Is buying low and selling high better than buying high and selling higher? Which one is the best trading strategy towards market?
This question in various forms hit my inbox which is
Which is the best trading strategy?
And my answer to this question has always been – The best trading strategy in the market is the one that works for you.
I always feel that if something is working for you, it is the best possibly trading strategy for you in the market. Experiment with it to the extent such that the base of your strategy that is working for you is same.
Let me share an example
We can be tempted to buying low and selling higher and it is one of the best approach towards market if you read and follow Warren Buffet’s way of approaching the market but then it is something that hasn’t worked for me because of my mindset towards market.
I have observed that I am not really confident when I am loosing my capital. I am okay making losses from the profits I have earned in other stocks. So at times I invest long term with buying low and selling high approach from my profits than from my capital.
If you are approaching market with buy low and sell high, you should also know what Warren Buffet follows which is even if he is investing in stocks at dirt cheap price, he is fine if the price go down by 50% of where he invested and such confidence has come because of his way of evaluating the underlying value of the stock.
I preferred to buy high and sell higher. It works for me because I feel confident when the stock is going high and there is no reason it cannot go higher. When it does not behave as I expected and if I am a trader or a short term investor, I am out of it at the stop loss levels. If I am a long term investor (more than 5 years or even 10 years) in a stock, I prefer not to look at the price it trades.
For some technical analysis just does not work but for others fundamental analysis just does not work. For some RSI is the most important indicator for trading and for others, it is MACD. Some prefer technical analysis and others focus on fractal analysis or fibonacci analysis.
Some uses mix of them all and if it is something that is working for them, thats the best thing happening to them. It is not only one thing that works in market.
If you ask me, it is the price action strategy to understand support and resistance level works.
They all work and it is the mindset of the investor where only few kind of approaches works. If you can change your mindset, the other approach can also work for you but if you cannot change your mindset, change your approach towards market.
It is not about the best trading strategy that works in market, but it is all about the best trading approach that can work for your mindset. Align your approach towards market with the right kind of mindset you have.
And what if nothing works for you?
Finally if nothing is working for you in market, try to understand what is the right mindset for you in market and focus on getting someone to mentor you and try make what works for him work for you.
I have been your blog reader and your member for quite some time now and I really enjoy the viewpoint that you share and I think it is awesome.
Can you also share how can we understand what mindset I may have as an investor in market? How can I know if I am more inclined towards value investing or I am more inclined towards trading. Are there any guidelines that can help me understand what may work best for me.
Hi Suresh, I think you possibly missed this article http://shabbir.in/trader-or-investor/
Dear Shabbir,
As you have rightly mentioned, everyone has own strategy either adopted from someone or found on their own. Of course, finding our own is the best approach because you can make your own assumptions, rules and analysis. One strategy somewhat works is buying large cap stocks in small quantities whenever they fall >3-5% on a given day, average them at a prefixed and observed price and sell at a reasonable high price (“reasonable” is again individual) say 5% above buying price. This is purely a short term trading strategy and the criteria completely changes for long term.
Yes Virupaksha. I use similar approach but then not only on large cap stocks but on my all time fav stock list.
Dear Shabbir
I think buying low and selling higher would be a better strategy.
Thanks & Regard
Nitin
Only if it is working for you Nitin.
Hi
Hope you are doing good.
I feel both are very good strategies. For long term one can use buy low sell higher and for short term we can use buy high and sell higher.
But again it depends on the knowledge of the trader or investor. Without knowledge and skill one cant make money in the market. Even if they make they wont sustain.
This is just my view
Regards
Yes using a mix of both on your short and long term investment is possibly the best choice.