Category: 

What Is a Buy Weakness?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 04 November 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
  • Print this Article

A buy weakness is an approach to trading that calls for accurately predicting that a security will experience a decrease in value for a period of time only to later recover, and choosing to buy that security while it is going through this period of decreasing in value. Since the security is considered to be weakened while the price is decreasing, this allows the investor to buy at a lower price, hold the security until it recovers, then sell the asset at a profit. By exploiting the buy weakness of the security, the investor is often able to generate enough return to make the venture worthwhile.

Making use of a buy weakness trading strategy requires the investor to accurately assess not only what will happen with the price of an asset, but also when those events will take place. This means that the investor must know when the price for the asset will begin to decline in the marketplace, how long that decline will continue before the price levels off, and at what point the price will begin to recover. Data of this type helps the investor to know exactly when to make use of the buy weakness strategy as far as purchasing the asset, while also providing a good idea of how long to hold that asset and then sell the security at a profit.

Ad

A buy weakness approach can be used with a number of investment scenarios. This method works well with stock purchases and sales, provided the investor’s projections of the stock price movement prove to be accurate. The strategy can also be used with the purchase and sale of commodities as well as futures contracts, utilizing a clever combination of short and long positions to achieve the desired results. As long as the investor has the ability to ascertain when prices will fall, when they will level out, and when those prices will recover and begin to increase once again, it is possible to use a buy weakness approach and enjoy returns for the effort.

Like all types of investment strategies, a buy weakness approach is not a foolproof method. Should unforeseen events occur that were not accounted for in the investor’s predictions, the price of the security could begin to increase faster than anticipated, or possibly not level off at the predicted time. Either of these scenarios would undermine the original scheme and require the investor to adapt his or her strategy to meet the new circumstances.

Ad

Recommended

Discuss this Article

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email