If you have raised some cash during the recent market weakness, then you are probably wondering when it is time to start buying.
One common piece of advice is 'don't try to catch a falling knife.' The logic behind that wisdom is that it is just too difficult to guess when a bottom might occur, and losses can mount very fast if your timing is wrong.
The problem is that most market players tend to average into a downtrend, too big and too fast. This occurs because they are trying to time the exact low, and that can only be done prospectively. If you are buying after a stock is rising, then you have already missed the bottom, and you aren't the genius that nailed the bottom tick.
The focus on very precise timing is what causes most of the problems for those that are trying to catch a falling knife. It is extremely important to move very slowly. Make your initial buy, and don't rush to buy more as the stock keeps dropping. You can not allow the position size to grow too big too soon.
I will often reduce my position size in a bottom fish play when it keeps sinking and then tries again. I will have a series of stop-outs and rebuys, but the key is that I'm not building the position too fast, and I'm keeping my losses small.
Keep in mind that there is always time to buy a market that is starting to build another uptrend. Some countertrend bounces will end very quickly, but a legitimate market turn will last weeks or months. It won't matter if you missed the first 10% of the move.
There are some fantastic opportunities in a market that is collapsing like this one, but you have to cultivate patience and not rush to deploy your capital into weakness. Make sure you identify your targets and then wait for some strength to signal that the worst might be over.