A troll sent me a comment about a previous video where I celebrated making 5% in a stock after holding for a month. The troll said, “I do not see why you are so delighted making 5% in a stock after holding it for 4 weeks. Ohhhh… big money, do not spend it all in one place.” Used up cliché aside, this troll really should learn an important fact about stock trading. This isn’t Hollywood. Stock trading, I’m talking about genuine profitable stock trading is smaller gains day in and day out, week in and week out, month in and month out, year in and year out. No matter what false idea Hollywood has placed in your mind in regards to the famous and thrilling life of being a stock trader, you must let it go. You aren’t going to become wealthy by finding the next Wal-mart or Microsoft. You should stop trying to hit a home run with every stock you buy. Simply concentrate on getting a base hit. How’s that for a worn-out cliché? Returning to the troll which was making fun of my 5% gain in 4 weeks trade. We will do the math. If you start out with just $2,000 in your trading account and make a 5% gain a month, in 1 year your $2,000 will turn into $3,200. In 4 years, your $2,000 will turn into $13,107. In fact, starting out with $2,000 in your trading account, if you make just 5% a month, your initial $2,000 will turn into $2.3 million dollars after 15 years!

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Don’t you think its great when you slam dunk a trade? That’s really what we did in FCEL. In just 2 days, we nailed a 7% gain. Where did that gain originate from? It originated from other traders who placed their money in the stock. We took their money and ran. These other experienced traders had no intention of giving us their money. Actually, these people were looking to take our money. In this video tutorial I’ll show you the trade we just made for 7% profit in only 2 days in FCEL. I am also going to tell you about the stock screener tool I used to find this winner.

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A penny saved is a penny earned. Finding ways to save money so that you could put more into your trading account can really explode your trading account balance. A couple of weeks ago, I did a video clip regarding how tracking gas futures will allow you to predict the price of gas near you by two to three weeks. I forecasted that gas prices in my area would cross above the crucial $4 per gallon within two to three weeks. It happened as I expected with gas prices going over $4 per gallon in my area. This $4 level is really significant as it’s the point that Ben Bernanke said would start to harm the economic recovery if prices stay above this level. Picking out the lowest gas prices in your town is as easy as visiting a website and putting in your zip code. Check out the web-site in this video that is kept up to date everyday with the lowest gas prices in your area.

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via DAR – Daily Candlesticks.

via ARW – Daily Candlesticks.

The stock market has a regular tendency to bottom every four years going back to the late 1960s. This is truly remarkable when you see it. How does this strange cycle come about? Could possibly it relate to our four year political cycle?

Could you imagine the amount of money you may make if you realized as soon as the market would put in place a bottom?

You may generate profits by playing the short side on the third year of the Four-Year Cycle or you might go long the stock market immediately after the cycle low.

Most often, a four year bottom occurs in October. In rare instances, four year bottoms have developed during July and August similar to 2006. In other words, we might have set up a bottom last month. If this describes the truth, then now is a wonderful time for you to go long.

In any event, a significant bottom is due within the second half of 2010.

Next cycles should be used with additional technical indicators and chart patterns. What’s important is that if you pull up a chart of the S&P 500, you will see a Bullish Head and Shoulders bottom forming. All we want is a nice good run to close the right shoulder at the neckline.

I’m sure you may think that it doesn’t seem sensible for the market to take up a bull run right now with all the awful financial news but I challenge you to definitely remember January and February of 2009. At the begining of 2009, the news was so awful that many folks started pulling their money from banks. Without a doubt, a endemic economic failure was dispersing all through our economy as the government was in a panic aiming to stop the worst financial disaster since the Great Depression. Go and google the news stories back then and see for yourself just how bad things were. They were far worse than what they are today. But what actually transpired? The market started its biggest 9 month rally in more than 70 years! The wisdom to master from this is that the stock market is the future between 3 to 9 months. Lots of the bad news about the economy you are reading about today has already been priced in.

At the time I first started stock trading in 1994, I started in mutual funds. I did not have much. I kept accumulating a little amount of money every month from my day jobs and night job to my trading account and when I had enough, I would acquire more of the same Janus mutual funds. I brought my trading account up to $10,000 which was also the majority of my entire net worth.

I grew weary of the little gains each year from my mutual funds and then Janus got in trouble by the SEC for permitting their preferred clientele to trade in and out of their funds while little guys like me had to buy and hold.

I started looking at penny stocks and greed filled my brain with how much I would earn in a short time provided I went long the right one.

I was innocent, gullible red meat for the next slick penny stock con that came along.

I invested $1,000 in a pink sheet stock called Plasticon. I found out about this company from Investor Business Daily. The publication looked trustworthy. Afterward lots of penny stock gurus profiled Plasticon, and last Green Light. Beyond doubt this was the next hot penny stock.

