
Those are my tips regarding bottom fishing if you're looking for evaluation place especially in a market that's selling off very heavily start nibbling a few shares here and there but don't invest everything that you have because the market can continue to move lower to find a stable point.
I hope this video was helpful and insightful regarding Bottom Fishing or finding great value in a stock play. Always be mindful of what position you're taking and why you were taking it. Thanks again for joining me if you enjoyed this video and if you want to see more great videos like this one and get some of my free training videos and mini courses then go ahead click this link right up here and when you get there enter your name and email address I'll be sure to send you that material as it gets released but if you want to hang out on YouTube check out some of the other free videos and trainings that I have click one of the thumbnails right below this video and we’ll continue learning together.
Thanks again I'm Sasha Evdakov and remember to do what you love contribute to others but most importantly live life abundantly.