It seems like nearly every trader is enamored by the large moves in the market lately, trying to figure out what’s gonna happen next. You’ve probably heard traders say, “This stock is up or down too much, it’s gotta reverse.”
How many times have you heard traders call for tops and bottoms – only to watch their capital vanish into thin air?
You see, I don’t try to pick highs or lows. I know a better, more reliable way to multiply my money. In fact, I use a method of trading that actually hedges my investments during volatile times and maximizes my potential returns.
You’re probably wondering, “How’s he able to do this? Is he just full of it?”
Well, it’s good to be skeptical, nothing wrong with that. In fact, you should be in this market.
Trading 101: Don’t Pick Bottoms and Tops
Now, I don’t like to go into my trades hoping for best-case scenarios. Who am I to say how high or low a stock can go. My goal is to capture a small move in the direction I think a stock will go. Luckily, I have put together a strategy that allows me to profit handsomely just off small moves in stocks.
That said, over my two decades of experience, here are three things I focus on when I’m looking at reversal or continuation plays:
1) I’m Okay With Not Being A Hero
I don’t like to jump the gun when I’m trading.
I remain patient because when a stock is skyrocketing or tanking, it could go a lot further than you may think. Most beginners try to take the opposite side of the trend because they see a stock up or down a bunch and think its an overreaction. Now, a lot of times it is an overreaction, but stocks can stay irrational longer than you can stay solvent.
Besides, why put yourself through the grueling pain of taking shots on the chin in hopes of being the hero who called the top or bottom.
Instead, I wait for my pattern to flash a buy or sell – indicating a potential reversal is in the cards.
What pattern am I talking about?
It’s my “money pattern” – Ironically, this unconventional approach goes against what most popular trading books tell you to do. No wonder why it’s so darn effective. Get an inside look of how I’m able to use this pattern and multiply my money.
Let me explain.
2) My Money Pattern
My money pattern involves using a specific time frame with three simple moving averages.
I won’t trade unless I see a specific pattern arise.
More specifically, I’m paying close attention to how these moving averages interact with each other.
Check out this chart of Starbucks (SBUX).
This chart might not look like much to you – but I took a trade based on this. Better yet, this pattern helped me double my money.
If you look at the chart, SBUX came off recent highs, and many traders thought it was still a strong stock to go long on. However, I wasn’t going to just randomly buy without seeing my edge.
Instead, I waited for the selling pressure to stop and for my money pattern to confirm a potential reversal was in the cards.
I alerted members of the Millionaire Roadmap community about the trade.
In just 5 days, I was up 70% on my SBUX position.
When all was said and done, I exited the SBUX with a total +120% gain – all thanks to staying patient and waiting for confirmation from my money pattern.
Now, don’t take things out of context – I don’t only use chart patterns to make my decisions. In fact, many times I’ll look at catalysts with these charts. Not only that, I’ll also look at the options chain and prices. If you don’t know how options are priced, read up on it here.
Looking at catalysts helps to reinforce my money pattern – increasing the odds of the trade working and potentially doubling my money (or even better).
If my money pattern gives me a bullish or bearish signal, I want to see if the news or sentiment matches.
It’s sorta like getting all my ducks in a row.
For example, the SBUX chart was telling me to go long. However, the trade became even more appealing when billionaire investor Bill Ackman announced a large stake in the stock, just a few days prior to starting my position.
You see, the charts told me the stock could reverse from its recent pullback, and the catalyst confirmed that.
And you know what else?
There are some traders who just look at charts and completely ignore the news. On the other hand, there are traders who don’t believe in chart analysis and simply focus on the news and fundamentals. That said, I knew there was a good chance that both types of traders would jump in and get long– further reinforcing my chance of success.
Jeff Bishop is lead trader at WeeklyMoneyMultiplier.com and widely recognized as the Mensa Trader. He runs short-term trading strategies, using stocks, options and leveraged ETFs.