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FREE SOFTWARE OFFER and Trade Analysis by Don Fishback
We get questions from customers, including questions about how we analyze option trades when the markets go haywire. In this video, Don Fishback looks at a super-high-probability trade suggested by Bob G.
Don looks at prior market crashes, and compares current conditions to the past. Plus, you'll learn steps you can take to "stay in the game", even when things don't go as planned.
Finally, if you're a trader who, during this uncertain period, is wondering how you can still trade and survive, Don is making this very special offer: FREE UNLIMITED USE of ODDS Onlineuntil April 20th.
Tomorrow, you could begin doubling your account every single month starting with one letter.
The letter will come from a 20-year trading professional named Ian Cooper. He says, “In 2017, following my trades you would be doubling even tripling your account some months. Let me show you how.”
He will show you exactly what to do... and he’ll give you the blueprint for just $1.
You see, novices are the only ones that can truly speak of grabbing huge moves in a single score. Professionals think like this; one out of every ten trades will rally ten dollars or more. Let’s just use that as arbitrary number. One in every ten of your trades will rally ten dollars. Let’s say three in every ten trades will rally four dollars. Let’s say seven in every ten trades will rally ten dollars. Let’s say nine trades in every ten will rally seventy five cents. What do you think the professional will do? He will take the nine wins out of every ten trades every single time because all he has to do to make up the difference is increase his share size. The professional will go for accuracy over the gamble because he does not know, of the nine trades in the first scenario, which won’t work, or whether one or two or three of them will open down twenty dollars. He does not know how much he is going to lose on the nine trades. But, he does know that under the latter scenario, he can win nine times out of ten. Once he has the winning record, he has two things he needs to do; increase the size and increase the frequency of activity. This is far more professional approach.
I have stopped fighting my number one problem as a trader. My fault as trader is that I take profits too soon. I love to ring the cash register. And part of that was built into me simply because when I first started in this business, I either made money or I didn’t eat. So when I had money on the table and I was hungry, I had to take the money off the table. This has been engrained in me and I struggle with this problem to this very day. I leave zillions of dollars on the table because I take profits quite quickly. For years I battled and tried to conquer this problem. What is interesting is that there was a constant battle between two demons one demon would sit on my left shoulder, the other demon would sit on my right shoulder. The one demon on my left shoulder would say, “You know you always do this. You’ve got a little tiny profit in your hands and here is going to be another time you’re going to take it too soon and the stocks going to rock.”
So I say “yeah, you know what? That’s right.” Then the other demon says “no, do you remember the last time you tried to hold on for a bigger profit? You did it at the wrong time and what happened? You lose big, right?
There is that constant battle between these two sides and in variably when I decide that I’m going for the bigger gain; that was the time not to go for the bigger gain.
Incremental selling allows you to take home some money immediately while also letting you stay with the trade for the bigger move and the bigger money.
So I have helped solve part of this problem by doing the following, instead trying to pick one demon over the other, I realize that both demons are with me forever, so I try to make friends with both of them. I say. “You know what? Instead of trying to satisfy one over the other, I’m going to satisfy both of you. I am going to take some now, so get off my left shoulder. Then I am going to keep some for a bigger gain. Now you get off my right shoulder.” This created the concept of what we call the incremental sell. I am not smart enough, even after all my years of trading, to know where the top is. So what I do is buy and sell parts. I may buy one lot, but sell in three parts. In other words, once the stock breaks above to a new high, I sell one third. If it goes higher, I then dish out another third. It continues to go higher, I dish out another third.
Remember, as the stock moves higher I am getting closer to what? I am getting closer to that individual who buys and can’t find another buyer. So I do not want to be stuck at the top and be that individual with all of my merchandise. If I do get stuck with that individual, I want most of my merchandise to have already been sold, and I only want to be stuck with the smaller amount. So once the stock breaks into a new high, I sell incrementally.
On the second rally we make a brand new high. Once it makes a high, I step back. I’m out of the stock already. No pain experienced by the way. I have not sat through three days of the stock not doing anything; I have not sat through three days of the stock going in the opposite direction. I have captured a pocket of time in the stock, a sweet spot, and got off before any pain set in.
Now I am walking right down to the bottom floor again and waiting for the stock to come to me. The next time it experiences three or more consecutive lower highs, I’m right back in there tracking highs. Sometimes it is so strong there are buyers available to compensate for all of the selling and profit taking that takes place. If this happens, the stock will often go sideways for a period. This is known as a time correction rather than a price correction. Once the stock breaks over the high of the consolidation, it may be bought as a breakout. Once I’m in place a stop below the current bar’s low or the prior bar’s low, whichever is lower and viola. Once the stock moves to a new daily high or once it breaks above the prior high, I am ready to sell in parts.
What you should do is come up with your own system. With every extra dollar, you can sell another part of the trade. Or every extra two dollars, sell another. Remember, though, to never let it drop below your entry price once you approach that first target.
A correction through time may lead to a different entry strategy known as a breakout.
You can also use a trailing stop method, meaning that once you sell some, you can place stop under the low of the prior bar. Let’s say its Thursday. Your stop is under Wednesday’s low. Its now Friday; it’s under Thursdays low. It’s Monday; it’s under Fridays low. And so forth and so on until the stock takes you out. Or until the stock experiences what I call a novice gap.
A novice gap is a stock that gaps up significantly higher than the prior nights close after the stock has already run for three, four, five days in a row. That is a novice gap; a gap that is basically being created and driven by people who do not know what they’re doing.
Novice gaps are caused by the group of traders who wait until the stock has moved up significantly before deciding to buy. The gap up is often caused by good news of some kind, but the novice trader doesn’t understand that the price has already moved up to encompass the news.
A lot of times, we are buying because this drop is a temporary period of pain. Market makers and specialists are squeezing shares out of the hands of week holders and then they’re gobbling it all back at this point and ramming the stock back to the upside. We are jumping on board the stock the moment, the instant, fear and uncertainty turn to greed.
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