Chase That Trade

Trading with your emotions in check is an absolute fundamental when you are involved in the markets.  Sometimes though, it is easy to get caught up in the whole "rush" with everyone else and look to trade even though necessary "precautions" have not yet been established.

The term "chasing the trade" essentially describes a trader who sees a price action accelerate higher and higher at which point he or she, ignoring risk and indicators saying otherwise, decides to buy into this "great" deal hoping that their trade makes profit, because everyone else is profiting from this trade too right?  So why can't you?

Chasing any trade is dangerous for that matter as usually, if you've "missed out" on the first big price move it is questionable if you will actually take a profit in the long run.  The higher the price level goes, the closer it usually gets to overbought levels.  Overbought levels must be looked at in great detail, of course unexpected moves can jolt the price higher, however the more overbought a trade becomes, the more likely a violent drop and price correction will happen, something that you may not be ready for, especially if you get in on a "late" trade still thinking you'll make a gain.

Is it wise to enter a trade late when the price has already risen fairly rapidly and it is in danger of being overbought?  Or is it better to hold back and be more risk averse?
These questions may be answered depending on what strategy you use and your investment goals you've established for yourself though adding technical indicators such as the Relative Strength Index (RSI), the True Strength Index (TSI), and even the Moving Average Convergence/Divergence indicator (MACD) to your existing strategy would definitely be a solid addition especially to counteract any trade chasing you may feel tempted to partake in.

Just remember, the higher and more dramatically a price rockets upward, more likely than not its being overbought and a pullback i.e. price correction, is just waiting to happen.