The concept of buying low and selling high is an interesting one for many reasons, it has been the essence of trade and making money since the beginning of man, back before money was even invented, the concept of buying low and selling high existed. Farmers trading livestock at the market, corn for pots, these trades were all based around the perceived values to those who have them in their possession, you will always want to trade what you have for something that you believe is of more value.
The Essence of Trade
This is exactly how the world works now, buying something for a certain price and then trying to sell it for a higher value. Of course, we already know that this is the essence of forex trading too, we are purchasing one currency with another hoping for the price to change when we can then sell it back to have a little more of the base currency than we started with. The concept of buying at a low price and selling at a higher one is certainly true when it comes to forex trading, the problem is that it is just a little bit more complicated than that and we are going to be looking at exactly why this is and why it can be profitable, but not something to solely rely on when trading.
Determining the Lowest Values
The first and most important thing that you need to consider when using this sort of strategy is where the low is, looking at the chart, you would think that this is the lowest point on the chart, form that timeframe this would be correct, but what about other time frames? Turn it up from the 5-minute chart up to the 1-week chart and the markets will look very different and the low that you were previously looking at could potentially be quite near the top of the weekly chart, this is why it is so hard to judge where the low actually is. In fact, it is almost impossible to judge it completely, there are some things we can do to help but to actually guess the exact low and turning point is pretty difficult to do.
Looking at the charts, we have seen the lowest point on our chart so we decide that this is low and where we should buy, we do so but then the markets move down a bit further, creating a new low. We buy again as this is the ow, but then it drops further, you can see the point that we are making. Just because the price is currently at the bottom of the current chart, it does not mean that this is the bottom and it does not mean that this is the right place to put in your buy order. The markets can continue to decrease without any reason creating new lows as it continues, so we need to use a number of different things to help us to work out exactly where the lows could be, of course, there are no guarantees that even if you use 100 indicators, it won’t still continue lower, but we can move the probabilities into our favor in order to get a better understanding of where the low in the market actually is.
If you are a short-term trader then you can use things like the support and resistance levels to work out where the markets may be moving and turning. These are for short term traders such as scalpers wh only need little movements in the markets, so the price jumping between the support and resistance levels gives the good opportunity to buy when the price is low at the support and levels and then to sell when the price is higher at the resistance levels. This is the very essence of buying low and selling high. There are of course no guarantees and the price will eventually break either up or down, but the support and resistance levels can give a good short-term idea of where the market may be hitting their lows and reversing, at least temporarily.
Determining the Highest Values
We speak about needing to know where the lows are, but we also need to know where the highs are too, this is where you will be taking your profits on a rising market. Part of trading is being able to maximise your profits, so this means knowing when to get out too. You do not want to get out too early and you will lose a lot of unrealised profits, you also do not want to get out too late as the markets could reverse causing you to lose off the profits that you would have otherwise taken. So when you are analysing the lows, ensure that you do the same for the highs, so you can then work out exactly how much you could be making on a trade before even putting it on, a great idea for your risk management.
Speaking of buying low and selling high, the great thing about using an appropriate broker is the fact that you are also able to sell high and buy low, the exact same concept is used, just you are ceiling instead of buying. Use the exact same analysis and the exact same concept, just the reverse, so you can also make a profit when the markets are moving down and not just on their way up.
So that is the concept of buying low and selling high, does it work for forex? Technically yes it does, it is pretty much how we make money, but you cannot rely on it as a single strategy. You should be buying low and selling high or selling high and then buying low depending on the direction that the markets are traveling, but you need to ensure that you have proper analysis behind that and not simply just guessing where the lows and highs are.
Remember, that buying low and selling high is not a strategy in itself, it is simply the concept of making money with forex and trading.