Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21
CISCO 2020 Dot com Bubble Stock vs 2021 Bubble Tech Stocks Warning Analysis - 6th Oct 21
Precious Metals Complex Searching for a Bottom - 6th Oct 21
FB, AMZN, NFLX, GOOG, AAPL and FANG+ '5 Waves' Speaks Volumes - 6th Oct 21
Budgies Flying Ability 10 Weeks After wings Clipped, Flight Feathers Cut Grow Back - 6th Oct 21
Why Silver Price Could Crash by 20%! - 5th Oct 21
Will China's Crackdown Send Bitcoin's Price Tumbling? - 5th Oct 21
Natural Gas News: Europe Lacks Supply, So It Turns to Asia - 5th Oct 21
Stock Market Correction: One More Spark to Light the Fire? - 5th Oct 21
Fractal Design Meshify S2, Best PC Case Review, Build Quality, Airflow etc. - 5th Oct 21
Chasing Value with Five More Biotech Stocks for the Long-run - 4th Oct 21
Gold’s Century - While stocks dominated headlines, gold quietly performed - 4th Oct 21
NASDAQ Stock Market Head-n-Shoulders Warns Of Market Weakness – Critical Topping Pattern - 4th Oct 21
US Dollar on plan, attended by the Gold/Silver ratio - 4th Oct 21
Aptorum Group - APM - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 3rd Oct 21
US Close to Hitting the Debt Ceiling: Gold Doesn’t Care - 3rd Oct 21
Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
Original Oculus VR HeadSet Rift Dev Kit v1 Before Facebook Bought Oculus - 3rd Oct 21
Microsoft Stock Valuation 2021 vs 2000 Bubble - Buy Sell or Hold Invest Analysis - 1st Oct 21
How to profit off the Acquisition spree in Fintech Stocks - 1st Oct 21
�� Halloween 2021 TESCO Shopping Before the Next Big Panic Buying! �� - 1st Oct 2
The Guide to Building a Design Portfolio Online - 1st Oct 21
BioDelivery Sciences International - BDSI - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 30th Sep 21
America’s Revolving-Door Politics Behind the Fall of US-Sino Ties - 30th Sep 21
Dovish to Hawkish Fed: Sounds Bearish for Gold - 30th Sep 21
Stock Market Gauntlet to the Fed - 30th Sep 21
Should you include ESG investments in your portfolio? - 30th Sep 21
Takeda - TAK - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 29th Sep 21
Stock Market Wishing Away Inflation - 29th Sep 21
Why Workers Are NOT Returning to Work as Lockdown's End - Wage Slaves Rebellion - 29th Sep 21
UK Fuel PANIC! Fighting at the Petrol Pumps! As Lemmings Create a New Crisis - 29th Sep 21
Gold Could See Tapering as Soon as November! - 29th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Buy Fear - Easily Pick Up Profits on Stock Market Dips

Companies / Investing 2014 Nov 25, 2014 - 05:29 PM GMT

By: Money_Morning

Companies

Michael A. Robinson writes: U.S. stocks are hitting record highs on an almost-daily basis as we close in on the end of the year.

But the whipsawing we've had to endure to reach this point is enough to give you saddle sores.

The Standard & Poor's 500 Index has gained a healthy 11.6% in 2014 through the closing bell on Friday. From Sept. 18 to Oct. 15, however, the bellwether index fell 7.4%. The downturn ended quickly, and stocks reversed course. In the month that followed, through Nov. 14, the S&P 500 surged 9.5%.


On three other occasions this year, the S&P endured sell-offs of 4% or more.

It's been downright dizzying. But for us, a ruckus of a market like this can be a fantastic opportunity.

Today, I want to show you my secret "risk-busting" strategy that's perfect for rough rides such as this. It's just the tool you can use to turn a volatile market to your advantage.

Keep reading, and I'll show you how to harness this strategy out on the range…

Buy Some Fear

This is what's happening out there in the markets. As the markets keep reaching new record highs, investors get nervous and panic sell.

