I hope you can see that technical analysis is helpful, especially for timing entries on stocks that are bottoming.
Here’s the dilemma every value investor faces: a software stock might be undervalued at $100. Do you buy at $50? At $20? Both are undervalued. But if the stock continues falling to $10, even buying at $20 yields a 50% loss and feels expensive in hindsight. Stage Analysis helps you avoid this trap by waiting for price confirmation before committing.
Some will argue that by the time Stage 2 begins, the price is already much higher. True. But the trade-off is that you’re buying with more certainty and not catching a falling knife without knowing where the bottom is. The cost of not waiting can be far greater losses.
That said, don’t rely on technical analysis alone unless you have a clear entry and exit plan with proper risk management. Buying on Stage 2 without knowing when to sell is still risky as stocks in first Stage can roll over into the four Stage when the rebound fizzles.
The most robust method is to use fundamental and technical analysis together.
Start with fundamentals to make sure it’s a quality business that has been unfairly punished by the market. Then use technical analysis to time your entry when the rebound is confirmed.
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