bain, peter r. - how the trade was won

8/9/2019 Bain, Peter R. - How the Trade Was Won

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HOW THE TRADE WAS WON

TAKE THIS TRADE AND LOVE IT!

GET YOUR HEAD AROUND THIS AND

YOU WILL BE RICHER. YOU HAVE MY WORD ON IT.

***** THREE STEPS TO FINANCIAL FREEDOM *****

(This " #$%&s i" ' '%&) +,i"-

+, /$#" 0i& ' &'"-'%$$ $" s,/!1

A person who cant make a decision is already making a decision.

(Descartes)

This is 0'/2,i,23i"3h4 /'/ s%i$+s4 )'&2"$2,%is$"%s )%'/i"-. A

50i"/4 )h%20--/ /$- #i)h ' "$) )i/ '%$+"/ i)s "3& 3$+0/ /$ i)!

R'/ $" )$ 6i"/ $+) #h') W'%%" B+66)) h's )$ s'7 '5$+) -))i"- %i3h

$" W'00 S)%).

Fortunes favour the bold.

(Virgil)

I use charts to help me assess whats likely to happen next - to examine past

price movements to forecast future price movements. This approach toinvesting an traing is calle technical analysis. Technical analysts aretren followers who interpret price movement an traing volume ofiniviual stocks or inexes via charts to etermine investa!le or traa!le upor own trens. I am on the "#uy$ sie of the "%treet$ an& as such& ont

pay any attention to own trens. I never short stocks. I only !uy an sell.

To the extent that technical analysis works& it is !ecause human psychologyplays a !ig role in investors an traers ecisions to !uy or sell& an thatoesnt change much over the years. 'onvince evotees ont really want

to know anything a!out the companys !usiness fortunes or outlook. They!elieve that everything that is known a!out the !usiness funamentals isalreay reflecte in the stock price an coul care less a!out valuation or

!usiness funamentals. That all sai an one an put asie& if you aretraing momentum stocks that have rock soli unerlying !usinessfunamentals& so much the !etter. Its the psychological factor. Its always


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nice to know whats !ehin your stock when you enter a trae an arewanting to know when to get out.

omentum traers !elieve that a stocks price will move in the path of leastresistance& an that path is efine !y the tren in the stocks price.

"To preict the course of the stock market& all %treeters have trieeverything from the height of ties to the fre*uency of sunspots. The most

practical tool is '+,T% that show the price changes of iniviual stocks aswell as the action of the market as a whole. 'hartists are powers in the%treet on what their charts show& institutions& mutual funs an thousans ofiniviual investors !uy an sell.$ Time aga/ine& 0123

The most practical e! site that shows the price changes of iniviual

stocks is Bi-Ch'%)s.3$.

The most practical e! site that shows the price changes of the market as awhole is h)),899###.-$0/2'-0.3$9i")%'2/'7.h)0 . The 03 intraaycharts isplaye are virtual real-time - allowing you to watch the aystraing-floor price action unfol !efore your eyes.

MY !"##$%#& "A'#$($)*+ A,*(+ &-A+

(kay lets get down to making some serious money here/ &lease payattention as * am about to share with you my hree$%tep rade$to$)in

Action &lan for F"#####/////. My beloved Mother was wrong but 0ust

this once . *n this case F"## is 0ust another name for M(+#Y.

:. 4ick a "hot$ stock that has a rock-soli aily chart pattern - steay-to-up like rolling hills with progressively higher peaks - an goovolume (055&555 per ay is !etter than 05&555). 6xample7 a'anaian natural gas stock like 'ompton 4etroleum - input as ca7cmtat #ig'harts.com (ca for 'anaian). 8ote7 If you use a 9.%. stock&

the prefix is not re*uire.

+ever buy and hold a stock through a flat period. The iea here is tomaximi/e the return on your money& not to let it sit aroun ile. :oucan either aopt a ay traers slash-an-!urn mentality or a !uy-an-hol strategy& as long as you buy and hold during a trend and sell assoon as the trend ends. Investors an traers& take note.

