The ‘7-10% Rule’: Becoming a Consistent Trader

 

 

 

 

 

Simply put, the 7-10% Rule applies to trading and where you start to lock gains to ensure that you consistently profit. A lot of newbies are often lost, thus befuddled, and don’t know when to lock gains, especially in a winning trade or a stock that is up hugely, so this will shed some insight moving forward. I know this because I had the exact problem back in 2016, and even some part of 2017–until I came up with a very effective rule.

How it works

The 7-10% Rule generates consistency, and this is what grows your account immensely. When you get into a trade and don’t know where to sell–be it a swing trade or day trade–make it a habit to always lock half after 7-10% gain. That is, if you have 1000 shares of stock ABC at $1.00 and it goes to about $1.07-$1.10, sell about 500 shares to guarantee those gains, and then if the stock goes up 20%, sell another 250 shares. Now you’re left with 250 shares (1/4th of your initial position) to enable you capture a much bigger move without FOMO (fear of missing out) being a deterrent.

Remember that it’s not about the swiftest, but the most consistent… Don’t be swayed by those posting gains online, as we all have different stories; so, go at your own pace. In a similar fashion, when you’re down 5% or more on any trade, consider selling it or at least shaving your position size. Risk management is equally as important in trading as anything else. The 5% is your stop loss, and it’s particularly more important when you’re buying near support (visit my blog about support and resistance) because that stop loss is seldom likely to hit compared to when you chase a stock that’s already up 15%+.

Ultimately, the 7-10% gets you to a very safe zone, especially when you’re still learning and building your account. But that would change once you gain more experience, for you would then have a clear idea of how high a stock could run due to the catalyst, share float, or chart setup, etc,.

Cheers,

 

 

 

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Day Trading: How to Get Past the PDT Rule

Pattern day trading (PDT) only applies to traders in the United States. It happens when a trader executes over three day trades within a five business/trading day timeframe. However, a lot of people fail to realize that this only applies to margin accounts, which you don’t have to adopt. You could use a cash account that allows you to pay for securities in full, whereas in a margin account, you could borrow the funds. The settlement period is two days (T2), which means that you can’t use the funds (after a sale) until two days later. However, there is a way to bypass having to wait two days to trade again.

How to go about it . . .

Since you know it takes two days for the funds to be available again for trading, you could do this:

• Monday – Divide your funds into two parts. We’ll use $2,000 in our instance…to day trade for Monday, you’re focused on the $1k from the $2k.
• Since you now have $1k to day-trade with, divide it by the number of times you’d like to day-trade. That is, if you want to trade two times, you’d divide it by two, after which you’d be left with $500 ($1k/2) each for the two trades. Even if you’d prefer to trade four times, just divide that $1k (half of your total funds…our example is $2,000) by four–leaving you with $250 for each day trade.
• We know that the funds/proceeds after each trade don’t become available until two days later, and this is why we divided the initial balance just so we could have funds for the next day.
• Tuesday – So now it’s day two, and we have to day-trade again…but not to worry, as we have the other $1,000 from prior day’s split. Do the same thing we did on Monday and split your funds in however many parts and trade with said allocated parts.
• Wednesday – Funds from Monday’s trades are now available again . . .unless you’re holding a swing.

Remember, divide the total available balance first, after which you should use that half for the entire day. Break it down into how many times you’d like to trade (day trade or swing) and use the corresponding funds ($1000/2 = $500…so trade twice that day using $500 at a time). You may contact your broker to change your account to cash if it’s currently on margin. Once you get to $25k, you may switch back to a margin account. But know that you’re not limited to any type of account.

 

Mergers: How to Trade them

Brief Introduction

A merger is simply the agreement between two companies (whether private or public) to combine into a single entity. A lot of companies do this to increase their market capitalization or enhance their market share, while others do it when they are trying to explore new businesses or tap into a specific market.

Finding them . . .

There are several ways of finding potential major plays–main one being through press releases. Companies often show their intent to merge by putting out an initial PR, which runs up the stock price that day. You could also find potential mergers through your own personal research: this involves sifting through news and the likes.

How to Play them

In playing merger stocks, you need to know the exact time frame for which the merger would close. Once that’s been determined (usually embedded in the initial press release), you’d look for a potential prospectus or news that shows the date of the merger meeting/vote as customary to every mergers. After ascertaining the date of the shareholder meeting, then you have a merger run-up date essentially. Meaning, you may start to buy the stock two weeks into the merger vote, especially if the stock price is under $1.00 (my preference). They tend to run about 30%-100% into the vote, after which you should sell and lock profits.

