Sunday, June 16, 2013

Three Strategies To Riches

You need a car license to drive. Why? Because your mistakes can be fatal to someone else. Therefore, before you are allowed to drive, you must prove that you are competent in driving, and know the traffic rules as well.

In the stock market, you don't need a license to trade or invest in shares. As long as you are of age, 18 and above, you can open an account with a broker firm and start  trading. You do not need any special education for this purpose. In fact, the more foolish and loaded (rich) you are, the more you are welcome, simply because, your mistakes are only fatal to yourself, and to no others. 

The market is a zero-sum game. For someone to win, some others must lose. That's why you are  most welcome if you are the most foolish and have plenty of money to lose. 

There are many ways to build up wealth. In the stock market, I know of three. They are:
1. Buy low, sell high, 2. Buy high, sell higher, & 3. Buy high and sell low.

The first two strategies are logical, but the 3rd one looks ridiculous. How can one buy high and sell low and still makes a profit? Here's the explanation:

At the end of a bear market, prices will be at very low level with little volume transacted daily. Prices are likely to be moving sideway in a tight range. This sideway movement can continue for months or even up to a year or two. It is during this period of lackadaisical trading that  savvy investors are accumulating shares. 

For those who wish to buy high and sell low, they stay awake and alert. They are waiting for an upside breakout. So as soon as one appears, they buy. This is: buy high. Assuming that after they have bought, the stock moves up, they will buy more to make more as soon as the uptrend starts. As the stock moves up higher, their concern is to take profit. For those who know technical analysis, the best time to take profit is to wait for a downside breakout to sell. This is what I mean to sell low.

I hope the above explanation is clear about the strategy, " Buy high and sell low."

Different times call for the use of different strategies. Your temperament and financial standings will decide which one of the three strategies suits you best. 

For me, I use all of them.