Strategy 1.Power Trend Investing-help identify stocks and ETFs with the best profit potential
Only need to profit 1 out every 10 trades to have a profitable portfolio.
Strategy 2-Stress Less Stock Investing
When sell stock a way to avoid this dilemma by purchasing ‘Insurance’ on our profitable stock trades
Strategy 3-Income Strategy
This allows you to collect a weekly or monthly cash income from your stocks.
Chapter 1 Power Trend Investing
System help select stock and ETF trades.
Concept simple :When is Trend up we buy stocks when trend is down we sell stocks.
Two-Tiered Approach:
2008 recession PowerTrend profited when it short stocks and bought stocks Spring 2009 when stocks made a comeback.
Average investor is much better served by following a simple trend following system like Power Trend than listening to the forecasts of analysts & market gurus.
Two simple rules for Successful trade selection:
1.Buy investments if the buying pressure exceeds the selling pressure
2.Sell investments if the selling pressure exceeds the buying pressure
Follow the Price Trend instead of trying to Predict it
Buying pressure is exceeding selling pressure stock trending up 10 month average
Selling pressure is exceeding buying pressure stock trending down 10 month average
Let price movement determine when you should buy or sell.
Purchase stock if buying pressure exceeds selling pressure indicated by the stock being in a price up trend.
Take short position stock is in a price down trend.
Quantitatively Measuring Buying and Selling Pressure:
Moving average 1-month Price of a stock in relation to its 10-month Simple Moving Average(SMA) is an excellent way to identify the price trend of a stock
If 1-Month Price (shorter-term) is above the 10-month SMA(longer-term) bullish price trend is indicated or BUY SIGNAL
If 1-month Price is below the 10-month SMA a bearish price trend is indicated or Sell Signal
Profiting in Bear Markets PAGE 20
Take limited risk short positions by purchasing bearish ETFs
www.stockcharts.com 1-Month Price & 10-Month SMA charts downloaded
1st type in the Stock Symbol you want to examine.
Then under Period drop down menu click “Monthly”
In Overlays section select “Moving Avg(simple)” and under Parameters select “10” to display the 10-Month SMA
Click Update to create the price graph
These setting can be saved as a favorite or book mark.
Determining a Buy Signal page 25
If price on last trading day of the month closes above the 10-month SMA the stock is on a ‘buy’ signal.
We can either buy that stock that day or use the Keltner channels to help time a low risk entry.
If already own the stock/ETF then hold the stock and check the closing price on the last trading day of the following month.
Determining a Sell Signal
If the price on the last trading day of the month closes below the 10-Month SMA then the stock is on a ‘Sell’ signal. If you own the stock you should consider selling the stock.
Measuring Price movement is the ‘Key’ to selecting Profitable Trades
Advantages of the Power Trend System
1.uses a moving average to quantitatively measure price trend
2.Allows us to instantly know if we should be buying or selling a stock
3.Simple to implement and totally mechanical
4.Only takes about ten minutes a month to implement
5.Not optimized and works across a wide variety of markets-stocks, ETFS, bonds, currencies, metals, and indexes
Keltner Channels-Function as an overbought/oversold indicator. Can be downloaded from www.stockcharts.com
Page 29 Timing Our Stock Purchase
Goal is to buy a stock that is on a Power Trend buy signal but is temporarily oversold. This helps us to enter a stock after it has moved up in pride with a low risk entry.
Timing o
ur Stock Purchase:
Overbought- a stock that has been increasing in price over a period of weeks or months with very few price pullbacks.
Oversold- a stock decreasing in price over a period of weeks or months with very few prices increases.
Stocks on a PowerTrend buy signal do not advance in a straight line.
Keltner Channels help prevent buying stocks when in an overbought condition.
Buy stocks and call options when become oversold.
3 Keltner Channels
1.Trades near upper channel-indication stock is overbought will get selling pressure
2.Trades near lower channel-indication stock is becoming oversold will get buying pressure
Don’t buy when in upper channel wait until stock trades middle or lower channel
Buy Stock when they are trading near the lower or middle channel and is oversold but still on a PowerTrend Buy signal.