That can leave long-term investors who believe in their stocks shaking their heads in bewilderment.

But one of my favorite trading tools lets us buy other investors' fear in an easy-to-use, systematic way. It's like "Mr. Market" is dropping $100 bills on the sidewalk – with this strategy, we can pick them up.

I call it the Cowboy Split. Simply put, it means making staggered entries.

Here's how it works. You buy less than your usual amount of shares – say, half – of a tech stock you like at market. Then, you put in a "lowball limit order" to buy the rest at a discount – say, 20% or even 25%.

With a lowball limit order – more commonly known as a "buy limit order" – you tell your broker to buy more of the stock at or below that specified price.

If a $100 stock you believe in keeps rising – good news! – your order is never filled. However, if it falls to $80, you pick up more shares at a discount – and make even greater gains when the stock starts moving again.

For individual investors, this is a great way to invest for the long haul while turning the market's volatility to your advantage.

That's why you all should use this strategy on a regular basis.

Now then, let's take the Cowboy Split for a spin.

A Test Drive… in China

Bitauto Holdings Ltd. (NYSE: BITA), one of our favorite stocks, is a leader in China's automotive e-commerce sector. It sells online advertising and provides reviews and pricing info for consumers. It also serves as an online showroom for both new and used car dealers.

In late October, I still saw the potential for strong gains for the stock because Bitauto is uniquely positioned to profit from big changes reshaping China's automotive market.

The stock had come under enormous selling pressure a few weeks back as concerns mounted about China's slowing growth. The World Bank forecast that the Chinese economy will grow at 6.9% a year, down from earlier forecasts of 7.1%.

As a group, Chinese e-commerce stocks got hammered from late August until the middle of October. Bitauto got slammed on fears that car sales are slowing in the world's most populous nation.

From its all-time high of $96.14 on Aug. 26 to its recent low on Oct. 13, the stock declined 34%.

This huge haircut gives us a great way to test the Cowboy Split in a real-world setting.

Assume you bought the stock at $96.14. Had you simply put in a 25% stop loss, you would have exited the position at $72.10 on Oct. 6, at a loss of $24.04 a share.

At the time, it might have seemed wise because the stock didn't hit bottom until a week later on Oct. 13, when it closed at $63.09.

Now let's see what would have happened if you had applied the Cowboy Split.

To keep the math simple, assume you had put in a lowball limit order to buy a second one-half position at $72.10. You'd have made 28.7% on that tranche in the five weeks ended Nov. 14.

That second tranche would have brought your cumulative gains to more than 12% in just a little over three months for annualized gains of 44%.

A Peek Behind the Curtain

The Cowboy Split has been particularly profitable for readers of my premium trading service, Radical Technology Profits.

Take the case of Pernix Therapeutics Holdings Inc. (Nasdaq: PTX).

On Nov. 11, shares of this specialty biotech firm broke out in heavy trading. Riding massive volume, Pernix shot up more than 16%, for a time ranking as the day's ninth-biggest gainer among all major domestic stock exchanges.

Some of the frenzy died down by the end of the session. But Pernix still managed to end the day as the 14th-biggest gainer, with profits of more than 14.5% in a single session.

And that move came just one day after the stock advanced by more than 9%. Overall, Pernix is now up more than 40% since we first picked it up in late June.

But my service's Cowboy Split tranche, which we bought in early August, is up more than 68%, for annualized gains of 272%.

Thus, the Cowboy Split is a great way to profit from volatility in two ways.

First, it keeps you from parking your cash on the sidelines when choppy markets can seem very confusing. Second, it's like buying portfolio insurance that can pay off handsomely in a matter of just a few weeks.

And so, you all can use the Cowboy Split to move you closer to that Old West dream of a life of financial freedom – in this case, built on the wealth created by the New West of Silicon Valley.

Source : http://moneymorning.com/2014/11/25/easily-pick-up-profits-on-stock-market-dips/

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in