Should You Always Buy Low, Sell High?
One of the most widely used tenets when it comes to investing in the stock market is, Buy low, sell high. While this is a correct piece of advice in general, you shouldn’t blindly follow it. There are some more nuances to it and we will be discussing them in this post. Let’s get started.
Buy Low, Sell High: All You Need to Know
The first thing you need to remember is, never chase a stock. You must take control of your conscience/emotions and stick to your plan and price target you’d like to purchase it at. Stocks rise yes, but they also pullback (meaning fall) as well. We saw this in 2009 with the Great Recession and we saw this in 2020 with the Great Lockdown due to the global Coronavirus pandemic.
Be patient, have cash saved up to wait for stocks to pull back and have cash saved up to buy consistently every month or quarter when stocks are on the way up too.
Those who get too excited, end up buying into a stock at too high of a price out of emotion. Emotions are not good in the investing world. Subdue them.
Those who day trade will echo these sentiments. If you stick to the original plan you have of what price you would like to buy the stock at and what price you want to sell at, then you will see better results.
Don’t Be Greedy in the Stock Market
Sell at or near your price target you set in your head to sell at. Don’t let your emotions convince you that the stock is going to go a lot higher than reality. When you become greedy and don’t take your profits you’ll see them get swept up in the pull back and kick yourself for not selling when the price was up.
Small profits add up over time. Don’t look for the home run. It’s rare and it’s heavily dependent on luck. Go with what is predictable.
When you are starting out, it might take you a little while to learn how to block emotions and stay focused. You might buy in too high and the price might start falling, creating heavy losses.
When fear kicks in, you think your account is headed to $0 so you sell and now you’ve taken a loss and your mood has gone from excitement to nervous/depression. “What went wrong?” is the question running through your head as your stomach has a knot in it and you wish you would have never bought it in the first place.
What’s missing in the thought process is that yes you should have bought because you did your research, talked to an investment adviser, and purchased a solid stock. But you should have bought on the pullback which equates to the “buy low” portion of the old saying.
Have patience and wait for a good deal. Then on a rise back to original price levels that you initially bought at out of emotion in the first scenario, you now would be selling high for a profit had you bought on the pullback instead.
Hold, Don’t Sell When Stocks Drop
In regards to the emotion scenario, if you had held onto it since you bought it high and it dipped, then once it rebounds back up to original price levels you’re fine.
But instead emotions caused a buy high sell low, that’s definitely not an ideal scenario. Remember to have patience. Stocks will sell off until they reach support levels which can be 10 day, 30 day, 50 day moving averages, for example.
Find technicals in the graphs such as support and resistance levels to support your buy low entry points and your sell high exit points.
Support is the price where the stock stops falling and heads back upwards over and over again over the course of a year. You’ll notice this trend on some stock charts and graphs when analyzing a stock over a 12 month timeframe.
Resistance is the price that the stock gets up to and can never seem to go higher and begins pulling back as sellers and profit takers emerge cashing out for gains.
It’s okay to take losses in the stock market once in a while
Sometimes taking losses is necessary and may have been best for a given situation. It happens sometimes. But generally you can’t be shaken by day to day up and downs. You should buy low when the stock market dips and sell high when it is going up. Whenever you are trading stocks, never forget to do your due diligence. Learn about the performance of your stocks before investing any money in them. Remember a crucial thing, if you plan to invest in the stock market for a long time, there will be situations where you will suffer losses, you can’t win every single upswing and downturn of the stock market. Even Warren Buffet has suffered losses in his investment career. The key is keeping your overall gains more than your losses. That way you will end up making money in the long run. Investing in the stock market is one of the best ways to earn money and increase your income. It’s not as dangerous of a money sucking pit as many people claim it to be, however, without proper research and diligence, you can lose a lot of your money. Remember, the stock market is a place for investors, not gamblers. So don’t throw caution to the wind and invest money blindly. Do all the research that you need, take the help of financial advisors if needed, read more useful information online and only then put your hard earned money in the stock market. Buy low, sell high is a good piece of advice, but now you know better than to follow it blindly. Never invest in a hurry and purely on someone else’s advice. Know where and how your money is going. It’s a little more work, but it’s a lot better for your money.