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To paraphrase 8ewton& ", stock in motion tens to remain in motionuntil acte upon !y an e*ual or greater force (like news).$

ost investors an traers seem to !e !etter at following trens thanpreicting them.

oving averages an ,'D are tren-following or "lagging$inicators an are highly suita!le for use when prices are moving in anicely efine fairly long tren. They o not work well in siewaysmarkets. They arent esigne to warn you of impening pricechanges they merely let you know whether prices are falling or rising.These inicators get you in an out of the market late& !ut reuce yourrisk !y keeping you on the right sie of the market.

;eaing inicators& however& preict what prices are likely to o next.The risk is higher with these& !ut so too is the rewar. They work !estwith sieways& "traing$ markets& an measure how "over!ought$ or"oversol$ a stock is.

y strategy revolves aroun lagging inicators as they let the tren !eyour frien.

< :

;. ,s I have one in the a!ove example& use the Interactive feature at#ig'harts.com an plot =5-ay oving ,verageollinger #ans&%I (elative %trength Inex) an ,'D (oving ,verage'onvergence Divergence) using a six-month timeframe.#ollinger #ans trace where a stocks typical highs an lows have

!een an are likely to go. They provie a sense of upper resistance

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an lower support points. They are the wavy lines in the chart a!oveat the upper an lower limits of price action.

%I is a goo inicator to use in con?unction with #ollinger #ans&%I !eing a measure of a stocks upwar movements& compare withits ownwar movements over a perio of time.

hen a stock crosses over the lower #ollinger #an& as well ashaving a low relative strength& its slate to re!oun (spot < a!ove).hen it !reaks through its upper #ollinger #an an has a strongrelative strength& its slate to ecline.

hen ,'D is a!ove /ero& this is !ullish. hen it is !elow /ero&this is !earish. #uy situations occur when ,'D& the faster line&

crosses a!ove its signal line (spot : a!ove)& the slower line& an sellsituations occur when ,'D falls !elow its signal line.

hen a stock closes a!ove its =5-ay oving ,verage line you !uy(spot : a!ove)& an when it closes !elow its =5-ay oving ,verageyou sell. The =5-ay oving ,verage is the fine line running throughthe mile of the #ollinger #ans.

(,s an asie& with the #ig6asyInvestor (#ig6asyInvestor.com)& yousimply push one !utton to fin all stocks crossing up through their =5-ay moving average line. :ou !rowse through them an choose the

!est ones. ,t the en of each ay& you receive a report etailing whichof your positions may have crosse own through their 05-aymoving average line so you know when to get out. #est of all& thisservice is F"##@ +owever& they institute a AB5 monthlysu!scription fee ,pril 0& 3550 - unfortunately. This fee is for ataservices only& an you will continue to receive the #ig6asy Investorsoftware an all upgraes& free of charge. I like the prouct !utiscontinue using it effective ,pril 0st& as I ont personally like to

pay for ata if I ont have to. ith what you are learning in thisreport plus the sites I point you to - ,skesearch an #ig'harts - youreally ont nee #ig6asyInvestor. I am only !ringing it to yourattention for your general information. Do as you wish.)

:ou rely solely on technical signals like #ollinger #ans& %I&,'D an =5-ay oving ,verage to take you into traes or out of

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them. :ou use technical inicators to pick entry an exit points.Technical analysis shoul !e viewe as simply a means of timing yourtraes.

In the example a!ove& I have marke the spot < where #ollinger#ans an %I signale a !uy together. +owever& towars the en of,ugust& ,'D an the =5-ay oving ,verage signale a safer anstronger !uy. 4rice action rose a!ove the oving ,verage& an,'D !ecame !ullish (a!ove the /ero line)& this after it ha ?ust

punche through its signal line (?ust to the right of the spot marke


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*f you are a true blue homo day tradius amateuris at heart& take heart. :ouont necessarily have to wait for inicators to take you in an out of traes.%ince we are only ealing with stocks that have strong chart patterns here&you coul simply take a more aggressive approach. +ere& you woul reviewyour charts at your leisure after the market closes& looking for exceptionalstrength. Then you woul place your traes !efore the market opens& goinglong (!uying) on the strong charts with two per cent stops.

