If you’re an investor who continuously looks for profitable strategies, you have most definitely heard of the advice buy low sell high. For years, this had been the mantra in market investing. But do you know what this really means and how to implement it in your trades? In this article, we are going to expound on the real way of buying low and selling high strategy.
The buy low sell high strategy
Without further explanation, we can get the main idea of this strategy just by looking at its name. It generally means to buy assets or enter the market when their value is low, and then selling them or exiting the trade when their value is high. However, there is a huge problem that hinders investors from fully executing this strategy. How would you know the right time of when to buy and when to sell?
Basing this strategy solely on the current price is not enough. You can’t just look at the charts and be able to recognize stocks that could be invested using this strategy. It is still important to do your research and make sure that the stocks you are looking at have the potential to make a reversal.
Buying low is basically following the principles of value investing. It involves investing in stocks that are sold at a discounted price. It doesn’t mean simply investing in cheap stocks because not all that are valued at a low price have the capacity to rise in value.
Selling high doesn’t necessarily mean trying to reach the peak of a trend. Nobody knows how far the market will reach or when it would set for a market correction. Trying to find the highest peak could just result to regret later on. Targeting a certain percentage increase in comparison to the initial value of which you entered the market could be more realistic.
How hard is it to implement?
Seemingly, this strategy is very simple to follow. However, market fear is stopping investors from fully venturing the potential of the market. Most investors tend to follow the herd. In order to maximize the buy low sell high strategy, it is important to take lead and do not be afraid to expose yourself to certain risks. Do not just copy what others are doing. Discover the hidden gems in the market and then let the others follow suit.
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There are also times that the trend enters a market bubble, which often drive prices to extremes. This usually results to market panics. During these times, following the buy low sell high strategy could be very beneficial. Take advantage of the extremely volatile trend to maximize your potential profits.
Bearish or bullish trends, on the other hand, tend to punish those who are looking for a good entry and exit points using the buy low sell high strategy. During these times, do not be afraid to hold on to your stocks, because as history has shown us, the market tends to ride the trend in all directions over time. Avoid making rash decisions because of fear and stick to what you initially planned. Just remember to prepare your stop loss in order to hedge your investments from declining too far.
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