ThIS OVERVIEW GIVES YOU AN IDEA OF THE PROCESS WE GO THROUGH IN GENERATION THE ORIGINAL PITBULL TRADING SIGNALS. IF YOU SUBSCRIBE TO THE SERVICES WE DO ALL THE WORK FOR YOU.
Two Steps To Using The Pitbull Investor Stock Report
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STEP 1: Evaluate the "Market Health" to determine whether you should be in or out of Equities
|We have a series of "Market
Health" charts which give you "at-a-glance" rapid identification of "Safe
Zones" when the risk has been mitigated by the ongoing trend and support
of the broader market. CLICK
HERE TO SEE CURRENT UPDATED MARKET HEALTH CHARTS
In its simplest interpretation during these times when we see "BLUE" it means that we can invest in Pitbull Stock Selections with relative impunity, following the rules of selection. During periods when we see "ORANGE" as the prevailing color we need to stay out of the market or take selected stocks which may be bucking market trends, ie Broad Equities are going down, but Oil and Gold related sectors are going up. We will show you in another section how to determine "Best of Breed" stocks when we have sectors on the move.
We have charts for SP500, NYA/DOW, NDX and also very long term portfolio timing for your retirement accounts..
If you use hedging we can get into trades earlier and trade with less risk. See the Hedging Strategy of the video you received with your Pitbull Investor manual purchase.
GO TO THE PITBULL INVESTOR DAILY SIGNALS /OPTIONS LINK ON THE
IF YOU WERE TO DO ALL THE WORK YOURSELF THESE ARE THE ADDED STEPS YOU WOULD HAVE TO TAKE TO TRY TO REPLICATE OUR RESULTS.
|Now that we have decided that it
is actually to get in the water the next thing we must do is determine
what stocks we want to buy. We will go to our Stocktables site and click on
the "NEW Pitbull Selections" Button in the upper right hand side of the
menu bar at the top of the page. Once click and you will see stocks which
have met our stringent requirement for consideration.
At this point we have 5 stocks which have appeared as selections which have met the qualifications. Because we are looking for stocks making 1 year highs, we could have some stocks that are just now breaking out, or ones that may have broken out months ago and are back on the list because the other parameters are still in play. We cannot blindly buy this list, so we have a little more work to do.
|2b: REVIEWING THE SELECTIONS: Looking for dominant chart patterns.|
|The first thing we want to do is
look at a chart of the stock so you can easily do this by clicking on the
stock symbol. Just click on the stock symbol and you will get a chart from
Stockcharts.com. You can use any chart service you wish including your
online broker. We recommend setting the chart up with a "Closed Line"
chart. It makes seeing the patterns easier. When we are making decisions
on stocks we might hold for 3 months we have no business looking at all of
the intraday noise displayed on Candlestick or OHLC charts. If you want to
look at them for timing your entry that's fine, but don't bother when you
are just trying to find dominant patterns.
We want to determine two things:
Let's look at a few past trades to get an idea of what we are looking for:
Cup and Handle Patterns exist in all timeframes and are used by daytrades and long term "Buy & Hold" investors, (if there are any of those left any more).
Here is another typical pattern that looks like it has all the requisites for a good trade.
Notice that I have annotated this as having a "Good Pattern but Too Long". This is a text book setup, but notice that the overall formation including both the cup and the handle is about 19 months long. The rule of thumb on this setup is that you should reach your target in 1/3 of the length of the setup. That means we project to be in this trade for about 6 months. That's too long. We have about three smaller cycles in the broad markets every year and it means that for at least a portion of the trade we are not going to have that support behind us.
Here is a chart that is actually published by a well respected authority on Cup with Handle showing the "Ideal" investor pattern;
Now investors got excited when this pattern broke out, but notice that the timeline on this one is about 6 1/2 years. True, it projects an outlandish 97% gain, but it will take better than 6 years to get there. I will guarantee you there will be a major market cycle during the holding period and most investors will and should get chased out of the trade.
LDG on the other hand fit our timeframe nicely and projected a target of $56 (I never trade without knowing when to get out and what the target is...more on this later).
Notice that it made it to the target ahead of schedule and even though it went higher we would get out, using our trade calculator to make the exit. We made everything this trade promised us and it is time to move on to a new setup and trade. As you can see shortly thereafter the stock collapsed and gave half of its gains back.
Over the years I have asked professional traders and money-managers how they trade and universally none of them has any trouble getting themselves into trades. Getting out is another issue and probably the biggest problem for newbies and old-timers as well. When pressed the experienced traders will tell me the get out of the trade on "FEAR'. Fear that the trade will move against them or that they have made some profits and are afraid they are going to have to give them up.
I have NEVER had a trader tell me they get out because they have reached their target, but to my mind it is actually more important to know what to expect from a position before you ever enter the trade than it is to take a trade that "looks good" for fundamental or technical reasons.
The old trader's adage is to "cut your losses short and let your profits run", but can you guess why they say that about positions that are in profit? It's because they don't have a clue what to expect from the trade. If they have no target in mind than how can they possibly make a decision between two stocks that both are giving "buy" Signals.
You need to be able to determine what the projected target might be. With that knowledge you can easily make the decision about whether you want to stay in the trade when you hit 8% profit, which is where most folks get edgy. If you know a stock has a 40% potential upside in less than 3 months you are much less likely to get chased out.
