How do you know when to buy? | RJO Futures

May 23, 2017 11:22AM CDT

In most cases, markets don’t turn around on a dime. First, there must be a “base building” period. If a new low is made, the shorts will keep testing it, trying to force the market lower. When market action is particularly choppy, up one day and down the next, lows will be tested and retested until they cannot be broken. The shorts will slowly cover their position. When a short trade is completed, the short seller must “buy back” his position. This creates new buying, which can last several weeks. It is usually a time to stand aside and let the professional traders fight out where the bottom will be. Once the dust settles, the shorts will have covered their positions and the longs will take control. There is an old saying when trying to enter a long position —“Never buy the first low!" That low will usually be retested. If a second low is made, but higher than the first one — THAT is the time to buy!

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