Then go for a ?og& have a coffee& rea the paper an tune !ack into themarket half an hour !efore it closes. here stock charts still lookexceptionally strong& leave them alone. Ctherwise& close out any positionsthat survive the tight stops. ,gain& this is calle "letting your profits runan cutting your losses$.

If you stick with your traes& at least those that survive the tight stops& itsthen a matter of holing them for a longer term& shifting gears into aninvestment mentality& or waiting for an inicator to confirm that your traeswere !ona fie& or that you shoul get out. Dont forget to maintain trailingfive per cent stops. This num!er coul go as high as 0=. :our tolerance forrisk will etermine the num!er you go with.

The only pro!lem with waiting for inicators to take you in an out of traesis the wait time. :ou may have to wait two-to-four weeks to get a clearsignal. +owever you get into a trae& its goo traing iscipline to exitwhen you o get a sell inication& ?ust in case price action goes sieways fora while& or !reaks out of its upwar tren an slies into reverse.

There are many variations on traing. The Three-%tep is ?ust one approachyou can take& which is especially effective if you have a ay ?o!& an cantwatch the markets all ay. I guess you coul call it pseuo-ay traing& or across !etween ay an position traing. It oesnt matter what you call it&try it. It works.

If you want to ig eeper& theres a whole section evote to ay traing inmy !ook calle "!() ( "A'# -*1# A &"( *+ (+# !(2"$('hapter 03). It is sol at rading%marts.com.

hether you follow my Three-%tep "Trae-toin$ ,ction 4lan or take amore gutsy approach an trae strength& the only real homework you have too is continually look for stocks with goo chart patterns - not flat ones. 8ot

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har to o. Eo through the national newspaper& or stock screeners& everyay an look for stocks with rock soli chart patterns. :ou can check theseout at #ig'harts.com. #uil up an arsenal of stocks you can trae. Thatway& you can move in an out of stocks with relative ease an minimi/e yourowntime. This keeps you on the winning sie.

It oesnt matter whether the markets are up or own. :ou can make moneyeither way. The markets rotate rapily !etween sectors. Dont concentratestrictly on one market like the Dow& which consists of the >5 largestinustrial stocks in ,merica. That woul preclue you from takingavantage of opportunities availa!le in other sectors.

%tock and inde3 options are an option to plunging in full bore and

paying full fare. :ou !uy call options only on stocks that have upwar

momentum& or on market-tracking inexes. The site with the most a!unantresources& the 'hicago #oar Cptions 6xchange (35$.3$)& has an onlinelearning centre that walks you through the !asics.

In aition to working with stocks that are going up& you have to allow forthem to appreciate within a certain perio of time& !efore the option expires.#uying a call option is like putting own a eposit on an apartment to !ackup your commitment to rent it at an agree price from a fixe ate. If youont show up& you lose 055 per cent of your eposit& !ut no more.

,lternatively& if rents for that particular type of property rose sharply !eforeyou move in& you woul have a valua!le right& on which you coul make a

profit if you coul sell it to some!oy else - which owners of stock aninex options can o.

A KILLER TRADING STRATEGY

FOR STOCKS THAT HAVE FALLEN OUT OF FAVOUR

6ver woner what to o with goo *uality stocks (or commoities or

currencies or markets for that matter) that have !een hit !y the 8,%6'Fof 3555 or some similar phenomenonG 'urious to know when they will turnarounG ell& heres a strategy that will o it for you.

Its calle "CROSSING THE CROSS$& a very powerful traing weapon.+eres how it works7 In apan& when the =5-ay moving average of a stockmoves upwar through the 355-ay moving average& they call this the

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"G$0/" C%$ss$. Its a classic "B+7$ signal. hen it oes the opposite& itis calle the "D')h C%$ss$. Its a classic "S00$ signal. 'all them what youwant& !ut these signals are ealy accurate& as you will soon fin out foryourself. :ou can plot !oth moving averages together *uite easily atAs&Rs'%3h.3$.

