Buying & Selling Stocks: Profit Taking Guide & Trading Suggestions
Buying And Selling Stocks & How To Use This Service

Buying And Selling Stocks & How To Use This Service

Buying And Selling Stocks

Buying And Selling Stocks Rule 1

The first thing you need to do is divide your money into equal parts or amounts.   Most novice traders don’t understand this rule. When it comes to buying and selling stocks, it is essential that traders master this rule.  You cannot assign 50K to one stock and 5K to another stock and expect to win in the long run.

Let’s assume you have 100K to invest.  Many of our subscribers have smaller portfolios, and the rules are the same whether you have 10K or 100K to invest.

 Investing Money:

Divide your funds into ten equal parts, so each part will consist of 10K.  Depending on market conditions, these parts will then be divided into sub-lots ranging from 3 to 5. Lot sizes will be specified each time we open a new position.  In the above example, sub-lots would range from 2K to 3.3K.

Do not ever commit all the funds in one shot; always divide them into smaller lots, as indicated above.  Here is a typical set of instructions.  Deploy one lot (1/5 to 1/3rd) into stock ABC in the 90 to 93 ranges.  One will then place a limit order to purchase ABC at 90 or better. So in this example, we will place a limit order at 91.50. If the stock trades at 91.50 or lower, the standing order will be filled.

Generally speaking, we issue instructions for a maximum of two lots at a time. The remaining lots are deployed after the first two orders are filled. Our focus is on getting into plays where the risk to reward is on our side, and we never open a position at market price. We want to get in at the best possible price, which is determined by our risk-to-reward models.

If you come into more cash, say another 20K, you can either divide equally into the ten existing parts of 10K, or you can create another two new parts or position of 10K, so now you would have a total of 12 cash positions, each equally 10K.

Always maintain some cash for those mouth-watering opportunities that have a habit of suddenly presenting themselves. If you fall in the low to medium-risk categories, once the market trades slightly into the overbought ranges, maintain at least 25% cash.

The monthly chart of DIA

 

buying and selling stocks at the right time

How to determine when the market is trading in the slightly overbought ranges?  Any indicator you use should be trading at least 60% higher from the extremely oversold ranges.   We have two indicators in the above two examples. The first is the MACD and the second is the RSI. So the first one has a range from O to 100, so once it is trading in the 60% range, as shown by the brown horizontal line, conservative traders should start building a cash position of 25%.  The second indicator ranges from 0 to 1, so on the same token, when it’s trading roughly in the 0.6 range, conservative players should be looking to build up their cash position.  You can use any indicator that appeals to you.  Tradingview.com is a very good place to start. It is slightly more complex than stockcharts.com but offers many more indicators and educational material, and it’s cheaper if you opt for the premium service. In addition, the free version allows you to view charts with over five years of data, something not available on the free version of stock charts.

If the portfolio has the word “Hold” in the comments section, that means no new positions should be taken in it. Until the word “hold” is removed, no new money should be put into this position.

Do not get into any stock or option unless it trades at or close to one of the suggested entry points. So if we have two positions in company XY, one at 45 and one at 36, and the stock is trading at 51, then avoid this play unless new instructions are issued.  However, if XY trades at 40, you can deploy one lot as it is still trading below one of the suggested entry points.

Buying And Selling Stocks Rule 2

Allocate the same amount of funds to each position

Millionaire Mindset: Profit Taking Guide & Trading Suggestions

A person with a Millionaire’s Mindset is usually a very disciplined person, so never break the above rule. This might seem redundant, but we will repeat it anyway, as we have seen too many people ignore this rule and then complain when things go wrong. When it comes to  Investing Money our money, deploy equal amounts into each position.

Never invest more in any recommendation unless you are a seasoned trader or knowingly willing to take on more risk. Most investors tend to lose not because of bad choices but because of a lack of portfolio management skills. The fastest way to lose is to spread your money unevenly over your investments.

Tread Lightly With Options

Until you have studied the options market extensively and done some paper trading, don’t get into them.  It is better to understand and master the concept of buying and selling stocks before getting into options. They provide a speedy means of making money, but they provide the means of losing a fortune over a very short period.  To understand the options market before you jump in.

Never dedicate more than 20% of your portfolio to options if you are not a pro. If you are a pro, don’t exceed the 25% mark. Novices should not allocate more than 15%.  Of great importance if you look at massive gains and your options portfolio surges to represent over 40% of your portfolio. Take money out of it and reassign it to your other lower-risk portfolios. The only exception is if you are dealing exclusively with selling cash-secured puts.  When buying puts or calls, try not to invest more than 2%-3% of the money put aside for options trading into a single option position.

Options are also one of the safest instruments out there, but this is true only if one is. Selling cash-secured and or covered calls.  Selling cash-secured puts with the intent to own the stock is even safer than buying the stock outright and provides one with the option of getting paid to place a limit order.  When you are selling cash-secured puts or covered calls, you can ignore the 25% rule as you are not using margin or speculating.

The Millionaire Mindset only takes risks with money it can afford to lose; therefore, never invest your principal money into options. Only use profits to trade speculative options (buying calls and puts).  However, this does not hold true for non-speculative strategies such as selling cash-secured puts and selling covered calls.

