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Trading Strategy: Axe vs. Chainsaw
If you are going to cut down a lot of trees, would you use an Axe, or a Chainsaw? In reality, you don’t have to be an Active Trader to know the advantages of using an Axe vs. a Chainsaw, but it astounds me time after time why most Active Traders continue to use an Axe for their trading. Let’s cut to the core a little more. In order to be a consistently successful and profitable trader, you need a lot time to research stocks and have a methodology on how you are going to pick those stocks. Next you must have a solid understanding of the United States Markets (general understanding of International markets is a plus), its direction and the sectors of the stocks you are selecting from are performing. Once you have collected this information and eventually narrowed down the stocks you would like to trade, now you have to decide on the most critical factors, how you are going to trade the stock and how you are going to manage the trade once you have entered.
In order to trade stocks you need to know if you are going to be Long or Short, what’s the best Entry Price, use at least two Profit targets and a realistic Stop/Loss to mitigate risk and/or eventually protect your profits. Everyone is a brilliant trader when you can see the entire chart, but Active Traders can’t see beyond the hard right edge of a chart when they are about to make a trade. If you are trying to supplement your income with trading, there is a certain amount of time and skill that needs to be applied to researching and planning your trades. You might understand the markets, but without the proper amount of research time and methodology, you might as well be using the Axe to cut down those trees. If you have the skills and limited time, you will eventually cut that tree down, but will that supplement your income as you expected? If you are an Active Trader and able to spend some time doing the necessary research, you still need an edge. This is where the Chainsaw can help you cut down those trees and get you to the other side without the arduous effort and aggravation. No one can beat the market on every trade, but if you keep the losses small on the trades that aren’t working out and let your winners run and hit their profit targets, you’ll be ahead of the game and ahead of the majority of traders and investors in the market. Guidance, mentoring and most importantly, expertise are what you need.
The MajesticTrader.com Newsletter Publication is the “Chainsaw” and the edge you need. Our expert traders have a very select methodology, mostly based on Technical Analysis that culls the market for stocks that fit select criteria and then narrows them down to the best picks of the week. For Long trades, we look for trending stocks over the 10 and 30 week moving averages. Is the stock price coming out or going into Supply and Demand Price Zones (Support and Resistance), is the volume greater on the days stock prices go up and is the volume average increasing over time. This is just some of the criteria we look for in a checklist of over 25+ pieces of criteria. For Shorts, the criteria are just an inverse of Longs. It doesn’t matter whether the market is going up or coming down, you can make money and do so more efficiently by using the Chainsaw. It doesn’t matter whether you are a seasoned trader or a novice, finding trading opportunities can be a daunting task and using an axe to find those opportunities could result in trade losses or more trades that never hit Entry.
Many times a stock will look to be a terrific buy, but the wrong Entry can hurt potential profits or if entered too soon without the right price action, rising volume or price action beyond very specific resistance levels (Supply Price Zones) you might have a stock that just trades sideways. The stock might continue to trade sideways without hitting the profit targets within an appropriate period of time or at all. This is why it is important to be able to read the charts and understand that even if the stock has upside, the Entry point is just as important, if not more as picking the right stock. For example, the chart is telling you that there is a lot of resistance on “XYZ” stock between $25.50 – $25.65, even though the price is currently $25.15 and in an uptrend with a market and sector that is also trending upward. A valid buy point would be $25.75 with better than average volume. This will increase your odds of a profitable trade. Many times you will see that price will get into the Supply Price Zone(Resistance) and either pullback or trade sideways in there until it can “breakout” above the Supply Price Zone or weaken on lower volume and pull back. Sometimes it will take several tries to break through. In the meantime you can put that money to work on other stocks until your Entry hits with volume. This strategy will make better trades and yield you greater profits over time. MajesticTrader.com gives you the Entry that put the odds of profitable trades in your favor.
Several people have asked me about the Entry Price especially when pricing is in an uptrend. You absolutely could make money as price ventures towards the Supply Price Zone(resistance area), but you have to decide if you are more of a scalping type of trader or Swing and/or Position Trader that follows the trend and hits profit targets. Most of our membership have been conditioned to Enter at our entry points because we see price breaking out of those resistance areas or coming out of support areas(Demand Price Zones). These are critical points to understand if you want to see consistent profits.
Make sure that before you queue up your trade order, check for recent news or earnings announcements. Upgrades, downgrades, mergers & acquisitions, rumors, sector-related stock news, ex-dividend dates, federal announcements, economic reports, international news and economic reports and geo-political events can all move markets (sometimes more than what we want them). These are all factors for determining your Entry and potentially your Exit price.
Watching every tick will drive you nuts! Removing emotion as much as you can (if not completely) will also help you become a better Active Trader and yield consistent profits. If you are watching a stock throughout the day, human emotions will take over and may make you do one of two very bad habits that traders have, move up your stop/loss price too soon, or panic when price drops and just sell, does this sound familiar? We’ve all been there and done that. If you believe in the analysis, then give your trade some room to breathe and be smart with your stop/loss prices to mitigate risk and protect profits. Make sure you have rules in place for how these are set and when to move them. As a member of MajesticTrader.com, we provide our members with “guidelines” for how these stop/loss prices should be set. Again, by adopting a winning process is like using the Chainsaw, winging it with raw assumption is like using the Axe.
In the end, fear and greed drive traders to make money or lose it. Consistency and rules-based trading are the best ways to consistently yield profits. Make sure you do the homework or invest in a publication(the “Chainsaw”) that will provide you the necessary trading idea information and the edge you need.
Happy trading, don’t forget your safety goggles!
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