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The Myth of Buy Low Sell High

August 4, 2008

There is one constant in the trading world that you hear over and over again like a broken record.  Buy Low Sell High.  It is treated as trading law and if you don’t follow it you are bound to lose.  We are not saying this is completely wrong because if you do find a good low entry to buy in and then turn around and sell it at a high, you made a good trade.  However in a Bearish market especially as bad as the one we are in, trying to Buy Low based on the theory that it is at a near term low or close to it’s 52 week low could lead to further losses. How many times have you heard “It can’t go any lower, it’s bound to turn around” Based on this logic you might as well just mail a check to your broker to re-fund your trading account.  We advocate looking for the strongest 2-3 stocks in any given sector that have been able to thrive in this down market and buy on pullbacks.  These stocks are strong for a reason and show the strength of the company as opposed to looking for the cheap and easy buck on the bargain basement stock that hasn’t reported Positive Earnings in 6 quarters.

Do not look for stocks that have been beaten down continuously and pray thats the bottom.  Look for strength or weakness and buy the Put or Call accordingly.

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Posted by HPTG Analyst | Filed Under HP Trading Blog 

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