All-Time-Low Trading Strategy — What Is It? (Backtest, Example, and Performance Insights)
You must have heard the stock market adage: “Buy low and sell high.” It is possibly the most popular slang in stock trading. Buying at the all-time low may be a perfect way to implement the adage, but does it work? And what is actually the all-time low?
An all-time low, often abbreviated as ATL, is the lowest price an asset has ever traded in its history. In the stock market, a stock trading at an all-time low is a sign that the company or industry is facing stress. At that point, many investors will choose not to waste another minute holding onto the stock, others may see that as an opportunity to buy low with the hope of selling higher when the stock recovers.
Keep reading to find out more!
What is the all-time low?
Also known as the record low, the all-time low (ATL) is the lowest price ever recorded by an asset, which could be a stock, commodity, or even crypto. All-time lows are generally a sign of weakness in an asset or that the entire industry or the economy as a whole is facing stress. The stress could be in the form of poor earnings reports, high unemployment rates, interest rate hikes, or similar situations.
The price falling to the all-time low may trigger high volume selling, which can drive prices even lower, which is why many traders pay close attention to record lows in their markets. Stock prices for companies that drop to record lows typically struggle to recover or rebound in value.
Identifying the all-time low
The all-time low is determined as the lowest price an asset has ever traded in its history. Depending on the history of the asset and how it has been trading in the market, it may be difficult to trace the all-time low, because it can go several years back.
For example, a stock with a 100-year history could have made its lowest low some 99 years ago. To know if the recent low is the lowest in the stock history, you have to use the highest timeframe chart (monthly) and zoom out to get a view of the entire chart history of the stock.
How to trade all-time low
For many investors, it makes no sense to hold onto an asset that is trading at an all-time low. So, they rush to sell during an all-time low, which leads to a further decline in price. Short-selling during an ATL in expectation of a further decline might be a good trading strategy. However, many all-time lows come with at least a dead cat bounce, which can lead to losses for an uninformed trader.
