Well, that went about as expected.
Remember, I can only tell you what is likely to happen in the markets and how to profit from it – the rest is up to you. Of course, sometimes our "profits" are simply not losing money because we choose not to play a game that's hard to win. That's a very hard concept for investors to grasp – the art of standing still at the sidelines but if you have 100% of your money and the market drops 80%, then you can buy 125% of the stock you could have afforded when the market was at 100%. Yep, do the math!
So, not only does PATIENCE allow us to buy our favorite stocks at a discount but it allows us to buy more of them than we could have bought when they were at full price so if, for example, I wanted to buy AAPL at $140 last week and I had $14,000 to allocate towards but instead I decided to wait for a pullback of at least 20% and then it hit $112 and I pulled the trigger and bought 125 shares for the same $14,000. Not only that but now, if AAPL rebounds and hits my target of +20% down the road at $168, now I have $21,000 for a 50% profit on my $14,000 whereas, had we bought 100 share for $14,000, we would now have $16,800 for a 20% profit.
Our profit is 150% HIGHER when we are PATIENT!
That's without usuing options tricks or even having perfect timing, that is simply the difference between learning to be patient and not. That doesn't just go for stock, of course, that goes for every options contract we sell or write – the difference between jumping in an chasing entries or patiently waiting for the right entry can DRASTICALLY affect your portfolio's performance. Try it!
You simply have to learn to acccept that stocks (and options) tend to move about in a channel and, if something is high in the channel – you should simply not buy it or, if you own it – then sell it. If something is low in the channel, THAT is when you want to buy it or, if you own it and you still think the stock has value – then hold on or even increase your position. Another thing we like to do when stocks are low in the channel is sell puts to people who think it will go even lower.
When a stock or commodity falls out of it's channel – STOP PLAYING IT! Why? Because it's become unpredictable and why on Earth would we waste our money GUESSING when there are so many PREDICTABLE stocks we could trade instead. That's why we rarely play momentum stocks – they don't stay in their channels so we are taking on too much risk trying to guess where they're going.
Here's one of my favorite examples: When AT&T (T) is at $40, what do we do? We SELL it! When T is under $30, what do we do? We BUY it. In fact, T is our example trade in our 2014 instructional video: "How to Buy a Stock for a 15-20% Discount" when it was $33.70 and today it's $28.91 but we sold options to get a net $28 entry and we've collected $12 in dividends (not counting more options sold along the way) so we're at net $16 and up $12.91 (80%) on a stock that's down 10% – how's that for outperforming?
Another way we use channels is to play the Futures. As with stocks, we DON'T play the Futures when they are in the middle of a channel, we play them in the top of the bottom of a channel, when their behavior is more predictable and that means we haven't played them much all summer but, this week, we decided or 5% Rule™ was back in play and in Monday's "The Weak Ahead in the Markets" we decided to short the S&P 500 at the 3,420 line and we've done that very successfully all week – especially yesterday, when we got a very nice drop.
Making $3,500 per contract in a single day is not usual in our Futures trades but we waited PATIENTLY for a good time to play the S&P short and we waited PATIENTLY for the S&P to cross back under the line we've been using to short all week and this time we got a very nice drop into the close that allowed us to have some very nice gains.
Heck, the title of yesterday's PSW Report was "Thursday Failure at 3,420 – Are We Heading for a Real Correction?" – I don't think we could have been any clearer about our expectations, right? We "only" made $2,000 per contract on Wednesday's Live Trading Webinar short call on /ES but we had a nice, fake rally back to 3,420 yesterday morning – so we shorted it again! Come on people – this is not complicated….
Today our shorting lines are 27,500, 3,350, 11,200 and 1,515 and, if you don't know what that means – then you are not a PSW Member. Very simply though, we wait for 2 of the 3 indexes to cross below and then short the 3rd index as it crossed under and then keep very tight stops at those lines if ANY of them cross back over but, once the 4th index confirms the drop – we can relax a little and just wait to see how low the momentum takes us although, of course, we already know it's 3,320 on /ES as our next stop (see this week's notes).
What's going to happen next week? I don't know yet! That's why my predictions are so accurate – I don't force myself to make them – I only make them when I'm pretty sure and that way I'm wrong less than half the time and people think I'm a genius but I'm not – I'm just PATIENT!
Have a great weekend,
– Phil
