An elaboration on my methods.

Someone asked me why have I given up on NOL. Naturally, he asked this after reading my blog post on NOL last night which was a rather short blog post and quite unlike my usual style. Well, the facts were simple and brevity was appropriate.

The reason for buying more shares in NOL is no longer valid, from a technical perspective. I buy in a downtrend only when I see the building up of a positive divergence. Once that picture is negated, I stop buying. I do not throw good money after the bad.

Do not throw good money after the bad? This sounds familiar. Yes, it is conventional wisdom and I have said this at other times in my blog too. Such wisdom is also applicable to someone who is investing based purely on fundamentals. For example, my decision not to add to my remaining long position in Healthway Medical was premised on its worsening fundamentals.

So, what am I going to do with my shares in NOL now? Unlike conventional cut loss strategy which would see a certain percentage of loss given as a trigger, I prefer to cut loss on technical rebounds. This would mean at or close to resistance. This would reduce the realised loss of the trade and the likelihood of whipsaws as well.

What if a rebound did not happen? Well, remember that downtrends are rivers of hope. They are rarely one straight line downwards. However, TA is about probability and never certainty. So, herein lies the flaw in my methods. If a rebound did not happen, I could end up with more shares in my frozen portfolio. Brrr...

If you like my methods, by all means, use them. I share them freely. If you are unsure, explore the different methods out there and take your time to decide on what you are comfortable with that works. Good luck.

Related post:
NOL: Positive divergence negated.