Unless you are brand new to trading, you have likely heard it many times. It really is very important too, so if you don’t understand how to buy low and sell high, then this article is going to hopefully open your eyes and give you one of those “oh yea” moments. The reason most traders lose money is that they do not know how to buy low and sell high when day trading. My most consistent profits began to appear when I began to concentrate on this strategy as my number one entry method. Whatever strategy you are currently using, if you are making money consistently, then you are likely finding some way to enter the market long at key low areas or enter the market short at key high areas.
If you are still with me and you don’t understand yet what I am about to reveal, then this is likely to be the most important article you may ever read when it comes to learning to trade profitably. It doesn’t matter if you trade intraday, daily, weekly, or even monthly charts, because prices react the same on all charts.
I am going to challenge you to simply watch what happens on your charts for a few days or weeks, depending on what time frame charts you might be trading. See for yourself if what I am about to talk about is not easily recognizable and tradable. It’s relatively easy to see on almost any chart once you know and understand what to look for. You can even use weekly and monthly charts and trade options with this strategy if you so choose.
First find your key support and resistance areas and draw lines there to help you easily see them. These areas will consist of double tops and double bottoms in many of cases, but you might even see that prices reversed at these areas multiple times already, and if so, then you can already see what I am referring to when I say that prices will almost always bounce at these levels. You will also find that prices will many times reverse trend at these same locations. Once you locate and identify these important areas, you then simply wait on prices to arrive at them again where you look to buy or sell.
When you find a strong support or resistance area, look at it as a great opportunity to enter the market with the chance to buy low or sell high, because this is what you will be doing. In addition to following one of the most important rules in trading, you will also find that you can enter with a relatively small safety stop as well, so there is another benefit to entering at these locations. I have gotten very good at this so I often buy these areas blindly without any thought as to what prices are going to do when they get there, but if you are not able to do this, then simply wait on a trend bar in the direction of your entry and enter just above that bar if going long or just below it if going short once the bar has completed and closed.
Once you enter, your goal is to try and scalp out a portion of the trade, because even though prices will likely hesitate when they reach these important prices, they may not always move as far in our desired direction as we would like. Every market is different, so watch the market you are trading closely and study previous support and resistance areas until you get a feel for how much you can safely scalp without staying too long in the trade. If prices normally bounce a dollar on a stock you like, then don’t go for the full buck. Try and get half or three quarters of the bounce so that you keep your win percentages high on the scalp portion of the trade. I like exiting with a safe scalp on half of my trade, and then I move my stop on the rest of my contracts or shares to break even and hang tight in the hopes that I can catch a bigger move. By using this strategy, it doesn’t matter what happens after the scalp is closed, because the trade is risk free at that point. The worst thing that can happen is prices will pull back and take out your break even stop on the rest of the trade. However, you will have made money off of the scalp portion of your trade.
Many traders hate to see trading ranges, because they feel like they cannot make money during these patterns due to the fact that the market is not moving or trending. If you learn to understand that buying and selling strong support and resistance is the easiest way to actually make money, you will start to relish and look forward to these trading ranges like I do. I often buy the lows and sell the highs of trading ranges multiple times knowing that the odds of at least a small bounce at either end is extremely high. If and when I’m wrong, my stop is small and I lose very little, so I find that trading this way gives me the best of both worlds, which is a very high win percentage and very small safety stops when I am wrong.
If you are not already using this strategy to trade some of the choppy markets, particularly when it comes to the ES, YM and NQ futures, then I strongly encourage you to get out some charts and check it out for yourself. You will be glad you did and you will likely improve your trading results as well. Most importantly, you will be forcing yourself to learn how to buy low and sell high when day trading, which is where the real money is made when trading the markets!