That is an interesting question. I get questions from people all the time asking that question. The answer is that IBD swing trader is always paying out much more than the short sell. Let’s break down the cost for a few swings in the money of an IBD investor.
So first, my swing trader’s strategy is simple, simply buy low and sell high. Basically, I buy whatever dips in price I can get close at the low point, and sell at the high point at which I thought that was going to drop.
Another very easy strategy for an IBD investor is to simply wait for a bounce to the upside. So if I hit $15 per share, and I sell at $15.50, I get a big payout on my risk if a bounce happens and I bought too far down. A lot of people don’t understand the benefit of IBD buying and holding, when they see a price spike, and say, “Hey, that is good; you paid for it.” For instance, yesterday (7/1/17) I held my IBD swing trade for about 7 days. I started by selling at $17 from which I then started a new swing trade at $16 (in fact, I held the same level during my first 2 days of new trade). I think the reason that I stayed out of my first trade was that it only hit my first $15 (or a little north of that), and I don’t know if that was enough to justify the long term investment in the stock. So I was pretty much done at $15 per stock.
In contrast, if I had sold too far down at $17 and bought again from $16, I would have been shorted off a third of my gains, and my total risk would have been reduced a lot more, because I wouldn’t have had much additional upside exposure.
As a side note, you might ask, “How do I avoid this whole “IBD” thing?” Well, I have to say that I am not really all that fond of the whole IBD market. I really like trading when the price swings and the momentum I am generating is very small. If it were a very large and high-flying market, I would have done far better staying out of long trades for a long time.
But that aside, when my stocks are in the green for a very short time, it really does make sense to buy in and get exposed to that opportunity.
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