When the market is falling sharply like it is today the natural question for traders and investors is "when do I start doing some buying?" According to conventional wisdom we are supposed to "buy low and sell high" so when stocks are going lower we should be putting on our buying hats and get busy.
Great opportunities are created in ugly market pullbacks like this but the biggest mistake that most individual investors make is that they are in too big of rush to buy. They feel that they have to buy into the teeth of the decline because they may actually catch the exact low.
Averaging down too big and too fast wipes out more traders and investors than anything else. The folks that do this convince them that there is nothing wrong with their favorite stock so they keep buying more and more and then panic when the bounce doesn't come.
The easiest way to avoid this problem is to wait to buy until a stock starts to uptick. You will not buy the exactly low but so what? The goal is to catch a lasting bounce or trend, not to be the genius that predicted the exact low. If you wait for some upticks to occur, one of the benefits is that it creates a natural stop out point at the recent low.
Far too many market players focus on predictions that are just hopeful thinking rather than reacting to actual price action. It is usually far better to arrive late at the party rather than to keep on trying to guess when it might get started, if at all.
Ego holds many people back from the approach. They want to be the first to catch a turn. They don't like the idea being followers, but in the market it is managing risk that is paramount and you do that by reacting to price action as it develops rather than trying to guess what the future might hold.
This market is starting to look washed out at the moment and there is some bounce but it is still too early to rush in and load up. I've made a few nibbles of some favorites but it is very small and very incremental. I'll be putting some major capital to work eventually but better late than early.