This strategy is ifferent than the Three-%tep "Trae-to-in$ ,ction 4lan inthat the Three-%tep eals with stocks that are following a nicely-efineupwar tren. The "'ross$ strategy eals with stocks that have !eentrening own& !ottoming out an regaining momentum.

+eres an example of the practical application of the "G$0/" C%$ss B+7Si-"'0$ (courtesy ,skesearch.com)7

In this example for stock sym!ol "I;6$& you can see that the =5-aymoving average line (the lower of the two lines to !egin with& starting at theleft of the chart an going right) penetrate the 355-ay moving average inits upwar move half way through the chart& an the rest was history. :oucoul have !ought this stock at that point (aroun 9%A32) an mae a *uick

profit (at aroun 9%A>B)& which is what traing is all a!out.

e-oh& my-oh& !y the way& 9%A>B minus 9%A32 e*uals 9%AJ times 0&555shares e*uals 9%AJ&555 profit in ?ust two weeks. Times =&555 shares e*uals

9%AB5&555. 'an you hanle thatG Do I have your attention yetG 4rettycool& ehG

ust in case you ont !elieve me& heres another example of the "G$0/"C%$ss B+7 Si-"'0$ (again courtesy ,skesearch.com)7

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,n& if you ?ust happen to !e a ay traing fanatic& you can use,skesearch.com to plot intraay elaye charts of your favourite stock.,mong the many things you can look for to signal your ay trae is theEolen 'ross using =5- an 355-minute moving averages.

;et me give you an example7

X

+ere you see an intraay elaye chart for 'anaian Tire. :ou will noticethat the =5-minute moving average penetrate the 355-minute movingaverage at approximately two p.m. on onay& arch 01& 3550 at the spotmarke < - a price point of A33.JH=. +a you hel your position& you coulhave taken a *uick profit the next ay at aroun A3>.23=. 8ot a huge profit&

1
http://www.askresearch.com/cgi-bin/chart?symbol=CTR.A&exchange=CDN&cobrand=


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!ut an illustration of how powerful the Eolen 'ross strategy is even for aytraers. , this weapon to your arsenal an profit away.

It oesnt get much easier than this folks. Dont is!elieve or secon-guesswhat you are seeing. Dont let your eyes eceive you. This sKKK works.:ou can now make money all !y your very own lonesome. :ou ont neeany more avice& auios& !ooks& courses& hot tips& newsletters or tapes. usto it.

Im giving you FREE stuff here& which is ?ust the tip of the ice!erg.9nfortunately& you have to pay for the rest. y !ook "!() ( "A'#

-*1# A &"( *+ (+# !(2"$ has it all. Eet your copy+(). %ol atrading%marts.com& while *uantities last.

I talke with the pros& an I can hear them saying& "This man must !estoppe.$ The secrets of the pros are waiting for you. ,n& if you ont likemy !ook& Ill give you your money !ack - no strings attache. #ut& you getto keep the !onuses L no *uestions aske. , small price to pay to make9%AB5&555 or so in two weeks with ?ust one trae& woulnt you agreeG

4retty simple& ehG :eah right. If you only knew the mountains I ha toclim!& the seas I ha to cross an the tri!e of people I ha to !efrien toiscover these gems. 8ow theyre yours ?ust for the taking. , heckuva eal.

The a!ove two strategies ("Three-%tep$ an "'ross$) work e*ually as wellwith commoities& currencies an markets if those are your !ag.

If its gonna !e& its up to you. Deal with it. ust o it. oney is ?ust "threesteps$ away& or if you use the "'rossG strategy. 6ither way& happy traes toyou@

#est wishes&

P)% R. B'i"Traing%marts.comVictoria& #.'.& 'anaa

PS8 %ee if you can use what you have ?ust learne a!out the Three-%tep"Trae-to-in$ ,ction 4lan to trae #'EI !elow7

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A WORD ON STOP2LOSSES

I have a efinite fiuciary o!ligation to you to preach the gospel accoringto using stop-losses& as I have one so in this report. +owever& there is anargument to !e mae for not using stop-losses in certain cases like investa!leopportunities& where you may wish to hol for the long term for whatever

!onafie reason. I only offer the following iscussion to you for yourgeneral eucation. :ou !e the final ?uge.

