Back in 1989 I took my nest egg of about $100,000 and plunged into the tropical plant business. I found out very quickly that those monies did not go very far. But over time the business grew. I funded expansion through internal cash flow. I liked the idea of being debt free. Then in 1992 I had the opportunity to acquire a larger piece of property that was in foreclosure for $200,000. Having had the property on it's books for quite sometime, the bank seemed motivated to give me the loan with a nominal down payment.
A short 3 months later Hurricane Andrew rolled through Homestead, FL and upended my world. My inventory and nursery structures were gone. Cash was non-existent. I was wiped out. I calculated that I needed about $500,000 to rebuild the operation and get back on track. Back to the bank I went.
This time however the bank was much more skeptical of my ability to repay a loan of that amount. Bankers know 80% of small businesses fail. To make a long story short, they agreed to fund me with $200,000 but with lots of strings attached. Each quarter I was required to submit financials with cash flow statements and forward looking projections. They kept me on a short leash. Over time, I rebuilt the operation and held true to the covenants of the loan. About 5 years later I went back to the bank and requested another tranche to the loan. With a proven track record of prompt payment and with a growing business to support the debt load, it was easier to get funded.
Now About your Trading Ambitions
You've worked hard over a long period of time to build your nest egg. You have big dreams about parlaying that nest egg into a vast fortune through trading. That's fine. Most trader's are optimistic and probably think that way. But what if your own Hurricane Andrew hits your trading account? Remember 90% of would -be traders fail. What if you're not as good as you think you are? Are you really willing to put your entire nest egg at risk out of the gate without a demonstrated track record of success? Once your trading capital is gone, its gone.....you are out. It's a risky proposition. It's also true that your family has a stake in those monies as well. Would it be responsible to head off to Las Vegas with your entire net worth in hundred dollar bills in a briefcase? Think about it.
Hire a Banker
When I got my operating loan from the bank, I absolutely hated all those hoops the bank forced me to go through not only to get the loan but to remain in compliance with the covenants. But you know what? It enforced a discipline both on myself and the business. It protected the capital that was at risk. There was another set of eyes watching me. It instilled fiscal discipline. It forced me to perform. I think that same forced discipline would be helpful to traders.
Designate someone in your life to be your banker. Could be your spouse, could be your parents, could be someone else you trust implicitly. Put them in charge of your trading capital. Let's say you are starting with $50,000 for trading. Fund your account with $10,000. Set up a quarterly reporting scheme whereby you visit with your "banker" to review your progress. Establish the covenants of your trading account. If after 3 months your trading account is down 50% ( which is very easy to accomplish ) do you think your banker will be inclined to offer additional funding toward your trading efforts? If however after 6 months or a year you're up 50% and have demonstrated continual improvement in your trading, your banker may see fit to extend you additional trading funds. It's a forced discipline and a check on you the trader. It makes you accountable to another human being for your performance. Will it be a pain in the butt? Yes. Will it save you from yourself? Probably. Hiring a banker will put a fine point on what you need to do to perform and make progress. I recommend you giving this idea strong consideration.
Happy Hunting and Good Trading!
In football, when a team wants to take a shot down the field, they often have their top receiver run a “double move” route. The receiver blows off the line, hesitates and goes sideways a few steps to get the defender to “bite”, then turns up field quickly before the defender can recover leaving himself wide open for the bomb. Explosive stocks do the same thing.
Simply put, the "Double Move" set up is when a stock shows a strong move ( gap up or strong igniting candle ) on high volume followed by an orderly pull back on low volume as profit taking occurs. The pull back usually takes a little time to either find the bottom of the gap up candle or the 20ema. At this point the stock is poised to rip higher. Here are 3 examples of the "Double Move"
MELI: The stock explodes in early August ( first move ) then has a 3 week sideways pull back on low volume to the 20ema, then explodes again ( second move). That pull back to the 20ema is a perfect place to get long. MELI going higher.
$BABA showed basically the same thing. Gap up; pull back to the base of the igniting candle; then up again. Then it had a second gap up, followed by a pull back to the 20ema which closed the gap, then gone again.
$BREW Dubbed by me as the "King of the Double Move" after showing multiple repetitions of the same double move pattern over the past 6 months
The "Double Move" is an explosive pattern and one you should look for. Many platforms allow you to screen for gap ups. Use your screener to look for them. Rather than chase the igniting candle, load your bazooka and patiently wait for a gentle pull back on low volume. If price reaches either the 20ema or gap support at the bottom of the gap up candle, that is your cue to get long with a stop just below the 20ema or bottom of the gap.