Recall that you only want to play the run-up, so sell on the day of the vote or the day prior. You may keep some if you fancy a gamble, but news of a merger vote approval or disapproval is usually released in AH (after-hours trading) on the day of the vote. The stock price usually goes up on a positive vote, but then down, hugely, thereafter. There’s always an outlier, of course, but they generally drop even on a positive meeting … $BPMX (as of today, May 17) ran huge in AH last week on a positive merger vote, although that typically doesn’t happen. $RTTR has a merger vote rescheduled for Monday, May 18, so expect a run in the morning; however, I can’t guarantee that it would run in AH once news is released, but I’ll certainly be keeping some shares in case. Another merger play to watch this week is $CNAT, as they have a merger vote on Thursday, May 21. It should  run tomorrow.

I WILL TALK ABOUT HOW TO MAKE UNLIMITED DAY TRADES WITHOUT BREAKING THE PDT RULE

Getting the Best out of Biotechs

Rather than playing biotech stocks sporadically or based on technical analysis , there are more constructs and rigid ways of getting the best out of them. Like everything else, biotechnology stocks are highly risky (especially penny stocks), but they also have a great reward potential should you trade them the right way. My brief thoughts and suggestions that follow should give you a better insight:

General Overview

To be less overly vague, I’ll be direct and go straight to the point. The best way to play biotechs is to look for their upcoming catalysts–whether it be phase 1, phase 2, phase 3, NDA, PDUFA, and so on. After that, be sure to keep in mind the data report date and then play the run-up leading up… The anticipation into the data release usually drives up the price 20%-50%, especially when the D-ata Day is a one month to two weeks away, and if the stock has a lot of interests. Ideally, go for the less ambiguous ones as far as when the data is coming out. For example, I prefer–> “Phase 2 data to be released on Dec 3rd” more so than I do–> “Phase 2 data to be released in the 4th Quarter.”

How to Find them

Although there are a few biotechnology websites that outline biotechs and upcoming catalysts, I prefer to use BiopharmCatalyst. They have calendars that make it more aesthetically pleasing: a biotech IPO calendar, a PDUFA section,  and a FDA calendar section that encompasses ALL upcoming catalysts. More excitingly, it’s FREE to use.

Trading them . . .

Essentially, you want to trade the ones with an exact date, as highlighted earlier. The reason for this is thus–that you don’t want to be caught holding, especially when data is bad. I generally just play the run-up and get out a day or so prior to the data release (this is why having an exact date is preferable). I mostly play the run-ups for bios under $5. Remember, it’s better when you time your entry well with the use of technical analysis (to identify support levels… check my other blogs). They usually start to run a month or so into their catalyst date, so start looking to get in around then.

AGAIN, I DON’T HOLD INTO DATA RELEASE! 

This would be gambling, although there is a caveat. The caveat would be when you know the catalyst would be positive, such as a company getting a favorable initial response to like an NDA filing or the related drug. Either way, it’s a recommend practice to sell before the date of the data release. You can generally aim to get a minimum of 20% on these swings, although not all cases are typical, and you do also need to time your entry properly.

Moving Forward…

This is a new finding for a lot of you, so if you do decide to try this out, use a paper account or trade with a very small position. Once you see the results yourself and become more comfortable, then you could invest with a bigger position.

 

 

Making the Best out of Reverse Splits

What is a Reverse Split (RS)?

A reverse stock split is simply an action that consolidates the shares of a company into fewer, but proportionally valued shares. Essentially, the number of shares are divided by a pre-determined ratio, and although your position (if you held into the RS) has the same $ value, you end up with fewer shares at a higher price. It all boils down to the reduced float of the stock in the aftermath, which means more volatility and upside to profit. This is what we want! You can learn more about outstanding shares and floats HERE.

For example: $ABC trades at $0.40 per share and you own 1000 shares, thus valued at $400. The company then decides to enact a 1-for-10 reverse split, so the new price then becomes $4 ($0.40 multiplied by 10), with your total new number of shares now becoming 100 (1000 divided by 10). So, same value of $400 (100 times $4), but a different price and reduced number of shares.

Companies generally do this to boost their share prices and attract bigger/more investors since their share price is now higher and deemed more attractive; other times, these companies do it to meet the price or equity requirement set forth by NASDAQ

How to Find them

Generally, a lot of these reverse stock splits are announced through a press release, while other times, they are announced by means of a sec filing. My favorite outlet for sorting through these filings is FINTEL.io. All you need do is go to the SEC Filing tab and look for a possible Form 6k or Form 8k for company/stock updates.

You may also use Nasdaq site to locate upcoming reverse stock splits. On the website, click ‘Market Activity,’ after which you then select ‘Stock Splits.’ I have made it easier for you, so click HERE

Are Reverse Splits Bullish?