The Keltner Channels can help us avoid buying Stocks when they become overbought and instead buy stocks when they become oversold lowering overall risk and increasing profit potential.
Learn how to Read Keltner Channels-Rare buy stock below lower Keltner channel
Once understand the channels of success it will become very clear when to buy stocks. Keltner channels show low risk entry points.
Power Trend can help prevent large losses during severe downtrurns.
5 Asset Classes – US Stocks, Foreign stocks, Real Estate, Commodities, & Ten Year Treasury Bonds. Investing in 5 Classes diversifies your Portfolio and invests in asset classes that are strong and weak in different phases of the economic cycle.
When 1-Month price closed above 10-MontH SMA an asset class was bought
When 1-Month closed below 10-Month SMA as asset was sold and the proceeds were invested in T-Bills until next buy signal.
Shorter Term Power Trend Systems:
Use a Stocks 50-Day Exponential Moving Average(EMA) line in relation to its 100-Day(EMA) line to identify the shorter term trend.
50-Day EMA Line Above 100-Day EMA=Price Up Trend=Buy
50-Day EMA Line Below 100-Day EMA=Price Down Trend=Sell
The Position of the 50-Day EMA in relation to the 100-EMA gives us a quick accurate indication of the stock’s current price trend
Risk Management-most important factor in investing success
a)Limit the size of your trading positions
b)Close out losing trades before they develop into large losses
c)Don’t limit your profits by selling winning trades with a small profit
d)Invest using several different types of strategies for diversification
Maintain a 3 to 1 profit to loss ratio
Covered call Strategy generates cash income from selling call option premium on your stocks. Known as ‘Covered Call’ of ‘Buy Write’
When you sell a call option price or premium is immediately credited to your brokerage account.
‘Rollover’ when option expires in 4 months we can sell another option and collect another cash payment, Chance receiving 3 cash payments in one year.
High % of winning trades even if your market timing is not very accurate.
This gives the covered call strategy a big advantage over a stock purchase strategy which requires correct timing and a stock price to increase to be profitable.
Option Basics:
3 trading strategies:
1.Purchasing Put Options to protect our stock positions
2.Trading option spreads that can profit during an up or down market
3.Selling Option premium to produce cash income
Goal to achieve a 3 to 1 profit to loss ratio
Successful trade Management:
1.Limit size of positions
2.Must be ready to close out our losing trades before they develop into large losses
3.Don’t limit your profits by selling winning trades with a small profit
Pay attention to risk.
Call option is the right to buy a stock/index
Put option is the right to sell a stock/index
3 Major Factors that determine the price of an Option:
1.Strike Price in Relation to the Stock Price-most important factor determines whether an option is in-the-money or out-of-the-money and qualifies an options intrinsic and time value. In-the-money have more intrinsic value and cost more than out-of-the-money options.
2.Time until Expiration-as the option’s expiration date gets closer, the value of the option decreases. The longer an option has before expiration the more expensive it will be. More time until expiration means more time value and a higher price.
3.Volatility-2 types a)statistical volatility-based on the historical price movement of the underlying security. Tells us what happened in the past.
b)implied volatility-implied value based on current option prices for underlying security. This kind of volatility can give insight into potential price movement.
Can be seen as a measurement of risk. Higher volatility means higher risk for the option seller and increased prices for the option premium.
Option Pricing:
Option Premiums consist of Intrinsic and Time Value.
At expiration options lose all time value and only have intrinsic value.
Intrinsic value is the difference between option strike price and the current price of the underlying stock or ETF.
Intrinsic value of a call option-calculated by subtracting strike price of the option from the current stock price.
Time value of an option-calculated by subtracting intrinsic value from the total value of the option.
Intrinsic value of a put option-calculated by subtracting current price of the stock from the strike price of the put.
Out-of-the-money: when price of stock or ETF is below the strike price of a call option
At-the-money:Option with the strike price is closest to the underlying stock price
In-the-money: call option where stock price is greater than the strike price Call Put
In-the-money strike price<stock price strike price>stock price
At-the-money Strike price=stock price strike price=stock price
Out-of-the-money Strike price>stock price strike price<stock price