"I've Got Some Insider News that the Share Price of Company X is Going to be Pushed to New Highs... Should I Buy Now?"
I've been asked this question by a friend just now. He rang me up, and told me that he's gotten some "insider news" that a company's share price is going to be pushed to its 52-week high again, so he asked for my advice (for privacy purposes I shan't name the company; all I can say is that its not a Singapore-listed company).
I whipped out the chart, did some technical analysis and realised that its RSI is already in overbought levels (at close to 90 in fact). Its share price have also spiked up exponentially in a space of 9 trading days. So here's my advice to him:
- In my opinion, if it's me, I will not go in now and buy the counter. But that is me, he has to decide for himself whether or not to buy, as it is his money, not mine.
- I reminded him that these "insider news" may not be true, and one must not believe in news like this 100%. No doubt he will generate lots of profits should the share indeed jump up to the price where the "insider news" claim it will end up, but there's also a possibility that it may not, and its share price may plunge.
- Continuing from my previous point, my advice to this friend of mine is to have a stop-loss target, where he should dutifully exit should the "insider news" doesn't turn out to be accurate, so he will not suffer from a 100% capital loss.
- Finally, I wished him all the best should he decide to trade in the counter.
The above are the exact thing I'd do if I'm faced with a situation like this.
Personally, I do not believe in all these "insider news". I believe in analysing the charts myself, and based on my technical analysis, I'll make my decision on my entry point, my profit target, and a stop-loss target, and dutifully follow them.
And in case you're wondering, I've no interest in trading in the company he mentioned, no matter how profitable it may be, because of the high risks involved in entering now. :)
Hope you'll like my personal sharing today, and here's wishing everyone a great weekend ahead!