Mastering the Art of Knife Catching

This column was originally published on RealMoney on Nov. 17 at 12:11 p.m. EST. It's being republished as a bonus for TheStreet.com readers.

Bottom-fishing attracts a wide following, but catching falling knives requires considerable discipline and a little good luck. More often, plummeting stocks deceive traders into thinking they're jumping into bargains, rather than flaming meteorites. But with preparation and a careful eye, most traders can master this classic market pastime.

Chasing lows is popular sport because growth potential peaks at the start of a new uptrend. So getting in right at a bottom can incur the highest profit for any trade. But this is a dangerous game, so weigh the evidence at your disposal before taking the leap, and once you're in the trade, exercise risk management to ensure a safe exit, if proven wrong.

Bottom entry requires a strong stomach. Negative sentiment infects these turning points, even when your signals are screaming about bull-side reversals. ...