There is a very important saying in the stock market – ” Never chase the market , let the market come to you ” , we will learn below what does this means and why you should start following this right away.
So what happens if we start to blindly chase the market ? For example the stock price is sky rocketing and you buy thinking that it will rise more, but just as you buy the stock starts falling , has this ever happened to you ? If this has ever happened and the stock starts falling as soon as you buy or starts rising as soon as you sell then my friend you are chasing the market and you are buying the tops and selling the bottoms which can prove fatal in stock market , so how can you stop making this mistake ?
You can stop making this mistake by making sure that you buy and sell only near an area of value , so what is an area of value ? Area of value refers to any point in the chart of stock where the stock has formed a Support or Resistance zone , you should buy near a support and sell near a resistance that is the only correct way to trade the market , support resistance zones can be static horizontal levels , a trendline , a moving average or even a fibonacci level , all of these levels can act as an area of value for a stock where stock has the highest probability to reverse .
When you are chasing the market you are far away from any support level or zone and thus risking your trade to move a large distance against you to a support level , so that is why you should never chase a market , let the market come to a support level and if it shows signs of reversal in the form of candlestick patterns at the support you can buy at the support then , similarly when shorting a stock you should wait for a stock to come to you at a resistance , this way you are minimizing the chance of the trade going against you and thus increasing the probability of your success.
Below is an example of Shree Cement NSE chart –
Here you can see if you would have chased a bullish rally and would have bought around the date 3rd July at the price of 23000 , you would have bought at a resistance level and the nearest support area was around 20000 rs , thus you would have bought 300 rs away from the support , also in this example 23000 is a resistance and the stock reversed from there , so from this we learn that never chase the market , look for support resistance areas before making trading decisions , buy at support and sell/short at resistance , stop buying at resistance and selling at support.