Many market players have a difficult time buying stocks that make huge moves to new all-time highs. They learned in their early days of investing that we are supposed to "buy low and sell high," so they figure they have already missed the move and it is now too late to participate.
It is understandable that there is reluctance to pay a great deal more for a stock that could have been bought cheaper yesterday. But big moves to new highs on large volume are often a signal that there is a major change in market character.
It is important to consider that the leading stocks in the market will trade at new highs on a regular basis. A stock can't go from $0.60 to $130 like Apple (AAPL) has since 1998 unless it was constantly making new highs.
One of the problems for many people is that mentally they simply can't bring themselves to chase charts that look like these:
By most measures the charts are extended and it seems reasonable to wait for some sort of dip before buying. It ihard to envision that these stocks can just run straight up without any real correction along the way.
With the benefit of hindsight, chasing those gaps when they were created early in the year was a no-brainer. It was obvious that these stocks had undergone a substantial change in character and would continue to attract institutional buyers that wanted exposure.
There are many chases, of course, that don't work, but momentum players that are willing to chase learn that they can control their risk with careful management. While you may not always time your entries that well, when you do chase big moves you can still protect yourself by using stops or a partial buy approach.
Prudent, risk-averse traders may find "the chase" tough to embrace but it is an approach that can produce the biggest winners. Keep in mind how charts like Netflix (NFLX) and Skechers (SKX) changed in the months following their big gaps. It is hard to imagine that they would continue to run the way they did, but it is common with the best stocks that are leading the market.
Charts by TCNet