you start with 10k per share. take a share and wait till it drop 20% under its share value that year then you buy it for 5k. if it drop another 15% then you buy for 3k and when it drop another 10% you get out. is there a system that is simelar as this or is it a bad system. maybe you can change the k's and the %. i am just wondering and like to year from the system traders.
lets say i wait till gnd, mtn, and sol (example) fall 15% - 20% then i do my first buy. then it can drop another 10% - 15% for my second buy. over 2 months i think i can make money. remember all depends on the value of the share when they sell everything out. not the market share price.
Cope, what everyone is saying is that you are basing your decision to buy on exactly the opposite of what technical analysis would normally dictate. Using TA one looks for indications of strength to buy into and you are wanting to do the opposite: you are waiting for an indication of weakness, and quite a scary one (20% drop in share price!) to decide to buy. Then, when the share gets even weaker, you want to buy even more. You should buy when a share price goes up. Someone recently wrote on the forum of using a 52 week high (or 26 week or 39 week) as one of his buy indicators, which is good. Like Simon has often advised: buy high, sell higher. You need to change your thinking around.
Cope... I follow a similar system to what you are referring to. "buy low" ... buy even more when the price drops lower. This system works well for me. I must however admit that I would only follow this strategy on the Bigger Companies eg eg. Sasol, Anglos etc.
its a perfectly viable strategy called scaling down - it is used by many investors who are not comfortable that they are picking up their stocks at the lowest price. NB, it is an investment strategy, not a trading strategy - there aren't any trading strategies that I am aware of that a) advocate picking up falling stocks and b) that re-inforce losing positions.
Are you describing a buy-into-the-dip scenario? Your system would have worked from October to March this year. We were lucky to get the right arm up - a V shaped recovery. The right arm could have stayed horizontal after March and then you would have either stopped out or have been sitting on a loss. The best way to buy into a proper dip is to wait for a moving averages to point up again and then to buy.
Nassim Taleb has an interesting example in "Black Swan" about the superstar fund manager who bought into dips and pounded it. The moment a PROPER black swan came along he was out of the corner office and back to selling cars.