The phrase “Buy when there is blood in the streets, even if the blood is your own” is attributed to 18th century banking superstar Baron Rothschild. Finding out the outcome of the battle of Waterloo ahead of other traders, the Rothschilds bought up a lot of British government bonds. The very same bonds that were being sold by everyone and anyone who held them, fearing an imminent French invasion of Britannia. An invasion that never passed the hills next to a small Belgian village.

In other words, one of the largest fortunes in history was made due to information and staying rational while everybody else is panic selling. Contrarian investing can be massively profitable if done right. Buying a stock that you consider cheap for the potential of the company is what every investor and trader is aiming to do. And when it works out, sitting back and watching your profits grow is quite the feeling.

Simply buying a bunch of stocks that are crashing could be a very bad idea however. Guessing where the bottom of a downtrend might be is a risk. In the industry, we call this “knife catching”. Because hey, you might just catch a falling knife by the handle and impress everyone. But most likely you will catch the blade and lose the very finger you use to click “buy” on your trading platform.

And this is where charts are your best friend. Is there panic in the market regarding a certain stock? That might just be an opportunity. Wait and see how far the shares fall and when you see signs of a rebound, considering buying-in might just be the right idea.

Some examples would be Cairn Homes, which has moved +40% since its December lows, or Ultra Electronics, who also similarly moved +38% since February lows. Other recent fallers like Melrose (-10% since April) or Prudential (-10.7% since April Highs) could find support at these low levels.

So whether you want to buy a stock at its worst and wait for a potential upside or just want to add more to the shares you own in a company you like, let us do the heavy lifting and tell you when a certain stock is approaching a low. Research Gold Pass.

We send out hand-picked trading opportunities daily, helping clients identify winners, be they stocks in the throes of a rebound, trading in a range, benefiting from momentum or in the midst of a breakout.

Samuel Springett, Senior Trader, 10 May 2019