I was youthful. Most things published about this pink sheet company was a falsehood. The CEO Jim Turek even went on Investors Business Daily streaming video news show and said lie after lie.

After my original $1,000 invested, the stock fell 50%. Therefore what did I do? Well double down of course. I purchased an added $2,000 worth of stock.

Then Yahoo Finance ran the news story that Plasticon was filing for a listing to the OTCBB. This stock is a jumper I thought! So I researched the topic of stocks that went from the pink sheets to the OTCBB and found that a few did really well after uplisting. Therefore what did I do? Well I bought $1,000 more of Plasticon as any good penny stock trader would do.

The stock fell another 50%. I was a little bothered. But then a news story came out that Plasticon had just signed with a major distributor to sell their plastic re-bar supports! This could be like Tazer I imagined. A small penny stock supplying product to a major distributor means mad pay-day profits! I purchased an additional $2,000 on the news.

The stock dropped an additional 50%. I was getting very worried now. But suddenly, like a present from God (I used religion in my stock trading back in those lame trading days), James Turek announced that Plasticon was not going to file for an OTCBB listing, oh no, they changed their mind and were moving to file for a listing to the AMEX. So what did I do? Well if I thought that an uplisting to the OTCBB was worth $1,000, then certainly an uplisting to the AMEX was worth $2,000. Hence I purchased $2,000 more!

All this occurred over a three year period until finally, the penny stock fell under $0.001 and Plasticon filed for bankruptcy.

There were so many mistakes that I made along the way to losing everything. Clearly I was very miserable about how much I had lost. What made it doubly depressing was that it was my whole nest egg. That money was everything to me. It was all my hopes and imaginings, particularly when you compound that amount at some 4% or 5% for maybe 40 to 50 years ahead of me. I sat down long and hard, reviewed all of my mistakes, and attempted to understand my stock trading and investing lessons. My wife asked why I was doing it at all, waking up at 6:00am PST for so many mornings to trade stocks, reading hundreds of books about technical analysis, and thus far I had zilch to show for it, but a large hole in the pocket and heart. It was a good question, and I had an unusual answer.

My answer was “I prefer to lose it all now in my thirties, rather than losing it all in my fifties. If I learn my lessons early, I would not make the same huge errors much later. These days, I am trading and investing some $15,000. One day, I hope to be managing and investing one million dollars. I can afford to lose $10,000 in my thirties, but I will not be able to afford to lose even 20% of a million dollars later in life.” Sure, I was in torture from my deep loss. But I was so dogged in continuing my stock trading and investing, and I was convinced that one day I would be managing a much bigger amount. Seeing as I knew I would be investing for the next 30 years or more, the earlier I learned how to do it the better.

Every one of my previous investing and trading errors has continued to help me to become a more improved investor and smarter stock trader. My huge loss of everything in my early thirties has made me a much more vigilant and experienced investor. He who has grabbed a bull by its tail knows twice as much as he who never has. I think some of the lessons you can never learn from books. All the bona fide important lessons must be learned from painful errors.

Below is a video of a few of the dreadful lessons I learned.

The approach of matching a long position with a short position in two stocks of the same sector is called pair trading. This forms a hedge against the industry and the whole market that the two stocks are in. The hedge made is essentially a bet which you are placing on the two stocks; the stock you are long in opposed to the stock you are short in.

As its name suggests, a pair trading tactic is a double-pronged strategy, where 2 outwardly disparate option or stock positions are opened simultaneously. The method can offer somewhat of a safety net to defend against an unanticipated move in a particular sector, while capitalizing on a particular equity’s relative-strength backdrop.

In essence, a pair trader hedges his or her bets, opening positions in 2 related equities or indexes and playing them against one another, choosing 1 call (bullish) position and 1 put (bearish) position. The duo of positions then together provides profitable returns among a number of outcomes.

For example, I had a good point of view about Apple, but a gloomy sentiment about Research In Motion. I went long on Apple at the same time as I shorted Research In Motion.

I also had an uneasy sentiment about the entire technology sector. By way of taking a short position in Research In Motion, it permitted me to profit if a broad sell off in tech happened. This profit on the short side would counteract my losses in Apple on the long side.

Apple maintained its relative strength versus Research In Motion. The shares rallied and the short side of the trade (Research In Motion) dropped. Both sides of the paired trade entered positive territory.

But let us say the whole technology sector suffers a broad decline. The Research In Motion short is profitable, counter-acting the Apple long position which nets a loss. This is a superior result than if I just went long on Apple.

You are looking for the percentage change in the market between Apple and Research In Motion to go in Apple’s favor no matter what direction Apple or Research In Motion go.

