If you’re waiting for a stock to hit your desired entry, you need to pay attention to how it gets there.
A stock that drifts slowly toward your trigger is a totally different trade from one that quickly falls to it.
This is the EASIEST way to improve your trading.
Traders call buying a stock while it’s still dropping “catching a falling knife”.
The trick is to “catch it” without getting cut. And that takes a lot of skill.
But when a stock you’ve been patiently watching finally hits your number, it’s hard not to buy right away.
You set that entry price because it’s where you expect more buyers to show up. But until you see those buyers actually stepping in with real volume, you’re just guessing at the bottom.
And that’s exactly how you get your hand chopped off…
Buying the very bottom means you maximize your gains. But I promise you, it’s not worth it.
I made that mistake last week. Every loss is a lesson on how you could have or should have traded any particular stock.
This trade gave me a very useful reminder for how to trade a falling name.
Last week I bought Hyperliquid Strategies Inc. (NASDAQ: PURR) at my price without waiting for the rest of my plan, and I took a loss.
PURR closed at $12.85 on Friday, September 25.
On Monday, September 28, I wanted to buy PURR on a dip toward $12.50.
But I also wanted buyers to step in around $12.50 and make a higher low before I bought.
A higher low is a pullback that stops above the stock’s last low. The stock dips and bounces. Then it dips again and stops above the first low.
On Monday, PURR fell through $12.50.
Its low for the day was $11.93. For PURR to make a higher low, its next pullback had to stop above that price.
On Tuesday, September 29, PURR opened at $12.47, back near $12.50.
I bought at $12.35 in the first 30 minutes of trading.
I didn’t wait to see whether Monday’s low would hold.
The high of the day came in the first 5 minutes. PURR sold off from there.
I sold my whole position for a loss of $5,229.*
PURR closed Tuesday at $11.92, $0.01 under Monday’s low.
Tuesday’s low was lower than Monday’s, so PURR made a lower low. It never made a higher low on Tuesday. If I’d waited for one, I wouldn’t have bought.
I wait for a higher low because it tells me buyers have stepped in. When a stock pulls back and stops above its last low, buyers showed up at a higher price than they did the time before.
By the time a higher low forms, the stock is already above its low, so I pay more than the cheapest price. I’d rather be late than early.
The best traders use tools to help them execute winning trades.
Stay sharp,
Jack Kellogg
*Past performance does not indicate future results
