Why Buying Stocks at Their Highs Is the Smartest Move You’re Not Making

“Buy low, sell high” is the investment advice drilled into us from the start. Yet, paradoxically, the most successful investors often buy stocks at their highs, not their lows. Buying strength, not weakness, is the secret to capturing big gains.

Why does this work? The answer lies in the law of supply and demand and the psychology of market participants. Stocks making new highs are attracting increasing demand, often from institutional investors who have the resources to move prices. Volume surges during these breakouts confirm that the buying is real and sustainable.

Consider the example of a technology company whose stock price doubled in a few months after breaking out from a well-formed base. Early buyers who waited for a dip missed the initial surge, while those who bought the breakout rode the momentum to substantial profits.

Conversely, buying cheap, beaten-down stocks can be a trap. These laggards often suffer from deteriorating fundamentals, weak demand, and lack of institutional interest, causing prices to fall further. The Great Paradox of investing is that what looks high often goes higher, and what looks cheap can get cheaper.

Chart patterns like the cup-with-handle provide a visual cue for these breakouts. The rounded base followed by a slight handle shakeout helps filter out weak holders and sets the stage for a strong advance. Volume spikes of 40% to over 1,000% above average validate these moves.

Adopting this mindset requires discipline and overcoming fear of buying at seemingly high prices. However, history shows that this approach leads to superior returns, as demonstrated by numerous multi-bagger stocks that rewarded early breakout buyers.

Understanding this principle is a cornerstone of the CAN SLIM strategy and a vital step toward becoming a confident, successful investor.

In our next blog, we’ll explore how to read these charts effectively and spot the signs that confirm when to buy and when to hold back.

Sources: Investopedia, Corporate Finance Institute, Deepvue, SmartAsset 1 2 3 4