Buy Low, Sell High,its Principle and Practice


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Thank President of the US, Donald Trump for making a commotion last week that has thrown the global market into a little turmoil last week. He twisted that he is prepared the signing of the trade agreement with China even after his election next year. US markets dropped sharply after his message, taking a hint that the previous hopeful trade war truce agreement with China is not going to work out. Global markets all went down together with the US.

On the other hand, the Gold prices went up instead. This is provided a rare window of opportunity for the trapped gold investor to escape.

Gold Trapped

About two weeks ago, gold prices went down to the lowest in 4 months (Chart A). At that time, the good news that the US is going to sign the first round of trade war truce agreement with China. The market has taken the news very positively. Those trapped gold investors were tempted to throw their bets away immediately (at point A). However, I gave the advice to do otherwise. I said it was a time to buy, not to sell.

Chart A~ Presient Trump has helped Gold-trapped investors to run off its trap last week.

Whoever has taken my advice to buy more when gold price went down, their average entry price would have gone down lower. By the time of the “bad” news President Trump gave last week, the gold price shot up (to Point B). Gold investors’ loses would have been narrowed, if not profit. If he exited gold investment immediately then, his pain would be minimized. In fact, there were three days provided for the decision to be made.

When the market went down, an unidentified official from the White House, probably sent by Trump to calm investors’ nerves, said to the reporters that what Trump said must not be wrongly interpreted. The signing intention will have no change as previously stated. The market responded without any further dip.

On the third day, US economic data came out. Labor hiring was robust, higher than the estimate. Equity markets all shot up to where they were before the drop. At the same time, the gold price dropped to where it was at the previous low. So, the commotion was all over.

Buy Low, Sell High

If you want to profit from the market, you should always buy low and sell high. This is a principle very easy to be understood. But in reality, many people failed to do it. The reason is the emotion of fear always takes over a clear rationale.

So, we got to learn a very important lesson here. Always do the reverse in psychology for the market game. When everyone is fearful, you to be greedy. But when everyone is greedy, be fearful (This is one of the famous qoutes from Warren Buffet). In short, when the market is dropping, you should be buying. When market is going up, you should be selling slowly and quietly.

By the way, I wonder whether there is anyone who has taken the chance to enter US market-related funds when market just dropped? I hope you are not only wise but bold enough to do that.  

Happy investing!

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Disclaimer

The view and opinion expressed are personal views of the author and are subject to change based on market and other conditions.  This write up does not constitute sole advice for an investment decision. Investors are advised to do further reading and research to conclude individual decision.

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