Don’t try to catch a falling knife or a falling stock once it has started its rapid decline. There are retracements along the way that can provide entry points if you cannot resist and have some risk capital to use. Remember, the further they fall, the greater the risk in the trade due to retracements and recovery.
The news is usually the culprit for “Falling Knife” events. Once the news has run its course, the market will adjust and then the serious traders come back to the market.
News events that cause large movements whether stock related or industry related or overall market related are perfect times to
* Research for stocks on sale
* Review education
* Trade a different market such as Futures or Forex
* Take time to review your trading business plan
Keeping your trading plan in mind, use your time and money wisely.
Technical analysis is extremely helpful once the fall has stopped and retracement has started. Fibonacci Support and Resistance lines work beautifully as do moving averages and Bollinger Bands.
Rob Roy, the founder of WealthBuildersHQ, is a Master of technical analysis and provides education that can be extremely useful for the “Falling Knife” moment and all of the other moments in the different financial markets, including when you trade eminis.
The chart is a roadmap of where a stock or Futures instrument or Forex pair have been. Understanding how to read the signals of these charts can greatly improve trading skills.
After all, perfecting a good entry is critical for any trade. Being able to capture that perfect entry requires good technical chart reading skills.
Falling Knives can hurt if you try to catch them incorrectly.