When I started my Trading Journey about few years ago, one of the golden rules that has stayed consistent over time is the buy low, sell high phenomena. For many traders once the price is at Higher high (HH) especially on the higher timeframe (H4, DI) they will look for sell opportunities, and when the price is at Lower low (LL) especially on the higher timeframe (H4, D1) they will look for buy opportunities. This was the foundation of my first and only trading strategy.
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To be clear, I have just one trading strategy and the foundation is built on the buy low, sell high phenomena but with different “if and else if” conditions. I was using only buy high-sell low strategy during my first three years of trading and I had over 87% win rate until Brexit happen. Then News became one of my “if” conditions when I am trading currency pairs.
But what happens with market like Boom and Crash that are not normally affected by news? In this article, I will share some tips that will help you develop a good strategy that will make your trading journey more profitable.
Table of Contents
Why do People Buy Low, and Sell High?
There are so many concepts surrounding the phenomena of buying low and selling high; however the most important one to me is centered on the cycle of the market makers and the normal life trend where we see that people buy stuffs when the price is low and sell when the price is high.
It is believed that the market makers (those with huge cash flow , like the big banks) determine the trend of the market because of their equity, lot size and volume of trades. So, as a retail trader, if you want to succeed, you must learn to think like them so that you can trade with the trend not against the trend.
How to Develop a Good Trading Strategy
The normal routine is:
- Find out where the market is headed
- Look for key Areas
- Once Price Hit the key Areas
- Enter the market
- Use Proper risk management
- Follow the news
How to Find out where the market is headed
The baseline of the buy low sell high strategy is to find out where the market is headed and enter early. Look at the screenshot of C500 below. There is a red line at 4572.8423 which signal the HH of the market based on the screenshot of the market. If you had sold at that point and allowed it to run, you would have been in good profit.
Since it started selling at 4572.8423, the market has been on a sell trend except for some minor and major retracement.
Look for key Areas
Key areas are areas where big action happen in the market. Like Higher high (HH), Lower Low, Trend lines, Supply and demand zones, consolidation zones.
Once you draw your HH and LL for the day and see that the trend is down as seen above in C500, if you miss the initial entry, you can enter on the second or third key area. For instance on the screenshot above. The second key area was 3942.7400, if you had sold at that point, you would have been in very good profit. The reason for this is that, entering at key area will give you a tight stop loss and opportunity for a quick profit if there is no change of trend.
Use Proper risk management
Risk Management is very important in trading. Never enter a trade without a stop loss and take profit. For instance in the screenshot above, if you have entered a buy on the blue line where the trendline intersect the horizontal line for a short retracement and put a take profit close to the black horizontal line and stop loss a little below the blue line, you would have gotten some quick profit. Which means you risk about 5% to get over 80% profit.
Follow the News
If you are a currency pairs trader, it is important to follow the news and understand what is happening concerning your favorite pair. One news item can affect the trend of the market.
Conditions for Buy Low and Sell High
Don’t just buy low and sell high, have some conditions that can help you win in the market. For instance in the chart above (c500); I entered the sell of c500 at 3942.7400 after missing the initial entry. If you look at 3942.7400 , there was a little consolidation of price around that zone before it pushes up to about 4200 zone before pushing back to 3942.7400 zone, so I entered immediately it breaks the 3942.7400 zone and put a stop loss slightly above the 3942.7400 zone.
See the conditions I set below:
Condition 1: If price gets to 4572.8423 zone and breaks the zone without any consolidation, it means there is a strong buying pressure, so I will wait for a retracement, then look for a buy opportunities.
Condition 2: Since there is a consolidation at 3942.7400 zone, if the price does not get to 4572.8423, but bounce back to 3942.7400 zone and break, then I will look for sell opportunities.
Final Thoughts.
Always remember that market move in wave, try as much as you can to stay with the trend and trade with the trend.
Risk Disclaimer
Deriv offers complex derivatives, such as options and contracts for difference (“CFDs”). These products may not be suitable for all clients, and trading them puts you at risk. Please make sure that you understand the following risks before trading Deriv products: a) you may lose some or all of the money you invest in the trade, b) if your trade involves currency conversion, exchange rates will affect your profit and loss. You should never trade with borrowed money or with money that you cannot afford to lose.