Buy Low Sell High

In my previous posting, the wise man said "Investor should buy low and sell high"

To buy low and sell high is what everybody wanted, but "how low is low ?"

To answer this question one has to go back to what this wise man has said in the begining :

"Buying in a downtrend you must resist".

Looking at the Microsoft and AIG charts above, one will have to agree that as long as there is no sign that the trend has reversed, it is not advisable to try to catch the bottom. For those who has bought AIG at $1.00 after it has dropped 98% from $72.00, at Thursday closing price of 35 cents, 65% of the money has gone. In extreme bull or bear market, never ask how high is high and how low is low. As the wise man said "The trend is your friend, follow it to the end."

The next question is "How do we know whether the trend has reversed".

Dow's Theory defines an uptrend by,"when the index set a new high that is higher than the previous high and a low that is higher than the previous low." Similarly a downtrend is defined by "A new low that is lower than its previous low and a high that is lower than its previous high."

Based on what he has said, the wise man is most likely a fundamentalist in his investment. A chart technician on the other hand try to predict the chart behaviour, the turning points and try to catch the market top and bottom to maximize the return instead of a safe and reasonable return of the fundamentalist. However, a wrong interpretation of chart can be very very costly despite following what the wise man said, "Cut your losses quickly is advised". My partner always said "chart reading is an art."