When asked one time if making money in the markets was difficult, Jessie Livermore (the semi-biographical protagonist in “Reminiscences of a Stock Operator”) famously responded:
“Not at all! I have found an easy way and I stick to it. …I will tell you my secret… I never buy at the bottom and I always sell too soon.”
Everyone has heard the old maxim that you must “buy low and sell high” to make money in the market. And while technically, at the very least you do have to sell higher than you bought to make a profit, the usual connotation of “buying low” (usually meaning a depressed prices) is not the only way to approach the market.
The truth is we never know ahead of time if that new high in a stock will stand for a while or if it’s just the first of many new highs over the coming weeks and months. And likewise, unless a stock is at zero, you cannot be sure it has bottomed out. Stocks are never too high to buy or too low to sell if you have good reasons.
Buying stocks on a recent high or after a large move can be a harrowing experience. Talk to anyone who has been trading long enough and its almost guaranteed they will have a story about the time they sold the all-time low in coffee or bought the all-time high in a now defunct dot-com stock.
The ETF models can put some of our fears to the test. At its core, the models are about being in the strongest TSI (Trend Strength Indicator) ETFs. This generally means the ones we get into are coming off a period of strong outperformance. They might not always be at new highs, but they will typically already have made a nice move before we get into them.
Let’s look at a few trades that fit this description.