Secrets to Successful Stock Trading – Buy Low, Sell High

Why People Don’t Buy low and Sell High

First there is the lingo, “investor”. You see if you invest in a company, like your own business, than of course you are not likely to sell it off quickly to the highest bidder and if it has a troubling time you are going to nurse it back to health. People get attached to stocks in the same way. You hear things like “ooh I just bought 100 shares of Google or Microsoft or Bank of America”. Now they treat that stock like it really was their company. If it goes up in price great, they hold it and boast about it; when it goes down they feel badly for the company, not for themselves. You’ll hear them say something like. “I know it’s a great company and it’ll come back. In the meantime their portfolio is not growing in value.

How To Make Your Nest Egg Grow

Your responsibility I think is to make your retirement nest egg grow steadily, not worry about Bank of America. Hopefully you bought the stock of Bank of America to make money, which means that you should have made sure it was really low priced, and a good deal when you bought it and you should have a plan for when you are going to sell it. Are you going to sell it when it doubles or when you made 25% or whatever you have decided intelligently is a reasonable price for it to achieve. To do this intelligently you probably will have to consult a chart, so you can see what the stock has done historically

You have to know from the point where you are buying that stock how high could it reasonably be expected to go. If you bought Ford or Citibank when they were $2.00, in the heart of the recession, it is pretty reasonable to expect to see them double from there. What about when Ford was nearly $1. Now it is over $10. That is what the Buy Low Sell High trader is looking for. Probably the well schooled Buy Low Sell High trader got out somewhere between $10 and $14. You see they are not invested in Ford, they only want to grow their retirement account. Citi however has not seen that sort of monumental rise and the smart Buy and Hold trader had to satisfy himself with a double, selling off around $4. When you are trading you have to let the market tell you when to buy and sell. Maybe you hoped to triple your money on CITI but the market has changed and it is time to sell as it is too dangerous to hang on, so you get out and realize you doubled your money. Not so bad, and you made out like a professional trader on Ford.

What Should You Trade

The problem with trading stocks is that you have to worry about what is going on in the backroom. Remember Enron and the “off the balance sheet accounts” that showed it was losing a fortune while the balance sheet looked great. And the problem with Mutual Funds is that you have to worry about the manager and his ability to pick stocks. I like ETF’s where you can find an exchange traded fund that duplicates almost any sector of the market you could want. Want to own Gold buy GLD, want to own good gold stocks buy GDX and so on.

Plus the sectors cycle so you can see more clearly when they are very low and ripe for buying and when the sector is ready to be sold. Some sectors are traditionally better to trade in these gyrating markets and others do better in strong trending markets, like the 20 year bull cycle.

The Challenge

The biggest challenge with Buying Low and Selling High is that you have to buy when everyone around you is screaming sell, the louder the screaming the better the buying opportunity, and you have to sell when everyone is anxious to buy. The talking heads are proclaiming that the markets can go nowhere but up and that is when you HAVE TO SELL! Fortunately we have great indicators to help us know what do and we can love the media and forget them.

So I hope I have given you some food for thought. Your job is to grow your nest egg, and nothing else