Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Weak Longs

What it is:

Weak longs are investors who buy a stock (known as being "long"), but who will sell it at the first sign of a price decline.

How it works (Example):

Weak longs tend to be traders, not investors. Short-term traders typically only own a stock long enough to capture a price gain. They are not interested in holding the stock as a long-term investment

Weak longs don't want to take a loss on their short-term investment. A weak long will typically set a tight stop-loss order that instructs his/her broker to sell an investment if it losses even a small amount of money.

Why it Matters:

Weak longs piling in and out of a stock can make that stock's price very volatile. Consider: If most of the people buying a stock are weak longs, when the price declines for any reason at all, the stop-losses that the weak longs have set will be triggered, causing a rash of selling and driving the price down very quickly.