The premise is that most individuals are poorly served by trying to catch the falling knife. Instead of bottom guessing, waiting until the downtrend is broken will better serve their interests.
Here’s an excerpt:
"One of the questions we get each correction is whether or not traders/investors should try to pick market bottoms. The background music is an orchestra of bottom callers, the vast majority of who are, shall we say, premature. Eventually someone gets it right, but I never have been convinced it wasn’t a function of random luck.
For the vast majority of Wall Street participants, however, this guessing game tends to be rather expensive. [It] is exceedingly difficult. The ideal conditions and circumstances for bottom picking are rare, and the tools necessary to do so are even rarer. Most traders and investors do not have:
* the requisite skill to identify these circumstances;
* the obligatory patience to wait for these conditions;
* or the compulsory discipline to cut losses when the trades don’t work out.
For most people, the risk/reward ratio is simply not worth the capital risk . . .
Don’t Just Do Something. Sit There!
TheStreet.com, 1/22/2008 9:41 AM EST