 The Value Of Stops

stop limit orderAll stops issued are limit stops. Do not use the standard stop because if it is triggered, your order will be treated as a market order. For example, if you have an order to sell INTC at 30 and it trades at 29.95, your stop order will be triggered, and a market order to sell will be placed; if INTC should suddenly drop to 25, you will be filled at 25 instead of 30. A limit order will be triggered when INTC trades below 30. However, you will only get filled at 30. Some brokers do not provide this option, so you should use a mental stop or switch brokers.

Explanation of  a stop-limit order from Investopedia

stop-limit order is technically two order types combined, having a stop price and an equal or different limit attached. When the stop price is hit, the trader’s limit order is entered. For example, if the trader in the previous scenario enters a stop at $25 with a limit of $24.50, his or her order triggers when the price falls to $25 but only fills for $24.50 or better. Depending on the limit price entered, this type of order could trigger but not fill. It is possible the price could fall through the limit price before filling the entire order, leaving the trader with the remaining shares at a greater loss than anticipated. For a more detailed explanation, please read this article Understanding Limit, Stop Limit and Market Orders.

Set A Profit Target

Note the following strategy is optional. In other words, it is for the trader that wants to take his or her trading skills to the next level. We will always issue entry and exit instructions for every play in our portfolios. We will never leave you in the dark.

Selling Stocks once the profit target is hitEach individual is different, so we cannot tell you which target is best for you. Some individuals are happy with 20% gains, while others are ecstatic with 15% gains. Don’t force a target on yourself; choose one that you are comfortable with and stick with it. At least do this for half your position.  Come up with a target as soon as you open a position, as you are likely to change it later. This leads to uncertainty, eventually turning a good Trader/investor into a pig. Pigs always get slaughtered.

While we do our best to get you in at the best price, we think you should pay some attention to the exit as nobody cares more about your money than you. Secondly, our profit strategy might not entirely mesh with yours.

The higher the profit target, the more volatile the ride is and the higher the risk. If you hit your targets earlier, consider it a surprise bonus and take time to enjoy the other simple things in life.  The Millionaire Mindset has a profit target and a loss target. You should give equal attention to both targets as it’s an essential part of the investing cycle.

There Is No Place for Emotions In The Market

Selling Stocks and emotions The market has no mercy for emotional investors. The two worst emotions in terms of investing are fear and euphoria. So do not let your emotions do the talking.  Emotional traders nearly always end up in the red.  Understanding the basic concepts of mass psychology could significantly enhance your trading experience.

Anyone with the Millionaire Mindset will refuse to allow emotions to enter into the equation. Once emotions do the talking, one’s money does the walking. Therefore, it is of the utmost essence that you trade with a calm mind when you trade. As the old saying goes, revenge is best served cold, and there is a reason for this saying; hotheads usually end up broke as they have no capital left to stay in the game. The stock market is a war, you can lose several battles, but you can still live to win the war.

Explanation of the Color Codes used for Pending Stock plays.

All plays labelled in Green have a lower risk associated with them than plays labelled in Brick Red Text or bright orange text. Additionally, a stock that is labelled in Green text in the Trend portfolio has a lower risk associated with it than a stock play carrying the same colour (green text) in the Moderate to high-risk portfolio.  The same rules apply to the ETF plays; ETFs labelled in green are lower-risk plays, while those with Brick Red Text carry a higher risk.

We have divided the stocks into primary and secondary candidates to make it easier for new subscribers. New subscribers should focus on the primary candidates to start with, and then once you get used to our methodology, you can mix and match. Plays under the primary candidate’s section are associated with a lower risk than plays that fall under the secondary candidate’s section.”

Portfolios associated with the lowest risk are the primary candidate’s section in the Trend portfolio and the primary candidate’s section under the ETF Trend Portfolio.

We will generally try to keep the plays to 10 or fewer in the primary candidate’s section. However, if we close a position out in our portfolio, then we will issue a new play under the primary candidate’s section. Hence from time to time, there may be more than ten plays. All stops are now “end of day stops”; the stop is only triggered if the stock closes at or below the suggested price of the stop.  An end-of-day stop is akin to a mental stop, triggered only if the stock closes at or below the suggested stop price.  If it closes at or below the stop price, you enter a GTC limit sell order at or close to the suggested stop price the next day.   Some traders might want to get out fast, so they might attempt to sell slightly below the stop price. However, note that most of our plays tend to drift upwards after the stop is hit, so generally speaking, one can get out a better price than the stop price.  If the stock gaps down and closes well below the stop, one would enter a GTC limit sell order at the best price possible. We then collect data from our subscribers and determine the average exit price.  For more details on “stops”, visit this link:  Detailed Info on Stops.

When it comes to buying and selling stocks, patience and discipline are the two most essential traits newbies should master. If you chase a stock, you are bound to pay more, and in doing so, you lower the odds of coming out ahead. At the tactical investor, our rules are simple regarding buying and selling stocks; get into stocks with solid setups at the best possible price.

Other suggested articles

Tactical Investor Stock & Option Selection Process

Important Info To Read Before Getting into Options 

How to Purchase Options on Stocks we have not issued any plays on 

How To Sell Puts

Brainwashing Institutions and the manipulative media