So how does this benefit us? In every way it benefits us. We use the charts to tell us what the market thinks of a stock. And we do this by applying technical analysis to the charts. Technical analysis on the surface may sound very geekish, nerdy, or downright complicated. But what it is at its core is the study of people. It is nothing more than that. We only want to buy stocks that people are putting money into. This way we have a better shot at the price going up. Even a great company with good sales figures and super products can be a loser on Wall Street. To know a winner from a loser we have to know where other people are placing their money. Because in the markets we really care only about one thing.. to have the stocks we are trading go up.
So getting back to the original question. Why do we wait for the price to go up before buying? The answer is that we want proof that people are buying a stock before we hop on also. When we look at a chart and if I put some notes on it that says "wait for a break above a certain price" that means that the stock is currently in a state of indecision perhaps, and that we want to see a continuation of more money flowing into a stock before we jump into it. If we were to use the buy it now premise without waiting for a clear sign then we could be jumping onto a train that is dead and is not going to go anywhere.. We could be sitting on that train waiting for a long time before, if ever it moves up. And even worse it could go down. That is why we wait for the train (stock) to kick up its engine and blow the whistle that it is going to start moving. That is when we get on board. The charts tell us where the money is, and we want to be on the same side of the trade as the rest of the money. Forget about how you feel about a company. What you always need to ask yourself is "What does the market (money) think about the company".
A passage from Jesse Livermore in the book "Reminiscences of a Stock Operator"... (by Edwin Lefevre)
Not so long ago I was with some friends. They got to talking wheat. Some of
them were bullish and others bearish. Finally they asked me what I thought.
Well, I had been studying the market for some time. I knew that they did not
want any statistics or analyses of conditions. So I said: "If you want to make
some money out of wheat I can tell you how to do it"
They all said they did and I told them, "If you are sure you wish to make
money in wheat just you watch it. Wait. The moment it crosses $1.20 buy it and
you will get a nice quick play in it!"
"Why not buy it now, at $1.14?", one of the party asked.
"Because I don't know yet that it is going up at all".
"Then why buy it at $1.20? It seems a mighty high price."
"Do you wish to gamble blindly in the hope of getting a great big profit or
do you wish to speculate intelligently and get a smaller but much more probable
profit?"
They all said they wanted the smaller but surer profit...
