As a new trader or investor you will hear that the best way to make money and to really crush it in the stock market is to simply buy low and sell high. Essentially, that is how it works but I feel like that is BS.
Why Buy Low, Sell High is BS
Buy low, sell high is a stock market cliche you will hear often as a new trader or investor. You will hear the best way to make money and really crush it in the stock market is to simply buy low, sell high. Essentially, that is how it works but I feel like it's BS to say to new traders and investors.
If you're new to the stock market you’ll get out there with the impression that all you have to do is buy low and sell high. How hard could that be? Well, there's a little more to it than that.
The problem you will see when you try to buy low, sell high is you will buy at what you think is low and then the stock continues to go lower. When the stock continues to go lower you sell it because you don’t want to lose more money.
Then what happens?
The stock starts to go in the direction you wanted it to go in the first place!
Or you may sell at what you feel is high. After you sell, the stock keeps going up and you think... “I should have stayed in! Look at how much money I could have made!”
You're left discouraged because it didn’t work when you bought low and it didn’t work when you sold high. Well, the problem is you’re buying and selling at the wrong time because you don’t have the full picture. You don't know where low and high is. That’s why I feel like buy low, sell high is kinda BS.
Instead of buy low, sell high you should be doing this instead….
Okay you’ve gotta hold tight 'cause this saying is going to be longer now that I’ve put my hands on it. 😂
"Buy when it's low AND rising. Sell at a profit and let it keep going."
- Tela Holcomb
Although this really isn’t a short, quick, or cool phrase, it's what you should be doing to minimize risk and make money with stocks.
Buy when it's low and rising
If you buy a stock when it's low but you haven't determined that it’s going back up, you run the risk of it continuing to fall. This can get you into a position where you are losing a lot of money. You'll buy where you think is low and the stock keeps going lower.
Then, you say, "I’m out! This buy low crap they told me is not working!" You sell and the stock starts going up leaving you like what the what!
This is called trying to catch a falling knife.
Imagine a knife falling off your kitchen counter. Would you reach out and try to catch it before it hit the floor? Probably not! You want to let someone else come along and pick up the knife and hand it to you.
The same applies with stocks. You want to let someone else (other traders and investors) come along and buy the stock so you can make sure it has stopped falling. That's when you buy; when it's low AND rising.
Sell at a profit and let it keep going
We can not predict the market. Let me say that one more time to make sure that you’ve heard me... WE CAN NOT PREDICT THE MARKET!
We never know when the highest and lowest points are until after it's happened. No "guru" out there can predict the market. If there is someone out there telling you that they can, run the other way. Trust me.
What I do, and what I teach my students, is to go for "chunks in the middle" by selling once you have a profit. You'll probably think you're missing out on money by doing this. My answer to that is… No. You’re not missing out on money. You’re missing the uncertainty because again, we can't predict the market. There's no way to really know when a stock will stop going up so the goal is to sell the stock before it stops going up. You do that by selling once you have a profit.
You have to accept what the market is willing to give you, when it's willing to give it to you. That's how you avoid losing money. Get your "chunk out of the middle" and move on to the next stock.
Don’t get hung up on the fact that the stock is still going up. If you're too busy dwelling on the fact that you could have made $1,000 instead of $800, you'll lose every time. Instead, celebrate the profit that you’ve made. Celebrate that win.
Join the Conversation
Have you tried to buy low, sell high? What was your experience? Tell me in the comments!
Ready to pick a list of stocks? Join the Build Your Watch List series and create your list of stocks with us!