3: CALCULATING POTENTIAL PROFIT
|For my plumber I created a very simple
calculator for Cup & Handle patterns. Cup & Handles are probably
the easiest to calculate, but it helps to have a "fill-in-the-blanks" form
at your fingertips to take the guesswork and error out of the equation,
plus you can print it out when you are done and you will have a record of
why you actually got into the trade to start with. I have actually created
calculators for all of the patterns I teach, but it seemed more
appropriate to introduce them one at a time for each system as we go
through our upgrades.
You can find this online from the menu on the Pitbull Dashboard at http://www.pitbullinvestor.com/stockreports/index.html
Using the calculator
looking at the prospective chart pattern, simply enter the "Rim" Value which
is the highest point on the left hand side of the graph, and hit the tab
B. Enter the "Bottom" of the cup value and hit the tab key.
C. In the upper right hand quarter the "GAIN%" will now be displayed. If it is greater than 25% you have a qualified stock. Remember you are trying to find these stocks very near the breakout point. If it is already up 5% it is probably too late to get into the stock. We have about 1200 patterns a year, typically, and you probably don't have enough capital to play them all, so simply move on to the next opportunity.
|Once we have determined that we have a viable
trade the calculator takes things to another level and determines trading
stops for you. YOU have to decide what kind of at trader you are...(Where
you stand on the "Ulcer Index". You can then use the drop-down in the
upper left to select between: 1- Adventurous, 2-Agressive,3-Prudent or
4-UltraConservative. I always advise folks to start out UltraConservative
and then they can play with the other settings.
You will notice that the actual stops generated in the red bar will change in accordance with the setting above, as will the % stop listed in the box under the main table. (In this example it shows that on the ADVENTUROUS setting we have an initial stop of 11.5%. If that is outside your comfort zone simply reduce your risk setting (you will see the change dynamically) or choose another stock. There are lots of trains every year. You don't have to catch the first one.
The stops are not arbitrary. They have been developed to provide you with the ability to place a stop on the stock BASED ON THE WAY THE STOCK ACTUALLY TRADES...not just an automatic 8%, 12% or 15% the way some traders have picked stops in the past. Let's face it, a stop on a $10 stock is going to be very different from one on an $80 stock.
Once you have picked your risk level here is how the stops are chosen:
1. We look back over the stocks trading history and see what the Average Trading Range (ATR).
ATR is a concept promoted by the legendary Welles Wilder in 1978 and measures a security's volatility. As such, the indicator does not provide an indication of price direction or duration, simply the degree of price movement or volatility.
The "Usual" lookback period is 14 days, but what we do is look back a variable rate based on how much gain we have in the trade. Without giving the "secret sauce" away, let's say that when we start out we look back 66 days for our ATR computation. When the trade is up X% we change to 44 days; 2X%, 22 days; 3X%, 14 days and finally at 4X% profit just 9 days. We are constantly adjusting for gain and we start out at 66 days because that is 3 trading months, the longest we expect to be in the trade.
We then take that ATR and we give it a buffer multiplier. If we just used the current ATR then we would be stopped our very quickly of course because that would be the normal excursion.
Instead when we first start the trade we might give it a buffer of perhaps 3 times ATR (keeping our "secret sauce" in mind). When the trade advances X% we reduce the buffer to perhaps 2.5 times the ATR; 2X%=2 times the ATR, etc. etc. When we finally reach our goal of a minimum of 25% upside our buffer is down to 1.1 times the ATR which allows us to automatically exit the trade very close to the projected target and with very little loss in profit off of the maximum trade advance.
|Using the calculator to "manage your trades"|
|Some of you are new traders some have been
trading for a long time. Some need a structured way to manage their trades
and others are quite comfortable doing it the way they have for
years. The calculator above also will allow you to manage your trade
with preset stops based on the way the stock trades. This doesn't mean you
should automatically adopt this system if you are already comfortable with
your trading, but whatever your method make sure that you have "some"
system that has rigorous rules and stick to them. Use this to remove the
emotion from your trading and don't let yourself listen that daytrader in
you coaching you to violate your rules.
Under "Investment and Liquidation" you can see that there is the suggestion that you buy half of your position on the new breakout. You also have the recommended stop. Now if you have a life outside of investing and you can't look at your stocks but once a week, then use those as "Hard" stops to keep you out of trouble. If you check on your stocks every night or so, then make them mental stops and exit the next morning. About half the time you get a better price and about half a worse price, but over the course of the year it does average out without the mental anguish of staring at the computer all day. If you are going on vacation, by all means use hard stops. Nothing worse than coming back from 2 weeks on an Alaskan Cruise only to find out you lost 15% in your trading account.
If you are following this system, you see that at some level of profit you are going to be advised to add another 25% to your position. At the same time you will move your stop up to protect your original investment.
Another price gain and you are told to buy another 25%...Congratulations!...You are now fully invested, and you move up your stop to protect your entire investment. You aren't going to lose money on this trade!
After another jump in price and we hit another key level...THIS TIME WE ARE GOING TO START LIQUIDATING and we sell 25% of our gains and move up the stop. We continue this program until we reach the last price level and you notice that there is no trailing stop. Instead you are instructed to "EXIT'. That is because you have not gotten everything you deserved to get from the pattern and staying any longer, while you might see continued gains, becomes more and more dangerous...like piloting a small boat in a squall. You are sailing by the seat of your pants without a target to guide you.
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