Bottom-Fishers and Knife-Catchers

Bottom-fishing can be tough, but I don't find it quite as tough as catching a falling knife. These are two very different approaches to trading and portfolio management. Traders who are trying to catch a falling knife are taking a shot on the long side in a stock that is falling very rapidly, usually in a short period of time -- a few hours to a few days. Often there is very stock-specific news which sets the knife in motion. The objective here is generally a short-term trade that seeks to profit from a snapback rally or at least a dead-cat bounce. 

Bottom-fishing is different. These stocks are generally -- and we have to speak in general terms since each stock is unique -- names that have been wallowing near their lows for some time. Sentiment is low, but when I bottom-fish, I also want to see volatility on the lower side. When volatility is high around a stock, then sentiment is varied, and there are still those with hope and many with despair. I want names where people just don't seem to care much anymore. And I want a variety of names, from the value side to growth that has lost its way. A few quality names from a sector or country that is far out of favor can fit the bill as well....258 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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