December 01, 2015
Why ETF’s? And..How I Use Stops In My Trades – Protecting a position
What are my four horseman now? Um…these days I try to avoid trading companies PERIOD. Why? 4 Letters. T-S-L-A.
You guys probably know why lol.
Reason I try avoid companies is because they are COMPANIES that can’t avoid the pitfalls of that. For example, bad earnings, bad pre- announcements, fad stocks, bubble stocks, death of a CEO..or worst yet..accounting issues…
I have found 4 stocks that I’m very comfortable with and they are NOT companies. You probably know what they are already.
UPRO the triple long ETF for S&P, SPXU the triple short ETF for S&P, TQQQ the triple long ETF for NASDAQ 100 and SQQQ the triple short ETF for NASDAQ 100..
If you don’t what these are they are triple leverage ETF’s that are the entire basket of those big indices..basically say S&P rallies 1% one day, that very day UPRO would instead rally 3%..a triple parallel to the S&P..now how great is that?
You won’t have those days where S&P would rally 2% and your stock is down 1% and you’re angrily wondering out aloud why your stupid com- pany stock is down during a huge up day..that’s happened a lot to me, and trading triple ETF’s you avoid that stupid crap. You get the beta and leverage of a serious tech momentum stock in and easy easy package to trade. S&P goes up 1%, you’re up 3%….as simple as that and as powerful as THAT.
One big question right now after all is said is this…can this technique be applied to shorting inversely?
Yes, it can, but keep in mind the overall market trend MUST be clearly down. Trying to short C waves or downside breaks is VERY difficult in bull markets where be tempting to do, been tempted a time I’m wrong, or dom spike hits me to use this tech-we are now.
But if it is a confirmed bear market, what do I typically do in a bearish wave? I wait patiently basically. I wait until I see that Wave 2, Wave 3 pat- tern break setup to the upside before I’d reinitiate a position. But what if the bearish wave is turning into a downward 3rd wave? This is when I’d react. If there’s a clear cut W1 down, W2 zigzag up that finds resistance at .618 retracement, followed by a break below the intraday low or W1, I’d go short, but NEVER during the course of the day. I’d only do it at the “big guy decision time” frame right at 3:05. When there’s a clear cut “in- verse pattern break” W3 to the downside, I’d react to it, only if the bear- ish wave has lasted 3-4 days minimum or JUST intraday for a day trade at most..
As you guys should know, bullish waves are more frequent than bear- ish waves — well, maybe not from late 2007 to early 2009, but in the past couple years since the 2009 bottom, bullish moves are more frequent. An alternate strategy would be to buy bearish ETF’s like SQQQ, SPXU or FAZ and go for the big downward Wave 3 move. My history shorting isn’t that good, I’m right maybe 60% of the time vs. 80% of the time trading on the long side, but I’m working on improving that. I think it’s the mental aspect of it. I really despise the act of shorting because it’s anti-American (on my soap box).
You may see on my website that I place “stop to buy” or “stop to sell”….I place them on very key levels…so a .786 breakout would occur in- traday after a zigzag, which is the 80% trade setup. A stop to buy is an or- der that will fill should the stock or ETF surpass that level. If I place a stop to buy at say 85.85 on UPRO and it’s 85.01, when it rises to that level it will automatically fill to the upside.
The best thing about placing stops is the fact that you could just get lunch for an hour or two, come back and see that your order has been filled with a huge amount of new money in there…you don’t have to sit there all day trying to place quick market orders and trying to trade like a complete crackhead. I’’m a swing trader by style, so expect these trades to last between 2-5 days, and 6-8 stop to buys that trigger on average over the course of the month..
Better yet…out of those 6-8 trades, based on my trading history ONE will be a loss, and not that bad because…I also place stop to SELL at ex- act fibonacci levels.
I do NOT automatically place a stop to sell after filling a buy order…by doing this you’re basically chickening out and not relying on elliott wave. I used to
do this, and basically what would happen frequently should a trade go down as opposed to up on the trigger, is this….I buy say TQQQ at 98, and it automatically drops on me…say 2 points to 96…but it drops on a zigzag formation or 1-2-3-4-5 down…I could see that formation developing and if I had a stop to sell it would have triggered..I would have taken my loss at 96 and moved on..but this is not how I work..I have a very very iron gut not because of instinct but because of the science of elliott wave. I would see that it dropped 1-2-3-4-5 down to 96, see the 4 up and 5 down at .382, recognize the 5th wave fibonacci level and BOOM it reverse not only above 98 what I paid, but to 102 or higher….
Keep in mind that not EVERY time my orders fill that there is auto- matic spike and woo hoo everybody makes money. I’ve seen stop to buy orders that trigger, and KABOOM down. But like I said based on my expe- rience with elliott wave trading, I would prefer to recognized what correc- tive formation is forming first before chickening out and selling.
What I’m telling you guys about stops is pretty important, because what I said
in the past two paragraphs is exactly what I do should that ETF i bought drop immediately after I buy it.
But..If could clearly see a MUCH bigger and more dangerous forma- tion forming, and I could identify it as a mistake, I WILL place a stop to sell based on downside fibonacci support..say a downside .618 fibonacci support break.
You will also notice that I will choose fibonacci patterns to trigger these stops on.
1.) .618 of the entire downside correction ..should the overall market have a pretty obvious upside gap and rally and I want to get in quick.
2.) .786 of the entire downside correction…I do this this 80% of the time because at .786 fibonacci level not only do you avoid the dreaded “2 up and 3 down at .618” but you also have peace of mind knowing that .786 is very very close to 1.00 and to see .786 touch and reverse to the downside is very rare.
3.) 1.00 of the entire downside correction…I will place a stop at 1.00 for this basic reason: I don’t trust the market like I should, but I want to make money.
1.00 breakouts are almost as frequent as .786 breakout trades to me, simply because it gives you a very high probability of a 3rd wave and avoiding .618 and drop or .786 and drop..
4.) One big thing about my trading as well is this..I won’t place these stops AT . 618 or .786 or 1.00..I will place this stop to buy UPRO or TQQQ slightly above the trigger price..so say UPRO’s .786 breakout is 86.77…I will tack on another .10-15 on that order so I would actually want to fill at 86.87 to 86.92 instead. That would be a stop that triggers on an actual breakout as opposed to hitting .618 and .786 and getting your ass handed to you on a downward 3..
Here’s a quick summary:
-The pattern generally occurs and is very successful in bull markets or clear upward impulses.
-You basically wait for Wave 1 to complete and correct in a deep 2. Usu- ally, short term it’ll be in the formation of an ABC zigzag were A = C and B = .618
of the downward A. The deep 2 cannot exceed .618 support…same ap- plies for cup and handles.
-After the formation completes, you try to make an entry of .786 of the en- tire downward zigzag or 1.00 to be conservative..earlier entry could be .618 but that could be B up before C down.
The 3rd wave is typically big and travels 1.618 X the point gain of Wave 1. Try to sell before 90% of the 1.618 is completed.