*** Buying the Dip and Day Trading Strategy Guide ***

 

This is awkward.  It’s like when you go out on a bad date and never
call the person again and then you see them at a bar a few weeks
later.  Haha that’s how long it’s been since we’ve spoken! No seriously,
I’m excited to finally touch base with you all.  Hope everyone has been
doing well for themselves.

 

Many of you have emailed me asking why you haven’t been receiving
my picks, if you’ve been removed from my list, if I’m okay (awww, that
one is truly touching, thanks for your concern!), etc, etc.  I’ve just
been sitting back lately and trying to not swim upstream in a really bad
market for the penny companies out there.

 

I’ve been watching the markets, the newsletters and all that stuff
and it seems like…while the companies other newsletters have been
covering have been good companies, they’re still losing value in the
immediate term.  Because of this I decided to take a breather and not
send out picks for a week or two.  I never know 100% for sure if the
timing is right when I send out a pick (I’m one of the few newsletters
honest enough to say that, even though that’s a true statement for EVERY
newsletter) but I like to at least try to make sure I send out
my picks at the exact right time to maximize our profits.  I figured it
was better to just sit back so we don’t take any unnecessary risks.

 

Side note:  Have you guys ever seen that movie, "There Will Be
Blood?"  I know it came out a few years ago but I just saw it last
night.  It was totally amazing!  It’s kind of long and boring with lots
of silence in it so lots of people won’t like it, but I thought it was
really just great.  Very original and cool.  I hear it’s a lot like
Citizen Kane, which I’ve never seen but is supposedly the greatest movie
of all time.  Now I can finally understand that "I drink your
milkshake!!" quote that was popular..uh..3 years ago.  I love when I see
a movie that I can’t get out of my head.  I used to love movies and
dream about writing and making them when I was a kid.  I love seeing a
movie that makes me remember how much I love movies. 

 

That’s why movies like Wall Street, Boiler Room, American Psycho
(even though that’s not technically about Wall Street, he still works in
finance), and the like are so great.  Great movies (well, Boiler Room
isn’t really "great" but I still like it) like those are what motivated
me to get into trading and want to live the Wall Street life.  Specifically the movie Wall Street is what got me so into trading.  It’s
not just the money, it’s the excitement. Wall Street is definitely a
must-see if by some miracle you haven’t already seen it.  I’m a little
nervous about Wall Street 2 coming out, I’m fairly certain it’s going to
be awful but I guess we’ll see.

 

Anyway, I’m sure you don’t read my newsletter to hear my movie
reviews.  Maybe you do, how the hell do I know??  So let’s get down to
the subject of the email.  You know it’s been so long, it’s possible I
already went over this with you.  If so, this is a refresher.  The
reason I’m writing this is I just checked my email and a lot of you
wrote to me asking where I am, as well as asking me for more details on
the correct way to play the "buy the dip" strategy.  By the way, the
phrase "buy the dip" is something I made up so you can’t really google
it or look it up on wikipedia or anything.

 

I normally write to each person individually to tell them the
answer but after 20 of those emails, I figure I might as well just
explain it to you in a mass email so if you wrote me asking about where
I’ve been or about the buy the dip strategy, I’m not going to write back
because I have hundreds of emails I have to reply to.  I know, poooooor
me.

 

DOWN TO BUSINESS

First let me say, all strategies stated are purely biased amateur
trading ideas.  Do your own research, make your own decisions, consult
with a licensed professional before investing, and only invest what you
can afford to lose.

 

Anyway..

 

Basically there are two main ways to play the buy the dip
strategy.  The main question I get is how do I know if I’m buying a dip
that’s going to bounce back, or if I’m just buying into something that’s
falling off the face of the earth and not going to come back?  The
simple answer is you don’t.  You never know.  Trading is gambling.  To
not acknowledge that is to set yourself up for disaster.  However
trading can be controlled, the odds can be put in your favor. 

 

There are two ways to buy the dip.  You can just guess, or you can
use support patterns established earlier in the day.  I’ll explain…

 

1.  Guessing.  Okay, let’s say, for a hypothetical example, I
send out a pick that’s 20 cents when I send out the alert.  The next
morning it opens at 25 cents, within 5 minutes it rockets to 30 cents,
ten minutes later it’s tanking and it’s all the way down to 20 cents.  Should you buy it now that it’s all the way down at 20 cents?  I watch
my picks very closely the day after my alerts go out, and the vast
majority of the time when the price plunges from the open, it bounces
back quickly.  So when the price comes way down from the opening price
(OR the high that sometimes occurs within 15-30 minutes after the
open…in this example I said 30 cents) you may be saying to yourself,
it seems like these shares are cheap in relation to where they were
earlier this morning.  This could be my opportunity to pick up shares
cheaply and enter the trade at a low price to be in a good place when
(if) it bounces back. 