Volatility is inevita!le in this !usiness& an selling too soon will not give youa chance to outperform the stock market if you are in it to stay. I o espousemental stops& though& in cases where youre not using stop-losses. These can

vary in percentage epening upon your tolerance for risk at any given pointin time. 9sually a trailing stop of& say& five to 0= per cent is in orer& if youare in fact putting stops on.

or example& the 8,%D,M fell B5 per cent for the year 3555. If my8,%D,M stock fell "only$ >= per cent& that stock is exhi!iting goo"relative strength&$ an as such eserves to !e hel. It will recover morestrongly when the market turns aroun. Its not right to get "stoppe out$ ofa goo stock at some ar!itrary low point& especially when the stock isoutperforming the market. Thats if& of course& you have the staying power(i.e.& you ont nee the money).

If I calculate the traing range for a stock as >5 per cent& that means thestock will likely move up or own a range of >5 per cent per month. Thatstock remains a great !uy& even if it falls 35 per cent in one month& an isapproaching the low en of its traing range. In other wors& I will !uy

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stocks on ips when other investors might !e selling& accoring to their stop-loss systems.

,nother reason I *uestion stop-losses as a general rule relates to traers onall %treet pushing the price of a stock own to that level to try to get theorer flow going& cleaning out the stop-loss orers& an then pushing thestock up again. , stop-loss system can cause excessive turnover anseverely hiner the tax-efficiency (i.e.& long-term capital gains status) of thestocks I work with from an investment point-of-view.

6ven if my stocks o have a rough rie& I can almost always expect them tofirm up when their respective companies release their *uarterly earnings.Eoo stocks like those that I work with almost always rally in the wake oftheir *uarterly earnings announcements in anuary& ,pril& uly an Ccto!er.

Dont get me wrong. %top-losses have their place& especially if youre agutsy homo ay traius traing strong momentum stocks& as iscusseearlier. In the final analysis& its your call. ,fter all& its your money.

+eres an example of a stock that woul have given you a !a case ofheart!urn ha you not ha a stop-loss in place7

#'EI (#oston 'ommunications) ha performe nicely uring the8,%6'F of 3555 (=5-ay oving ,verage consistently trening up)&

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an was a great traing stock - !y simply using the "Three-%tep$ processyou rea a!out earlier in this report.

emem!er 8ewtons ;aw (paraphrase)7 ", stock in motion tens to remainin motion until acte upon !y an e*ual or greater force (like news).$

C!viously something went wrong in anuary& an finally the stock collapsein e!ruary. This is what can an oes happen. ithout a stop-loss in place&you woul have !een in for a nasty surprise& not to mention the money youwoul have lost.

If you are traing through a !roker& !e sure to give himNher stop-lossinstructions to cut your losses ?ust in case heNshe !row!eats you intoaccepting hisNher avice on a particular security. 'aveat emptor.

MARKET UPDATE8 WHICH WAY IS UP=

;ike my e! site says& who cares what the market is oingG arren #uffettoesnt look at it all that much. 4lus which& he wont !e !uying stocks until

!usinesses sell in the market for less than theyre worth.

If you are a momentum traer& as I am suggesting you shoul !e in thisreport& you are only intereste in traa!le situations wherein stocks aretrening up over a perio of time - say& six months. %ectors within themarket o perform well& even when the overall market is in the olrums.%o& in essence& it oesnt really matter what the market itself is oing.

If you ?ust have to know what is going on in the market& go to%tock'harts.com. an look up "arket %ummary$ in the "Tools an 'harts$section. %croll way own that page& an click on the avanceNecline (,-D)line for the stocks on the 8ew :ork %tock 6xchange& an see what you see.The message here is that more 8:%6 stocks are either avancing oreclining.

The 8,%D,M ,-D line is also epicte !y clicking on its respective ,-Dline& as are Volatility Inex an 'allN4ut atio.

