Why do people buy overpriced stocks

Buying Stocks Expensive: Why It's Better That Way

For me, as a follower of trends, papers that are priced higher than ever before are particularly interesting.

I would like to explain why this is so in this post.

Share prices move in trends

In itself, it is against human nature to buy something that is more expensive than ever before.

On the stock exchange, too, most people tend to be the bargain hunters who are looking for particularly cheap entry-level opportunities, true to the motto "The profit lies in purchasing".

In fact, many investors are always on the lookout for stocks that have fallen significantly because they suspect the greatest profit potential here.

But the shot can backfire. If the price has fallen sharply, there is always a reason.

The reverse is also true: if the share price moves steadily upwards, you can assume that the company is doing well.

Share prices do not move randomly, but in trends. The likelihood that a trend will continue is greater than that it will break.

This is precisely why it is so dangerous to go against the falling trend when values ​​have fallen sharply. The supposedly cheap entry can often be expensive here.

If, on the other hand, you trade in the direction of the trend, the probability is on your side - and therefore good prerequisites for long-term success on the stock market.

The breakout to new all-time highs is a strong trend signal

If you want to trade in the direction of the trend as an investor, you first need to know where the trend is pointing.

One way of determining trends is by using moving averages such as the 200-day line. Usually, however, a quick look at the price development is enough to see where the journey is going.

You can safely save yourself trending with the help of average lines or other technical indicators if you concentrate on stocks that are making new all-time highs.

Here you can be sure that the trend is upwards. There is no clearer sign of strength than new historic highs.

Chart technical resistance? Nothing!

With a share that is trading higher than ever before, there is no longer any technical resistance. So there are no distinctive zones in the course of the course that would make a further price increase difficult.

In other words: If a share is quoted at an absolute high, all shareholders without exception are in profit with their papers.

As a result, there are fewer investors who are interested in selling their stocks.

Shareholders who sit on price losses tend namely v. a. then on sale when the price climbs back into the range of its debut.

Such compensation sales, which can depress the price, do not occur with stocks that are quoted at absolute highs.

Conclusion

Therefore, the breakout on new highs is often followed by strong trend movements. Such sustainable trends often last much longer and go much further than one would generally expect.

Thus, stocks that reach new all-time highs offer particularly good opportunities for medium-term price gains.

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