Recently, many people have been discussing stock investing, and I’ve noticed a very interesting phenomenon: everyone’s understanding of “bottom fishing” varies a lot. Some people think bottom fishing just means buying the cheapest, but in reality, it’s far more than that.

The essence of bottom fishing is using the gap between value and price—entering the market when it’s overly pessimistic and the market is in extreme panic—then waiting for the price to return to a reasonable level before exiting. But here’s the key point: not every undervalued stock is worth bottom fishing. Many stocks that remain cheap for the long term are cheap for a reason. Truly suitable bottom fishing targets need to meet several conditions at the same time.

First, there must be trading activity. In other words, over the past period, the stock should have shown relatively noticeable volatility, and the trading volume should keep up—especially when there has been a big drop following a negative news event. If a stock is so quiet that almost nobody trades it, even if it’s cheap, it’s difficult to make money from short-term price differences. Second, there must be rebound potential. Through technical or fundamental analysis, you should be able to see that the selloff has already started to lose momentum—for example, signs of a V-shaped bottom or a double bottom on the candlestick chart (K線), and technical indicators also showing an oversold condition. At the same time, the negative news should have been digested by the market, or even start to show the phenomenon of “bad news not causing further declines.”

When it comes to judging the timing for bottom fishing, I think it can be viewed in two layers. One is “the selling pressure has basically been exhausted,” and the other is “new positive catalysts or a turning signal appears.” When judging, first look at the bigger picture: use tools such as moving averages, Bollinger Bands, and pattern analysis to confirm whether it’s in a bottoming area. If the medium- and long-term moving averages are still pointing upward and the short-term move is only a dip below, this pullback is more like a buy-the-dip opportunity within an uptrend. But if the medium- and long-term moving averages begin to flatten or turn downward, you must be careful to distinguish whether it’s just a short-term rebound or a genuine base-building process.

Then you also need to combine fundamental and news analysis. Is there an opportunity for a change in market direction? The negative news may already have been anticipated or digested. The magnitude of the price decline may be limited, or even followed by a rebound—this is what people call “bad news fully priced in.” Sometimes, negative news triggers excessive panic, causing the stock to oversell. In that case, “opportunity is born out of crisis.” Overall, bottom fishing isn’t about guessing whether today is the absolute lowest point; it’s about determining whether the downside risk is limited and whether the probability of an upside rebound is increasing.

Let’s take the broad market index as an example. In 2022, the FED began raising interest rates and reducing its balance sheet, which reduced market liquidity and caused stocks to fall. If you want to bottom fish the S&P 500 index, you need to figure out why the FED is raising rates and when it will stop. When the inflation rate reaches its peak and starts to decline, the FED may ease its policy—then it could be a good time to buy. During the COVID-19 outbreak in 2020, the market once plunged in panic, but after the FED announced unlimited quantitative easing, funds poured back in and the stock market rebounded strongly. These clear macro condition changes often create higher-probability bottom fishing opportunities for the broader market.

When operating during a bull trend, a common approach is to treat the index falling near the lower Bollinger Band as a short-term opportunity to enter at a low price. When it rebounds to the upper band or your profit reaches a preset target, take partial profits. If the price drops more than about 1% after you enter, you should strictly cut losses and preserve capital to wait for the next round. During the clearly bullish environment from 2023 to 2024, this simple “buy back on pullbacks in an uptrend” strategy combined with strict stop-losses often achieves a decent win rate. But once you enter a bear trend, the same strategy must be scaled back or paused to avoid repeatedly getting trapped by false bottoms.

Bottom fishing in individual stocks usually happens when a single company faces a major negative catalyst—for example, earnings that miss expectations or remarks from management that raise concerns. In early 2022, a major technology company suffered worse-than-expected losses related to metaverse investments. The market believed the company’s development direction was wrong. The stock gapped down sharply, and afterward, for multiple consecutive days, it kept sliding as the market gradually absorbed the selling pressure. During this period, there may be occasional short-term rebounds, but the stock price still couldn’t effectively stay above the high point of the prior rebound. This indicates that every time it rallies upward, it becomes an exit opportunity for previously trapped holders.

A more steady approach to bottom fishing is to patiently wait for two conditions to appear. First, selling pressure gradually weakens, and the stock price no longer makes new lows. Second, a new up move starts and successfully breaks above the high of the previous rebound, indicating that new buyers can absorb the prior selling pressure. Usually, it looks like a rhythm of “gap down → sideways digestion → breakout above the top of the range.” Entering at this point may not be the absolute bottom, but it’s much safer. As for when to exit, you can use the “gap” as a reference: if the stock has strong follow-through to fill the gap on the same day, it suggests the market’s repricing of the negative news has largely been completed, and you can take profits in batches.

To improve your win rate in bottom fishing, first make the negative news clear. For large tech stocks, the price drop behind them may involve multiple overlapping factors: earnings disappointments, management comments that imply growth is slowing, or one-time events compared with structural problems. If the main negative factors have been fully discussed in the market, no new bad news keeps emerging, and the price decline is clearly beyond what the fundamentals would reasonably justify, then the likelihood of an oversold rebound increases.

Second, use technical analysis to look for support and signs of a bottoming out. When the stock falls near long-term moving averages, briefly breaks below the lower Bollinger Band and then quickly recovers, or forms long lower shadows or a bottom with increased volume—these are all useful reference indicators. The more conditions that align, the lower the chance of breaking down further later, and the higher your post-entry probability of success.

The final point is to set clear stop-profit and stop-loss levels. Bottom fishing is fundamentally a short-term or medium-term strategy, not something you’re planning to hold for three years as a long-term investment. Therefore, before entering, you should plan your stop-profit and stop-loss points in advance. Generally, stop-loss points can be set quite close—if the loss reaches 1 to 2%, exit immediately. If profits exceed 5 to 7%, take profit, or if the price fails to break above the previous high, take profit as well. As long as each loss is controlled within a small range, and each profit target is achieved at 5 to 7% while each loss stays at 1 to 2%, even if not every trade is successful, the overall expected value can still remain solid.

Nowadays, many investors use leverage tools alongside bottom fishing strategies to improve capital efficiency, such as futures, options, or contracts for difference. The reason is simple: with short-term bottom fishing, each target profit might be only a few percentage points, and without increasing position size, the contribution to total assets is limited. Leverage allows you to use less capital to build a larger position. Under strict risk control, it amplifies the return from each successful trade. For individual stocks, most people use about 3 to 5 times leverage; for indices, which typically have less volatility, using around 10 times leverage is more common.

Overall, bottom fishing isn’t about predicting whether the market will rise tomorrow. It’s about finding the zone where “selling pressure has mostly been relieved, downside risk is limited, and a short-term rebound is worth trying.” What truly determines profit or loss isn’t one or two lucky moves, but whether you can consistently follow stop-loss/stop-profit rules and manage your capital properly. If you want to practice this approach, it’s recommended to start with a demo account, limit yourself to only targets with clear negative news and technical signs of stabilization, and pair it with strict 1% to 2% stop-losses and 5% to 7% stop-profits. Once you’re familiar with it, then move on to real trading.