“High Sell Method” and “Second Top Liquidation Method”

Investors all hope to have a method, a panacea, such as a certain indicator in technical analysis, once the indicator reaches a certain value, they can accurately close their positions. However, unfortunately there is no such technical indicator so far. In fact, as long as the pursuit of precision is not excessive, of course there are methods. The “high sell method” and “second top closing method” introduced in this issue can be used to close positions correctly, but not precisely.

The so-called “high sell method” means that when investors buy a currency, they have already set a profit target price for the currency. Once the exchange rate reaches this target, investors close their positions. Generally speaking, most investors who use this investment strategy use a combination of currency fundamentals and technical analysis, such as golden section lines, average lines, patterns, etc., to determine a reasonable target price, and then wait for the currency to reach this point. A target price is immediately closed.

The “second-top closing method” does not determine a target price for yourself in advance, but keeps holding the position until the exchange rate shows signs of peaking for the second time. Generally speaking, investors who adopt this strategy of closing positions usually use technical analysis to judge the signs of peaking, mainly from the shape and trend of the exchange rate. Specifically, the mid-term head establishment is determined by double top, head and shoulder top, and triple top, and the position is closed decisively.

Take the recent market as an example: on August 8 this year, due to the Bank of England’s unexpected interest rate hike by 25 basis points, the pound exchange rate rose strongly to 1.9144, and hit a new high this year. When it is impossible to judge whether there is still room for the pound to rise, we adopt a wait-and-see strategy. Subsequently, the market entered adjustment. On September 4, the pound once again rushed higher by 1.9081. From September 2 to September 4, it was unable to rise again for three consecutive days. We used the “second top liquidation method” to decisively leave the market and avoid subsequent Nearly 300 points of downside loss.

The combination of the two methods is better

Either the “high sell method” or the “second top liquidation method” can achieve quite good investment results. Many successful investors and fund managers in the world use one of these methods. However, no matter which method is adopted, each has its shortcomings. For investors who use the “high sell method”, they must first master a set of methods to analyze the economic fundamentals of the country where the currency is located. The target position set by the investor must be higher than its current market price. So, unless you really have your own uniqueness in the foreign exchange market, it may be more dangerous to set a target price.

For investors who use the “second-top liquidation method”, they mainly judge based on exchange rate trends, and do not determine a target price for themselves in advance. Of course, the shortcomings are also obvious, which requires investors to invest more time and energy in tracking the market. This is why some people diligently delve into what is “true top” and what is “false top” to avoid being deceived.

The author believes that combining the two methods will have a better effect, so it is more rational to close the position. When the exchange rate reaches the target price set at the beginning of the purchase, the position should be closed immediately. Because investors always have their own reasons when setting the target price, and the target setting at the beginning is generally more sensible. When the exchange rate continues to rise, most people’s brains start to get hot. In order to avoid making mistakes, it is best to close positions in time. After investors close their positions, the exchange rate may still rise. This can only be said to be a mistake in the judgment of investors, not because of investors’ enthusiasm. If the market really has room to continue to rise, you should have the courage to buy again, but this is another new operation to set the target again sensibly, without being affected by the previous order.