Warrant Buffet said it.
Those famous words. Do I to repeat them?
No, but I’ll say it anyway: Buy low and sell high.
It was once wisdom. Then it turned into a cliche. Now, many traders treat the idea with contempt.
This contempt is especially rabid amongst momentum traders.
Traders are now fond of saying, “buy high and sell higher”. Or “short high and cover lower.” We can even add “sell low and buy back lower”.
I am a momentum trader. I trade strength. I’m not supposed to trade for value, as Mr. Buffet does.
However, I still treat his famous wise words as gold.
I am a momentum trader who looks for value.
I know you are thinking here is Paul trying to be different again.
My answer to you is: you betcha! You have to think different than the rest to have results unlike them.
Now, I might not be thinking about value the same way Warren does. He’s looking for beaten down stocks that nobody wants, while I am trading momentum movers that everybody is trading. However, there is still value to be had.
You will rarely see me enter an *extended* stock on whatever time frame I am trading. That’s where the “dumb” money enters and usually gets crushed.
Extended stocks offer no value.
I enter on the breakout or off a pullback. These are *value* entries. Sure, fundamentally there might not be value in the same way Buffett sees it, but there is value in my time frames *price action*.
Take a look at this recent Facebook trade. Notice that the stock had made a run from $150 to $190 by the time I entered.
It was not offering value or “buy low, sell high” in the classic fundamentals sense. However, in my time frame, the stock had pulled back from $195 to $190. This trend pullback setup offered me a “dip” entry off a trend pullback setup.
For a momentum trader, this is value.
The setup offers good risk-reward and has pulled back off highs.
I essentially bought low and sold high.
The lesson here is even technical or momentum traders trade for value.
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Great perspective Paul.
Value Momentum Trading, spot on! Thanks.