trading envelopes, Bolinger bands and moving average bands. All of these techniques can be helpful but
don't lose sight of the absolute goal, and that is to get a ridiculously low price when buying. How many
times have you bought a stock that you have been watching because it started moving up and and bought
at a high. A few weeks later after losing 50% or so you got out and bought at a high. A few weeks later after
losing 50% or so you got out because you couldn't stand to lose anymore. Only buy a stock when it is
moving down, like Market Makers and specialist's do. Once in a position, never sell for a loss unless
something terrible happens, either break even or better is your goal and buy more if it goes down by 50%.
It is not our job to see the future and buy at lower and to stay well leveraged to take advantage of a sell off.
In other words make sure your back-ups have back-ups when it comes to cash and never get scared or
worried and let Wall Street take you for any amount of money. Remember that any time you sell for a gain
or break-even you have won. One exception we make to this steadfast rule is to never follow anything below
$.001. We feel that this will prevent us from getting to wrapped up in one position and lose all of our
money. We are also diversified among seven equities which allows us to put lower price targets for buys
and actually hit them from time to time.
We have back tested a strategy that simply picks bottoms (which wall street says not to do) by finding
support areas and waiting for the stock to break below. The system buys when the stock has traversed the
support level by the same amount as the average of the previous retracements. Then it averages down
every time the stock falls by 50%. The strategy starts with 5% of account equity and then the amount
increases by 1% every time allowing 10 buys if need be. Once the stock doubles from the average it is
removed from the program. What we found is that it very rarely bought 10 times and in fact, even horrible
companies did well like Worldcom and Enron. Even some companies that made it all the way down to $.
0001 made it back. We found that all of the companies with strong fundamentals did well. The only
problem with the system is that it takes time and money. We try to beef up this strategy by tweaking all of
the element's a little to suit our needs. We look for solid companies, start with larger amounts of capital in
stocks we feel more comfortable with, never go below $.001 and take half profits at strategic sell targets.
We also get out of stocks that feel stale or cold and come back to them later.
Spike trades can be a foreshadowing of prices to come. We are not talking about obvious mistake trades
that go through at exactly 10 or 100 times the price, but trades that are just below the bid or above the ask.
These could mean any number of things and everyone from market makers to traders can create them by
routing an order directly to an MM with their price. Large trades going through simply means that they want
to sell or buy but cant find the liquidity on the inside market. Small trades could be someone trying to guide
the stock to a price that they want. Continually guiding a stock lower with spike trades could be a bullish
sign as long as they are small trades.
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