The answer to this typically depends on how well you play them; however, in the short run, not so much, and in the long run, it presents a massive opportunity. It’s bad in the short run simply because of the stigma that’s associated, thus the share price starts to drop dramatically the moment the news of a RS gets out–but there’s nothing to fret about because, as the next section talks about how to make huge profits from them in the long run. Remember, the stock market is all about sentimentality and perception, so RS stocks generally start to fall the moment they are announced, as people find it to be bearish (but it’s not).

How to Play them

The first thing I do is divide the current float by the ratio of the RS just so I know what the post-split float would become. This is important because the lower the float, the bigger the potential of that stock. Ideally, I like a post-split float of 2m and under, with my position size commensurate to the size of the float. If the float would be 1m and under, the stock typically runs a day or two into the reverse split, and also on the day of the RS, even if it’s a brief 20%-40% move. The main play is after the RS, and what I typically do is accumulate on the subsequent days after the RS–on a daily basis for about three days, as that’s typically how long it falls before it starts to tick up. The RS stocks with the lowest floats tend to run about a week after the RS, so take advantage of the daily drop in share price and accumulate.

I prefer NASDAQ stocks to AMEX/NYSE RS stocks because they trade better…NYSE stocks tend to take longer for their post-RS run and are more susceptible to being manipulated. Moving on, if you intend to buy 1000 shares, as an example, buy 300 shares on the first 10-20% drop (usually day 1 of the RS), and then another 300 or so on day 2, and so on. This way, you average down while trying to get your full position, and even if the stock decides to run prematurely, you wouldn’t miss out. You may also decided to wait altogether and buy your full position after a week, but the risk there is that you might miss the run. What happens after a few days is one of two things:

1. Either you get a PR/news that runs up the stock 50%+
2. Or you find volume starting to creep in since people are realizing how low the float is after the RS, thus buying and running up the stock price 30%+

Remember, the lower the share float of a stock, the higher the potential of said stock when it runs. 

 

Two Easy Chart Setups to Master

There are a lot of chart patterns that provide high rewards and low risks, however, I’ll go over two now for simplicity. Simply put, these patterns make it very easy to incorporate risk control as well as self control, thus reducing emotional trading and, consequently, profiting more. I will expatiate:

Flat Line/Base Setups

This is thus, for it shows a base (of sort) on which the stock price bounces every single time–for a short while until it breaks out (upwards or downwards). Think about an horizontal line that you could draw underneath the stock price—a line on which the stock price has touched at least three times in the last five trading days. You may call this the very basis for support plays because you could buy near it and set a 3-5% stop loss below the flat, support line. To sell, start locking some gains after 5-7% profit; it gets easier eventually, but at least doing this now helps with consistent gains. You may also use Barchart.com to help you identify support by scrolling down to key ‘turning points’.

T-Line (8ema)

While this is just an indicator, it is very potent and widely used. I’m suggesting this particularly for beginners who are still learning to read charts, as its simplicity facilitates entry and exits. When looking at a stock in a downtrend, or a stock trading below the T-Line, your entry signal is the first day it closes above it. So, make sure to take an entry near it (the 8ema or T-Line… after a close ABOVE). Your exit is the converse– when it closes below. One might even just set a 3% stop loss below the line.

How I Retired at Age 26

In life, and as humans, we like to strive for the best life and the best things. It’s a normal primal instinct incumbent and inherent to over 97% of us. Such was the case for me—a young graduate going into the work force with big aspirations. While it was a dream come true to have a job lined up after graduation, it was merely a thing I could deem my ultimate goal.

A month into my new job (or life, if you will), I was already seeking out other ventures to supplement my income. And although the average person would be quite complacent, my goal was to be wealthy and retire by age 30…coined with the the fact that I am a Nigerian emigrant (immigrating into the US about 10 years ago), I knew I needed to have my plans well lain. Moving on, in this quest for wealthy aspirations, I read several articles in hopes that I could uncover something that would get me to my ultimate goal. I did, and it said that real success comes from doing that which you are passionate about. So, I decided to play video games online (with money on the line) as another stream of income to fetch in more revenue. But that was short lived, as I didn’t make a lot from doing it, although I won most of my online matches.

Long story short, I found the market and after trial and error, I took the time to learn it and then master it. I didn’t just master it; it was a passion. It was something I looked forward to every single day, and even hated weekends for it, as a result. After a while, and after I had profited to a point where I had 6 months of salary saved up, I decided to quit, after which I went from $5k/month to over $90k/month in income. I now have students that are doing the same, and soon, I’ll be taking it up a notch to a point where we would have books, tapes, PowerPoint slides, etc. Essentially, always strive for the best and never settle for less. You are responsible for what you are, so why not get out of your comfort zone and be the best you can be. No one is bragging here; rather, I’m merely motivating you to strive for the very best. Risks are necessary, and fear shouldn’t deter you neither.

