A lot of trading books talk about how appealing trading new highs or new lows could be. Many traders out there are trained along with free trading guides or basic strategies in order for them to have an uptrend trade through shorting once the prices surpass old highs since this sort of confirms trends. This may lead to profit sometimes however; this is not always the case. When you review your charts you will notice that prices frequently eclipses an old low or high and then suddenly moves back the opposite way. This basically lets you feel like you traded at the most disastrous time.
THE MYTH ABOUT NEW LOW AND NEW HIGH
The previous paragraph does not necessarily mean that buying new highs and selling new lows do not actually work. Sometimes this can be profitable. There are ways for you to have your odds increased when you are selling new lows and buying new highs.
If you are trading traditional markets, you can use S&P target or stop and profit target. In an uptrend you can typically place your target on the former high’s top. This means that you are getting away from your trades. This is what a lot of amateur traders do and are getting into. It would also be a fact that most trading professionals are also doing a similar thing which goes to show that as prices make new lows or highs, professionals move away with nothing left for pushing prices way higher. This usually results in a backward more in the opposite way and losses for amateurs.
INCREASING TRADING NEW LOWS AND HIGHS ODDS
Jesse Livermore is the trading who made buying new highs or short at new low strategy quite popular. It was in the early nineteen hundreds when he became a very successful trader. In fact he was deemed as the most successful trader of all time. He was really brilliant when it comes to selecting and trading only very powerful stocks. After trading such stocks he would then get out of that trade if it didn’t go up way over its previous high.
Today, his strategy still applies. You can buy once the price goes through a new high if such price has an extreme and aggressive movement. It is also best to buy when the price seems like it will still be running. However, when the prices approaches a former high slowly then do not even bother buying. You have to keep in mind that buying on new highs and be short on new lows can be advisable.
Sometimes buying new highs and selling new lows can work. There may be even times when you have done it and didn’t even realize it. however, a huge amount of trades which used this strategy are not likely to generate success. When you trade in this manner, make sure that you only do so when price action is strong and prices are most likely to proceed running way beyond its previous low or high. If not, you may look for alternative entries just like what professionals do.