Have you noticed that everyone is a specialist these days? It's gotten so bad in the medical profession that finding a good general practice / family doctor is a tough ask. Go down the list of almost any profession and you'll find specialists and then super - specialists within one narrow sub-sector of a specialty. The reason? Specialists, especially good ones, are more highly paid than generalists. They "own the space" they work in. I found that out first hand a few years ago when i faced jaw surgery. I searched a radius of 300 miles and kept getting the same name; Dr. Steven Holmes. He owned the space, was Best in Class, and charged accordingly. When you are getting your face operated on, the "jack of all trades, value guy" probably isn't a smart option.
Is it a coincidence that a trader who only trades oil is better at it than when you or I put on our one oil trade for the year? I don't think so; he loves taking our money. What about the guy who only trades precious metals? Probably the same thing. When we try to do too much, our bandwidth gets stretched thin. When bandwidth is thin, focus is diminished. When focus is diminished, unforced errors increase and trade results suffer.
Check this out. I know a very good trader that addressed his bandwidth issue in the following manner. He only tracks and trades 45 stocks / instruments. He doesn't worry about the other 12,000 stocks; he has narrowed his universe to 45 stocks. And guess what? He owns those 45 stocks. He knows them like the back of his hand and he wins. Coincidence? His bandwidth is narrow and his focus is intense. He doesn't miss a beat.
Here is an overview of his stock selection Criteria.
So if you often find your self jumping all over the map and having that "Jack of all trades; Master of None " feeling, try dramatically narrowing your bandwidth and jacking your focus to the moon. I am willing to bet right now that your trading results will improve with that laser-like focus. Over time you can gradually increase your bandwidth to your own personal sweet spot.
Happy Hunting and Good Trading!
My good friends over at Steady Options posted an article entitled "10 Signs of a Fake Guru ". In my opinion, its a worthwhile read.
OK....its should not be a big surprise that there are scammers out there. Steer clear of them. Let's turn the page. What characteristics does a good mentor possess?
CHARACTERISTICS of a GOOD MENTOR
Finding a good mentor isn't easy, but when you do, its pure gold. Hopefully these ideas will help you separate the wheat from the chaff.
Double Top Bearish Reversal patterns, if identified properly, offer nice opportunities to get short a particular instrument to take advantage of an impending downside move. Here are the keys to identifying the pattern.
First Peak: The stock is in a nice uptrend, preferably for at least a couple of months, and puts in a top for the current run up. Note the positioning of RSI and MACD at this peak. It should be at the highest point for the current trend.
Initial Pull Back: The stock pulls back and bases for at least a month or so, but sometimes longer. I usually like to see at least 4 weeks of basing action, otherwise I have found the pullback is usually just part of the trend continuation.
Second Peak: The stock makes a move higher out of the basing pattern and finds resistance at approximately the same price level as the first peak. The key thing to look for at this point is bearish divergences on both the RSI and MACD. If both the RSI and MACD are at LOWER levels than they were at Peak 1 you have bearish divergences.
Confirmation: Within a day or two of the prior price level being tagged, you will often see a sharp pull back off the high with expanding volume. This is the signal to get short. A stop should be placed just above the price level of the Double Top. If price is able to recover and make new highs, the trade failed. Take the trade off.
Measured Move Price Target: Measure the distance from the top to the lowest point of the basing action. The Price target is found by subtracting that amount from the lowest point on the base. Example: Double Top at $90. Bottom of Base = $75 Difference = $15 Measured Move Target = $75 - $15 = $60.
Applied Materials had 2 textbook Double Tops in 2014 and early 2015. The second one in early 2015 resulted in a real rug pull as the stock was essentially cut in half over the next 8 months.
Pioneer Natural Resources showed a double top in the summer of 2014 when it showed 2 peaks a month apart with significant bearish divergences on both RSI and MACD given as clues. The stock went on to fall apart following oil down into the bear market for energy.
Disasters come in all shapes and sizes but they all have one thing in common, no one sees them coming.
Let's confine our discussion of Contingency Planning to our Trading lives. Here are a few disasters that quickly came to my mind:
Actionable Contingency Ideas for Major Disasters
Anyhow, the point of the exercise is to make you aware that disaster is likely to eventually find you in one form or another. Sleep well at night knowing that you and your family have done the prep work and have plans in place to address those events.