BUY LOW SELL HIGH: WHAT DOES IT MEAN?
Buy low and sell high is a trite trading philosophy that allows traders to take advantage of a market’s propensity to rise and fall. Being a crucial trading tactic, it is essential that anyone interested in investing in the market, be familiar and experienced enough with the tactic to be able to gauge market movements in real-time to make informed and profitable buying and selling decisions, by working with prices as they are affected by other market participants. But what exactly does it mean to buy low and sell high?
A BASIC DEFINITION
By gauging movements in the market, traders can take advantage of buying up stock when it is trending to a lower price in the hopes of selling them at a profit once the market tends towards a rise. It is one of the most basic trading principles to adhere to, but is not always as straightforward as it would seem. While it is fairly easy to chronical the movements in the market in retrospect, trying to do so actively to take advantage of changes in market prices as they happen, is not always simply undertook, and is often done so with some degree of risk.
ECONOMIES OF FEAR AND GREED
According to an old Wall-Street anecdote, the financial markets are driven by two powerful emotions, namely greed and fear. In times of greed, investors are looking to buy -perhaps due to a new trend in the market, successful startups or the introduction of a new and profitable technology in a society (such as Social Media, or companies like Uber). Since this state of greed puts a higher value on a market share, as the state of greed grows, so too does the price of the stock.
In times of fear, traders are often hit with panic which causes them to look to unloading their stocks when it seems their value is plummeting, effectively lowering the value of the stock. Taking advantage of share value during these times and snapping up stocks can be beneficial, but not always.
WHERE THE RISK LIES
It can be difficult for traders, especially those who are inexperienced to gauge market movements in real-time, essentially leading to poor investments, while it can also be risky investing in stocks that are dropping in value, since there is no guarantee that they will eventually change direction. There is always the possibility that the stock will continue to decline, essentially brining about a risk of loss.
MOVING AVERAGES TO COVER RISK
Using 50-200 day moving averages can assist traders in determining a stock’s trend to enable them to limit downside risks. When the moving average reaches its threshold, it will send a buy or sell signal to help traders time their purchase for when the movements in the market are beginning to change; essentially limiting the risk of market trends which keep going in the same direction.
CONTACT THE STOCK MARKET COLLEGE TO LEARN MORE
For more information on how to successfully become a stock market trader, be sure to contact one of our representatives from The Stock Market College today, or visit our website for more details.
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