Buy Weakness

Buy Weakness

A proactive trading strategy with which a trader takes profits by closing out of a short position or buying into a long position when the price of the asset being traded is still falling but is expected to reverse and move against the trader. Opposite of "selling into strength".

Notes:

For example, say a trader believes that ABC stock will fall below $5.00 to $4.50 before rising above $5.00. Therefore, the trader would buy into the weakening stock price at a price below $5.00 and wait until the falling trend reverses and the price rises before selling and taking a profit. Conversely, to buy weakness, a short seller may close out his or her position by buying into a falling stock with the anticipation that the stock price will soon reverse and start to rise.

Many traders will wait for confirmation of a change in price movement before reacting. However, by the time a reversal is confirmed, it may be too late and the trader may end up losing. Thus, by trading against the prevailing trend in the anticipation that it will soon reverse, the trader allows him- or herself a greater margin of safety. As the saying goes, "missed money is better than lost money".

See also: Bollinger Band, Continuation Pattern, Fade, Long (or Long Position), Profit Taking, Reversal, Short (or Short Position), Technical Analysis, Trend, Trend Analysis