Here are two types of buy signals that traders can use. Swing traders have difficulty understanding how momentum traders like assets at higher prices and momentum traders don’t want to buy something that is not moving straight in one direction. I hope this sheds some light on two different kinds of traders.
Momentum Signals:
- This is buying into price strength.
- You buy high trying to sell higher or sell short low trying to cover even lower.
- You are buying a breakout of a range with the possibility that the break out level you bought becomes the new support.
- You are trading a trend of higher highs or lower lows.
- You are trading an asset under accumulation and the price is rising higher and higher as a trend continues.
Buying Support:
- You are buying weakness on the possibility that the low is in.
- You are buying oversold levels and believe that a snap back is imminent.
- You are buying pullbacks to key support levels in an uptrend.
- You are buying fear looking to sell it higher when an asset reverts to the mean.
- You are buying at technical levels that history shows presents a great risk/reward ratio and limited downside.
Money can be made buying dips and buying break outs. The keys to profitability lie in the winning percentage and the risk/reward ratio.