when to catch a falling knife!

A stock is compared to a falling knife when it is falling fast and non-stop.

If a not-so-famous small or midcap is falling, nobody pays any notice.

Everyone says "it is falling, so it must be a bad bet"

Consequently, those small and midcaps fall more and faster.

But if it is a Bharti or Satyam or Suzlon or Reliance or RNRL or Ranbaxy that is falling

the same statement changes dramatically!

The brand pull of these stocks is big enough to lure anyone!

Many tongues start coming out of their dens!

Many eyes start popping out of their sockets!

This is often a trap for traders.

Countertrend traders are lured to latch onto these stocks.

"It has never fallen this much. It is surely a steal at these levels."

"It can't fall more than this."

"Lets start entering in steps"

Arguments given are numerous....

Many "I am smart" traders don't even announce their intentions in their friend circle and silently start accumulating these falling apples (they don't yet know that it is a knife!).

One thing they forget in the excitement is - why is it falling like this in first place?

Are the big players nuts while dumping? Afterall, this is not a routine correction! The market is going up and this apple is falling?

When the apple keeps falling

the "I am smart" traders start realising that what they have caught is a knife instead!

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A stock falling due to fundamentals is basically a sell-on-every-rise.

It is not wrong to leave it alone if you are not sure about the fundamental logic!

So what is the best time to catch a falling knife?

Never!

falling knife....never!

fallen knife....again never!

knife.....never!

so when to buy it?

...when it is no more a knife but a spoon

....a golden spoon

Very often, a stock knocked out of the fundamental orbit remains free floating and wandering for a long time.

First it keeps falling.

then it keeps consolidating while the management realises the mess and starts working on the cleanup act.

Finally, when the poor stock has come out of the long oblivion

big players start pumping money into it....

That is the time when the stock starts showing life!

It is no more a knife now but a golden spoon.

Its graph makes a higher low!

That is the time to put this spoon in mouth!