TWO TYPES OF TRADING

There are two key approaches to buying. One is value buying: “buy low, sell high.” The other is momentum buying: “buy high, sell even higher.”
A value buyer identifies value and tries to buy near or below it. He aims to sell when prices become overvalued. I put two exponential moving averages on every chart and call the space between them the value zone. My software draws a channel parallel to the daily chart’s slow moving average that encloses about 95% of all prices for the past three months. The space above the upper channel line identifies an overbought zone, and the space below the lower line an oversold area.
Momentum trading calls for a completely different approach. Momentum traders buy when a stock accelerates and sell when it starts losing momentum.
Are you a value trader or a momentum trader? We make some of the most important decisions in life based on emotion. Some of us are temperamentally drawn to buying low and selling high, suspicious of wild trends. Others scan the markets, looking for runaway trends, then jump aboard and try to hop off before a reversal.
Only you can decide whether to be a value or a momentum trader. Whatever your decision, please keep in mind that having a written plan for buying and selling will put you miles ahead of your competitors. Whatever your method, a person with a plan has a clear advantage over the market crowd.

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