A trader explains the "right side of the V," a strategy that waits for a price to bottom and reverse before buying, rather than catching a falling knife. You get a better reward-to-risk ratio, a tighter stop loss below the entry, and more incremental buyers pushing the price up.
Bring this all back to trading systems and how we can actually execute on this. And that's where I bring in a concept that I call the right side of the V, which at its essence is saying rather than buying on the way down, if we instead wait for the turn and buy on the way up over here rather than there, the beauty is that now we have a stop and then we can catch this retracement. Most people again fall for that trap where if something has a slope of -0.5, what happens is, first of all, if this is something going from $500 to $400 $5.99. The issue with this is our reward on a 50% retracement, if we just go back up there, but our reward might just be $0.50. Now the difference is, imagine if this panics out and we went from $500 to $450, and then when we turn, we can actually end up bouncing instead of $0.50, $50. And not only that, but the people that are willing to step in and buy at that discount here, they're just getting a $1 discount. That's nothing. That's 0.2% discount on a $500 stock. Here they're getting a 10% discount. When a stock goes from $500,000 to $450,000. You get so many more incremental buyers, you get so many less incremental sellers. And so your probability is going to go up, your reward's going to go up. And the beauty is you're going to then have your capped risk.