The 'hicago #oar Cptions 6xchange compiles an e*uity put-call ratio7total volume of e*uity put options ivie !y call options. eaings of 5.25are !ullish an 5.>5 !earish& !ecause nervous investors rush to !uy

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protection in the form of puts. The ratio generally inicates the marketsirection in the next two weeks. Its popular !ecause its accurate. Itsalways the first thing you shoul look at. :ou can fin this ratio at7http7NNwww.c!oe.comNtoolsNstatisticsNsummeri/.asp

,n now on to VI


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;ast year& when e*uity markets were still rising& the !on market wasmaking the opposite call. The yiel curve flattene !etween e!ruary an

8ovem!er& meaning fixe-income investors were !etting on lower interestrates an a slowing economy. They were right.

In late 011J& when the ,sian e!t crisis triggere a glo!al slowown& an the9.%. eeral eserve was cutting interest rates& the !on yiel curvesteepene consiera!ly - a preiction that the slowown woul not last long.That call was right. The economy picke up& an the e tightene in 0111.

, !ons yiel curve is its interest rate ivie !y its market price. henthe price of a !on falls& its yiel rises. #on prices are !i up an ownlargely on the !asis of what fixe-income investors !elieve lies ahea for theeconomy an& !y extension& what interest rate moves are likely from the

central !ank.

ising !on yiels can !e interprete as a preiction that economic growthis ue to increase& an - eventually - force an interest rate hike. The yielcurve steepens when the sprea !etween yiels on long- an short-term

!ons grows. It flattens when the sprea narrows& an an "inverte$ yielcurve occurs when long-term yiels are less than short-term yiels.

%preas on short-term !ons !egan steepening late last year (3555)&following a similar pattern in the mile- an long-en of the curve.9sually& when you get that se*uence of events& the signal is pretty relia!le.

If you !elieve what the !ons were telling us at the time& economic growthwas heae for a pickup an the stock market woul follow. The yiel curveis a relia!le preictor of future economic trens& some of the time.

If you want to know how the economy is oing& have a look at the 'onsumer'onfience Inex (''I). This measures how confient or pessimistic theaverage consumer is with regar to the health of the economy ECI8E

C,D. 6very month& the 'onference #oar& a private research firm&surveys =&555 consumers to see what their view on the economy is.

, high reaing inicates that consumers feel the economy is in goo shape., lower reaing is a signal that the economy might not !e as strong as

previously thought. The premise is that& if the average consumer feelsconfient in the economy& he or she will ten to purchase more goos an

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services. This in turn stimulates the economy. ,n on the flipsie& if theconsumer feels the economy is faltering in some way& he or she might holoff on ma?or purchases until the economic outlook is rosier.

In closing& no!oy knows what you think they know. %age avice whenyoure reaing or listening to news. Think of it as wil entertainment.6very!oy has an opinion& !ut o they really know whereof they speakG,lso& learn from others traing mistakes. :ou wont live long enough tomake them all yourself.I3$"i3 i"s)$% W'%%" B+66)) $"3 s'i/8 >I #i00 )00 7$+ )h s3%) $6

-))i"- %i3h $" W'00 S)%). Y$+ )%7 )$ 5 -%/7 #h" $)h%s '%

6'%6+04 '"/ 7$+ )%7 )$ 5 %7 6'%6+0 #h" $)h%s '% -%/7.? O%4 )$

,+) i) '"$)h% #'74 /$"@) 50i '00 )h h7, ') )h )$,4 $% '00 )h -0$$

') )h 5$))$.

arren #uffett has long counsele that investors must istinguish !etweenthe company an its stock. , company can provie a prouct consumerswant& !ut its stock may !e unattractively price.

N$)i38 P0's 60 6% )$ ,'ss )his %,$%) $" )$ #h$% 7$+ ,0's4

5+) ,0's /$ s$ i" i)s ")i%)7. P$%)i$"s '7 "$) 5 3$,i/4 's )h ")i%

/$3+") is 3$,7%i-h) ,%$)3)/.

Th'"& 7$+!

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C$,7%i-h) ;; 57 P)% R. B'i"9A00 Ri-h)s Rs%/

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http://www.tradingsmarts.com/http://www.tradingsmarts.com/

bain, peter r. - how the trade was won

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