Understanding the Meaning of Bottoming Out in Stocks to Practical Profitability | Short-term Investors Must Learn the Reversal Code

What is Bottom Fishing? Why Is It Worth Learning

Many people’s understanding of investing stops at “buying quality stocks for dividends” or “following the momentum of strong stocks,” but there is a group of people playing a completely different game in the market—they focus on stocks that have been severely mispriced and wait for them to rebound. This is bottom fishing.

Simply put, bottom fishing means buying when the stock price hits the bottom, expecting a short-term rebound for profit. But this is not just about “picking up bargains”; it involves multi-layered judgment based on data, technical analysis, and market sentiment to precisely identify entry points.

The biggest difference between bottom fishing and long-term value investing lies in the time cycle. You’re not betting on how much a company will be worth in 5 years, but predicting the rebound potential over the next few days or weeks. Because of this, bottom fishing emphasizes high win rate, short cycles, and frequent trading.

The Two Core Conditions for Bottom Fishing

Not all undervalued targets are suitable for bottom fishing; only stocks that meet the following conditions are worth acting on:

Condition 1: Trading Activity

The stock’s recent volatility should be significant, especially with sharp declines like a plunge. Why? Because stocks need capital to rise. Stocks that no one is paying attention to can’t go up even if they are cheap.

Condition 2: Rebound Potential

The downtrend has already bottomed out, and a rebound cycle is imminent. This rebound may come from:

• Short sellers taking profits
• Low prices attracting new buyers
• Someone attempting to “short squeeze” to push the price higher

Judging rebound potential requires multi-dimensional analysis through technical indicators, market sentiment, and fundamental data.

How to Accurately Judge the Timing of Bottom Fishing

The timing for bottom fishing can be summarized as two points: selling pressure ending + positive news about to arrive

Step 1: Identify Possible Bottom Areas

Observe candlestick patterns, looking for typical reversal signals such as V-shape bottoms, double bottoms, head and shoulders bottoms. Focus on long lower shadows (indicating buyers stepping in at low levels) and golden cross signals.

Also, refer to technical indicators like MA, RSI, KDJ to assess whether the stock is oversold. Oversold conditions often signal an imminent rebound.

Step 2: Recognize Market Sentiment

This step is often overlooked but is the most important.

When negative news appears, distinguish between two situations:

• “Negatives are exhausted”: The market has digested the news, the decline is limited, and a rebound has already begun
• “Opportunity in crisis”: Excessive panic causes stocks to oversell, making it the true bottom fishing opportunity

For example, in the S&P 500, the Fed’s rate hikes and balance sheet reduction in 2022 caused a market decline. But when inflation peaked in October and started to decline, the market anticipated a shift to easing, making November an excellent buying window. Similarly, during the initial COVID-19 crash in 2020, the Fed announced unlimited quantitative easing, and the market surged afterward.

Difference Between Index Bottom Fishing and Individual Stock Bottom Fishing

Index Bottom Fishing (High Win Rate, Few Opportunities)

Using the S&P 500 as an example, the key is to determine whether the market is in a bull or bear trend.

Observe the slope of the 6-month moving average:

• Upward slope → Bullish trend, dips are buying opportunities
• Flat or downward slope → Bearish trend, not suitable for this strategy

In a bull market, when the price hits the lower band of the Bollinger Bands, buy, and sell when it reaches the upper band or gains 2.5%. Stop loss if losses exceed 1%. Over the past year, this approach yielded an 80% success rate.

However, once the moving average turns flat (e.g., after February 2022), the success rate drops sharply. That year, there were 7 trading opportunities, but 6 resulted in stop losses, with only 1 profit.

Individual Stock Bottom Fishing (High Risk, Fast Rewards)

The best time for individual stock bottom fishing is after negative earnings reports or event announcements.

Typical process:

1. Negative news → Panic selling → Gap down
2. Selling pressure releases over several days → Stock continues to decline
3. Selling pressure exhausted → Rebound signals appear (usually breaking previous highs)

For example, in early 2022, META’s earnings report caused a sharp drop. Entering at this point, the goal is for the stock to break through the gap-up price on the day. If it does, you can gain 5~7%; if not, cut losses.

How to Improve Bottom Fishing Win Rate

1. Confirm whether the negative reasons are singular or multiple

Take META as an example; the market mainly attributed the decline to disappointing earnings. But further confirmation is needed:

• Is it a core business issue or related to the metaverse division?
• Are ad revenue and user data truly below expectations?
• Are there other hidden negative factors?

Confirming no new negative news emerges increases the probability of a bottom.

2. Find strong support through technical analysis

When there are no major news, investors mainly rely on technical analysis. If the price decline occurs near the seasonal, yearly, or even 5-year and 10-year moving averages, support is very strong.

Alternatively, if the price breaks below the lower Bollinger Band and then rebounds back into the channel, the rebound strength is often quick.

The more conditions met, the lower the risk of breaking the bottom, and the higher the success rate of entry.

3. Set clear stop-loss and take-profit points

This is the lifeline of bottom fishing strategies.

Tight stop-loss: exit if loss exceeds 2%. Since bottom fishing assumes the price has already bottomed, a loss indicates misjudgment and should be cut quickly.

Flexible take-profit: take profit if gains exceed 7%, or exit immediately if the price fails to break previous highs. Triggering either condition prompts an exit.

The logic is: each trade aims for 5~7% profit, with a 5% loss and 1~2% stop-loss. As long as the win rate exceeds 30%, long-term returns can be substantial. Also, shorten the trading cycle—enter as soon as signals appear, without worrying about market bull or bear.

Using Leverage to Amplify Bottom Fishing Returns

High baseline win rate + relatively small gains, the way to increase returns is moderate leverage.

For individual stocks, 3~5x leverage is recommended; for indices, 10~20x. The effect:

• Achieve about 20% profit during gains
• Limit losses to around 10%

Suppose the principal is 1 million, investing 500,000 each time, with an 80% win rate, 5 trades per year:

Winning trades = 5 × 80% = 4 times, each netting 100,000 Losing trades = 5 × 20% = 1 time, losing 50,000 Annual profit = 400,000 - 50,000 = 350,000 Return = 35%

This far exceeds the 8~10% annual return of long-term index ETF investments.

Note that leverage multiples are not fixed. As capital grows, adjust the amount per trade accordingly. For example, if next year capital increases to 1.35 million, consider trading 600~700K each time.

Choosing the Right Trading Platform

High-frequency trading + leverage requires:

• Support for high leverage ratios
• Low or zero commission fees (since 1% per trade fees eat into profits)
• Simple and user-friendly interface
• Robust risk management tools (e.g., one-click stop-loss and take-profit)

Such platforms allow you to focus on executing strategies without being distracted by complicated operations.

The Ultimate Logic of Bottom Fishing

Bottom fishing is not gambling; it is a systematic approach to profit through identifying timing → confirming signals → strict execution → dynamic adjustment.

The key is to avoid greed and hesitation, with clear stop-loss and take-profit points. If you can:

• Find the right entry points
• Maintain high trading frequency
• Follow strict discipline
• Use leverage reasonably

then short-term bottom fishing can become a stable profit method. The focus is not on individual gains but on leveraging repeated operations to turn probability advantages into actual returns.