Buy On Weakness – Sell On Strength

For those of us already “in the trade” – congratulations. One of the most difficult things for a new trader to learn to do ( and also one… essential for success) is to “buy into weakness” – and “sell into strength”. I know it  sounds crazy, if not completely insane to the newcomer but…you gotta get your head wrapped around it in order to succeed. You gotta think like the big boys.

For most (wary of the current market conditions – and perhaps angry, frustrated – or even half clean out by the 2008 crash etc) its is extremely difficult to trade / invest when….for the most part it’s a crap shoot at best. Day to-day news of collapse…or war….or you name it really – has really taken a bit out of the average investors confidence in the market.

So…you see a big “up day” and you think “hey things are turning…I think Im gonna buy” – or the inverse “oooh – red day….I better sit tight and see how this plays out” – then oddly…….get smoked doing either! The buyer on green…..wakes up the following morning to a sea of red…a losing position…. and a broken heart. The “sitter” on red….wakes up the next morning to “Dow up 300!” – stocks through the roof, and an angry wife saying “well  then!  – why didn’t you buy? – damn!”.

In general, lets look at it this way. On “green days” wallstreet fat  cats with more money and stock than god are SELLING YOU STOCK ( as grandma and grandpa hear of the euphoria..and assume the time is right ). The wallstreet gang already owns the stock – at much lower prices – and sees this opportunity to SELL – as new participants enter the market with dreams of their own private island.On “red days” wallstreet fat cat with more money than god are BUYING YOUR STOCK – as newbies completely freak out – sell like there’s no tomorrow, and again turn to face the wrath of their “oh so loving wives” with a loss….. from the trade they “so confidently” placed days earlier.

Anyway….I could go on.Point being – in order to play with the big boys – you gotta flip this thing upside down -you gotta buy on weakness….and in turn….sell on strength.

Short of that – I can only imagine – there’s whole lot of pissed off wives out there – continually hearing of “trades gone wrong” from  “mr. know it all” sitting ‘cross the kitchen table. Thankfully – Im still single.

9 Responses

  1. hf November 11, 2012 / 10:33 pm

    lol !!
    great post
    i shoulda coulda woulda found your blog a long time ago 🙂

    • Forex Kong November 11, 2012 / 10:49 pm

      Hey man……thanx for the support.

      Im just calling it like I see it.

  2. DojiTrader November 12, 2012 / 8:13 am

    Hi Forex Kong,

    This is where a system comes in – so that it guides one’s behaviour.

    Like – buying after a downtrend on a doji/hammer, or selling on a falling star after a rise – or lighten up when price action is outside the Bollinger bands on an uptrend – or buying after a down-trend (“crash-trade”).

    Now, once one has a system, that has been tested and found to perform “adequately” for one’s expectations, then one needs to learn to follow it – which is a matter of trust. This is easier said then done – and experience will be the teacher (“it’s better to follow my system than it is to trade on gut feel”).

    I am usually OK buying-wise, but (still) a lot worse selling-wise – not always following my own rules (“this time it’s going to go to the moon!!”), and frequently giving away 50% or more of the paper profits!

    • Forex Kong November 12, 2012 / 3:09 pm

      Exactly Dojitrader.

      No matter how long one has been doing this – capturing “every penny” of a given move is all but impossible.At best, we try to get what we can, and keep ourselves protected while doing it. Myself for example – If I “miss a turn” – I have a very hard time with entry as noted above – in that after Ive seen 2 or 3 days of green I feel that it may be too late…and Im sure to get wacked chasing it..

      Having confidence in the larger picture / longer term however – does correct the smallest of timing mistakes with entry.

  3. Ben November 12, 2012 / 3:33 pm

    Kong – you entered NUGT calls this morning. Is the main difference between NUGT, GDX, and GLD just a matter of leverage?

    • Forex Kong November 12, 2012 / 4:54 pm

      Yes Ben…NUGT is a 3X bullish ETF – highly leveraged, highly volatile….highly dangerous.

      If one gets the timing wrong here – usual stops are out the window etc….as well – smaller postion size would be recommended.

      • Ben November 12, 2012 / 4:56 pm

        Thanks. I can certainly see the need for more precision timing with something like that.

  4. hf November 12, 2012 / 8:41 pm

    added : march XLK calls 28s @ 1.30 and some IDU shares @ 84.80

    • Forex Kong November 12, 2012 / 8:50 pm

      I can only assume you are going to be one happy trader here in coming days. Again…great patience….and great entry in my view.

      Nice work….really nice work.

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