In the next post, I’ll try my best in recommending how to go about chasing your dreams, including necessary/pertinent steps.

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Disclaimer:

This is not by any chance a recommendation to buy or sell, nor is it a guaranteed indication that the above tickers/stocks would provide profits. Do your own DD and research and trade at your own risk.

Follow the Trend

This will be rather short and concise! In the stock market, and for most savvy and more experienced traders, decisions on whether to enter a stock are on a technical and fundamental bases [basis]. Newbies to the market often chase these trends, and that is the no1 reason why most traders are unsuccessful. Chasing a technical/fundamental play that is already high with no risk control or self control will always be more detrimental than beneficial.

In any case, there is a forgotten trend–or perhaps a trend that really isn’t known–that could make you just as much, especially buying a stock when it’s still low and hasn’t ran up much. I call this trend “Sympathy Runners.” Sympathy runners usually would run after another stock has made a major move, especially when there is catalyst (news) to back up the move. A stock could be a sympathy if it’s in the same sector, from the same country, same share float, same price range, or has a similar chart pattern. In some rare cases, such as today, recent IPOs.

$IMTE, a new stock that recently had its IPO, ran 2000%+ today; and although I missed the big move, my quick thinking was able to make up for it by buying $BOXL, another stock that recently had its IPO. It moved 250% from our alerted price, which is also a massive move. I also played $NVMM, which moved 50% from our initial entry. Essentially, to be very successful in the penny stock market, you have to understand these trends and become a more knowledgeable trader, for if you don’t, you will miss out on opportunities or even lose a lot of money.

 

Disclaimer:

This is not by any chance a recommendation to buy or sell, nor is it a guaranteed indication that the above tickers/stocks would provide profits. Do your own DD and research and trade at your own risk.

To get in our room, click HERE

 

 

April 23 Watch List

$VTVT

Recent runner and is now flagging; looks poised again to test the gap at $3.27. MACD above 0 and +V of the vortex crossed above. Entry between $1.97-$2.05 or over $2.20 breakout. PT1 is $2.60 and then $3+.

$AQB

Swing candidate on this nice wedge. MACD is curling higher and price is riding short term EMAs. Look for entry between $3.08-$3.15. Stop at $2.97. Target is 3.40 and then $3.75.

$EYEG

 

Back on the watch list for a powerful move after this flag breakout, which I posted on Thursday prior to the breakout. Broke the flag formation and looks poised for 0.62+. Watch over $0.55 break for continuation. Huge buying pressure on the daily chart.

$IPAS

Solid action on Friday with price closing above EMA(8,13,20). Major resistance to break is $0.40 which would send it to $0.43 and then $0.47+.

$EBIO 

In what is seemingly a counter attack formation/on-neck pattern, this broke the flag and is ready for $2.30+. Watch over $1.95 break.

$CERC

Solid belthold line after the doji-like reversal signal. Some res at 20ema, which is at $4, so watch over that. PT should be $4.44.  Macd and CMF are also showing positive signs.

Other notable setups are: $TGA $DEST $TRCH $VRML $BLPH $MCEP $MYO

 

Disclaimer:

This is not by any chance a recommendation to buy or sell, nor is it a guaranteed indication that the above tickers/stocks would provide profits. Do your own DD and research and trade at your own risk.

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Become Financially Free

“To achieve what 1% of the worlds population has (Financial Freedom), you must be willing to do what only 1% dare to do..hard work and perseverance of highest order.”

― Manoj Arora

A lot of people today fail to realize the imperativeness of hard work and perseverance, especially when financial talks emanate. Everyone wants to be financially free, yet only a few actually seek out said pertinent opportunities. I’ve always wanted to be rich and wealthy, and that’s why I never gave up after losing my 401k (about $3k, as I was a fresh college graduate) in the stock market. I’m not saying it has to be the stock market, but financial freedom comes with having multiple income streams–simply put, it comes by making your money work for you.

Connectedly, Don’t be skeptical when people tell you how they’ve made their millions; instead, listen more and learn a thing or two. You too can make $16k in a day just like I did today, so just put in the work and be less cynical.

So, I challenge you to find get out of your comfort zone and go get that which you desire. The goal is to work smarter–not harder. This is how you will become financially free.

I trade a certain way that ensures consistent gains, and I teach our Platinum subscribers the same exact system. Join our room by clicking HERE