On May 14, 2009, I went long Apple at 122, and short Research In Motion at 71. I closed out the pair on July 10th 2009 with Apple at 137 and Research In Motion at 66. I made 12% on my Apple long, and 7% on my Research In Motion short. So the total gain was 19%.

We are going to define our Opening Range as the initial 30 minutes of stock trading. At the thirty minute mark, we will draw a line on our stock chart or make a yellow sticky of the highest price and lowest price during this 30 minutes. Hence the central premise of defining the Opening Range is that the bias for trading the underlying stock will be put in place by where the stock is trading relative to the Opening Range.

While the stock or market trades within the Opening Range, it is trend impartial and does not present either a buy or sell signal.

If the stock crosses above the high of the Opening Range do not do anything yet. You must have a close above this range on a 5 minute candlestick chart.

Provided you get a 5 minute candle breaking above the Opening Range, the next thing you require is confirmation. You must have one more 5 minute bar closing above the range to prove the breakout.

Provided the stock falls below the low of the Opening Range, don’t do a thing. You must have a 5 minute candlestick falling below and you need an additional candlestick for verification just like a break above.

Any stock trading above its opening range has a bullish prejudice, and a stock trading below its opening range has a bearish bias if it meets the added necessities mentioned above.

Bear in mind that the trend is your friend. Breakouts that transpire in the direction of the bigger trend have a greater winner rate. So make certain that you establish the larger trend first.

Think of volume as market attitude. Higher than average volume increases the potential for the breakout to go on in your favor. A short supply of volume will lower the likely success of the trade.

In this episode, I didn’t want to just show you an archetype session. I took the last trading day prior to doing the video. I also wanted to include real market chart data on SPY instead of just showing you a static drawing or chart.

Looking back at a stock chart with price patterns in the center of the chart is always easy to guess. The actual challenge is the closer you get to the right of the stock chart in terms of truly predicting future price direction. Hence in the video, I deal with the stock chart as far to the right as we can go to replicate what this tactic looks like in real time as you trade all through the day.

George Lane M.D. (1921 to 2004) was a Medical Doctor, stock trader, author, educator, and technical analyst. He developed and marketed the Stochastic Oscillator, which is one of the principal technical indicators used in the present day among technical analysts.

Rumor on the Internet from an interview with Lane, the Stochastic Oscillator doesn’t follow price, it doesn’t follow volume or whatever thing like that. It follows the speed or the momentum of price. As a imperative, the momentum changes direction before price. As such, the Stochastic Oscillator can be used to ascertain bullish and bearish divergences to foreshadow reversals.

I prefer to swing trade the Slow Stochastic because it is more smoothed out than the Fast Stochastic making for less head fakes.

The distinction between Fast Stochastics and Slow Stochastics is simply a moving average. When working with the Fast Stochastics using the values of 5 and 5, the first 5 is the raw value for Stochastics, while the second 5 is a 5-period moving average of the first 5. When using Slow Stochastics, the first two 5′s are the same as with the Fast Stochastics, with the third 5 being a moving average of the second 5. You are not having an LSD hallucination, that is correct, a moving average of a moving average. Do not think about that too much.

This slows down the movement of the indicator, and so the name of Slow Stochastics. By slowing the movement of the indicator down, we will get a smaller number of signals to buy or sell on the chart, but they should be more accurate signals.

As you can check out in the image above, the Slow Stochastic offers fewer buy and sell signals although they are more correct.

The settings I like to use for the Slow Stochastics depends on the market or stock I am trading. I always get a chuckle out of traders that try and use a one size fits all approach. I say use the capacity of modern day computers and more sophisticated charting tools like Market Club that give a real time java interface that lets you scale the settings in real time. Merely take the slider and fine-tune the settings so that the signals are smoothed out with less head fakes, and that fits your trading style (buy and hold, swing trade, day trade, etc).

In addition keep the kind of Stochastic signal you are planning to either buy or sell as fluid as well. For instance, you could see that the signal line breaking above the 20 line is a good buy indicator, and a good sell indicator is the signal line breaking below the %D line. You may possibly uncover that for the market you are trading that a cross of the signal line and the %D line is a better buy signal while a good sell signal is at the time the signal line moves above 80 for a day or two and then crosses under the 80 line. You may well see that bullish divergences are better trade signals for specific stocks and markets. For example, go long when the stock price makes a big low but the Stochastic draws a shallower low.

Remember, every stock and market has its own personality at different times of the year because that persona is a manifestation of the collective human psychology of all the people who are trading that exact market at a specific time of year. Learn to modify your Stochastic to the market you are trading and to your own trading approach, and watch the profits start to flow in.