Why I’m buying the bounce off of 4,450 support even though it probably won’t hold

Free After-Hours Analysis: 

The S&P 500 bounced off of 4,450 Thursday, making this the second day in a row 4,450 support held.

Headlines are a mess, which is to say, not much has changed.

Investors are slowly coming to terms with our new reality and most owners who are afraid of these things bailed out a long time ago. Running out of fearful sellers is keeping supply tight and putting a floor under stocks.

Two steps forward, one step back.

The index exploded 450 points higher from March’s oversold lows. But as expected, we have fallen into a very normal and healthy step back from those highs.

Is a 180 point pullback enough? Maybe. Maybe not. We won’t know until after it happens, which means as traders, we have to make decisions based on incomplete information.

While most people try to guess which bottom is the real bottom, I’ve been doing this for far too long to fall for such foolishness.

I realized a long time ago I can’t pick bottoms. But just because I can’t pick a bottom doesn’t mean I cannot trade bottoms. In fact, buying dips is one of my favorite ways to make money. But rather than guessing which bounce will be the real bounce, I hedge my bets by buying ALL of them.

Start small, get in early, keep a nearby stop, and only add to a position that is working.

Following those simple rules, I buy all of the bounces. Some of them work. Most of them don’t. But by starting small, getting in early, keeping a nearby stop, and only adding to a position that is working, the cost of being wrong is small.

In fact, many times I actually get in early enough to make a few bucks buying the wrong bounce. That’s because I quickly lift my stops to my entry points and then even a little higher as the bounce progresses. And when the bounce fizzles, I pull the plug at my raised stops, collect a few bucks, and wait for the next bounce.

The key is starting small and getting in early. And of course, keeping a nearby stop and only adding to a position that is working. Have I mentioned that yet?

But seriously, as nimble traders, there is no reason we have to pick and choose bottoms when we can simply buy all of them with very little risk.

I’ll let other people guess, for me, I’m sticking with the sure thing.

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