Buy Weakness

Dictionary Says

Definition of 'Buy Weakness'


A proactive trading strategy in which a trader takes profits by closing out of a short position or buying into a long position. This strategy is used when the price of the asset being traded is still falling but is expected to reverse and move against the trader. This is the opposite of "selling into strength".

Investopedia Says

Investopedia explains 'Buy Weakness'


For example, let's say that a trader believes that ABC stock will fall below $5 to $4.50 before rising above $5. Therefore, the trader would buy into the weakening stock price at a price below $5 and wait until the falling trend reverses and the price rises before selling and taking a profit. A short seller may also buy weakness by closing out his or her position. This would be done by buying into a falling stock with the anticipation that the stock price will soon reverse and start to rise.

Many traders will wait for confirmation of a change in price movement before reacting. However, by the time a reversal is confirmed, it may be too late and the trader may end up losing. Thus, by trading against the prevailing trend in the anticipation that it will soon reverse, the trader allows him- or herself greater room for error. As the saying goes, "missed money is better than lost money".

comments powered by Disqus
Hot Definitions
  1. Valuation

    The process of determining the current worth of an asset or company. There are many techniques that can be used to determine value, some are subjective and others are objective.
  2. Tech Street

    A term used in the financial markets and the press to refer to the technology sector. Companies like Intel, Microsoft, Apple and Dell are all considered to be part of Tech Street.
  3. Tech Street

    A term used in the financial markets and the press to refer to the technology sector. Companies like Intel, Microsoft, Apple and Dell are all considered to be part of Tech Street.
  4. Momentum Investing

    An investment strategy that aims to capitalize on the continuance of existing trends in the market. The momentum investor believes that large increases in the price of a security will be followed by additional gains and vice versa for declining values.
  5. Momentum Investing

    An investment strategy that aims to capitalize on the continuance of existing trends in the market. The momentum investor believes that large increases in the price of a security will be followed by additional gains and vice versa for declining values.
  6. IPO ETF

    An exchange-traded fund that focuses on stocks that have recently held an initial public offering (IPO). The underlying indexes tracked by IPO ETFs vary from one fund manager to another, but index IPO ETFs are usually passively managed and contain equities that have recently been offered to the public.
Trading Center