Values Can Be Found By Bottom Fishing

Bottom fishing is a technique of using a limit buy order to purchase a stock that has been going through difficult times and has shown a significant price decline. The company might be currently out of favor, or the industry could be having its own recession. Cyclical stocks such as automobile companies, oils, heavy equipment, and to some extent food, all lend themselves to bottom fishing.

Bottom fishing can be highly speculative as there is no way to know just how low the price of a stock will fall. The strategy is most effective in an overall market decline, where value remains in individual companies. It can however be quite risky in individual stock situations - especially where stock price trends are moving counter to the stock market.

That the price will not find support after an investor buys it is the main risk a bottom fisher assumes. If the investor is correct, the strategy can bring great profits as the price recovers to former levels.

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