Is It Logical to Buy More Shares of a Downtrending Stock?

Is it logical to buy more shares of a downtrending stock?

Data-oriented traders or investors may have varying answers. As long as you’re data-oriented in your decision-making, I’d say, “To each his own.” However, if your answer to that question is a yes and your basis is just pure guts and instinct, you may want to consider the parameters I use to arrive at an objective answer for that question.

As far as my proprietary methodology is concerned, I won’t buy more shares of a downtrending stock IF:

  1. The dominant range with the biggest volume and the highest number of trades is closer to the intraday low than the intraday high. This situation clearly shows low confidence in buying at higher price levels.
  2. There are more trading participants with a negative net amount than those with a positive net amount.
  3. There are more trading participants with a higher selling average than buying average.
  4. All trading participants’ selling average is higher than their buying average.
  5. There are more trading participants with a 100% selling than buying activity, especially if those with a 100% selling activity belong to the top 10 trading participants with the highest total traded value.

It may look like a lot, but I only need 7 to 10 seconds to make a go or no-go decision based on all these parameters. I have programmed my Dominant Range Index and Market Sentiment Index indicators. Their job is to show a bearish rating if most parameters favor the sellers and bullish if otherwise.

This answer is one of the lessons I’ll teach you on July 2, Saturday, in the online masterclass of The Evergreen Strategy in Trading and Investing in the Philippine Stock Market.

Register here.

Jaycee De Guzman

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