 

Now it’s impossible to know the exact lowest point you can enter a
trade, it may drop farther, 19 cents, 18 cents, whatever…before it
bounces back.  You can’t just not trade and keep saying, well…it might
go lower, because then you’ll just end up sitting on the sidelines,
never trading, and never learning.  I’d give the same advice that Obi
Wan Kenobi would give…trust your instincts.  If you’re new to trading
and you don’t have trading instincts, I still say trust them anyway, but
don’t risk too much money.

 

The first 15-60 minutes of the trading day are the most volatile
and definitely give you the biggest opportunity to pick up shares when
they are the most undervalued for that day.  When you see a wild price
swing, like in my example…closed at 20, opened the next day at 25,
rocketed right to 30, and then plunged back to 20…that’s some crazy
action.  There’s a high likelihood that you’ll see it go back to at
LEAST the opening price of 25…so if you buy shares at 20, you make a
solid 25% profit if it goes back to 25 cents.  Again, trading IS
gambling so while I usually do see my picks bounce back, it’s certainly
possible that it won’t bounce back and it will stay at 20…or even
continue to go even lower

 

 It’s obviously risky, but the truth is it works more often than
not.  What you can always do if you’re a beginner is to just play
pretend.  You can mentally say "okay imagine I bought shares at 20
cents" and then see what happens the rest of the day.  This way doesn’t
really train you as well as entering a real trade (even a small one)
because one of the most important factors of trading is emotion.  All
books on trading you read, as well as Mr. Gordon Gekko himself, say that
the number one challenge of trading is to control your emotions.  Virtual trading where you don’t actually enter an order doesn’t train
you on the emotional aspect of trading, but still…it can help you see
how effective buying the dip can be without you having to risk any money
or even setup a brokerage account. It will show you that even a random
guess can pay off big time.  I’m not saying I recommend the guessing
move or anything, it’s totally up to you, it’s just another trading
idea/strategy to put in your arsenal so you can have it to use if you
need it.

 

 

2. Buying at the Support Level.  This one is much more
technical and scientific and reliable than just guessing.  It’s more
along the lines of what professional traders do.  One downside is it can
only be done later in the trading day, since it relies on looking at
the trading patterns established earlier in the day.  The main downside
is,  unless you do it repeatedly in a single day, it’s usually
substantially less profitable than the guessing strategy.  Professional
traders always say it’s better to always hit singles and never attempt
homeruns, and that homeruns are for amateurs. I agree, it’s the better
way to trade.  It’s less fun, and sometimes you get pissed that you
wanted to let it ride but you cashed in your gain too quick, or stuck by
your stop loss only to see it bounce back hard after you sold.  Still,
it’s usually a reliable ways to lock in small profits over and over
again. 

 

The way it works is during the day the chart will establish a
trading pattern and usually trade in a certain range.  Using the same
example as above, let’s say it opens at 25, runs to 30, then falls to
20.  After that, it may spend most of the day trading within the 20-25
cent range.  Let’s say it goes from 20 to 22, then to 20, then to 24,
then to 21, then back down to 20, then it bounces around for a
while…but the bottom line is consistently for a few up and down
movements of the chart, the LOWEST point it hit was 20 cents.  It
doesn’t have to be the lowest point of the entire day, it can also be
the lowest point of the last hour or couple of hours.  This makes 20
cents the support level.  So if you buy shares at 20 cents (sometimes
you won’t be able to buy at the exact support level and may have to pay a
cent more, in this case 21 cents), you have a high likelihood of riding
that trade back up to 25 cents, or at least up to 22, 23, 24…some
kind of gain.  If you buy a lot of shares, and do this repeatedly
throughout the day, and buy and sell over and over again you can capture
little 5-25% gains over and over all within 1 trading day.  You make up
for the small size of the gains by buying large amounts of shares.  That’s how most day traders operate.  Many day traders make their ENTIRE
living from buying at support levels and selling once they get a small
gain.   Don’t forget the more shares you buy, the more profits you can
make but also the bigger risk you take. 

 

Another advantage is you know exactly where to put your stop loss
and further minimize your risk.  If the support level has consistently
been at 20 cents, and you buy at the support level of 20-21 cents…then
you see it hit 19 cents, you immediately know you should sell.  That
means the support level has been broken, and now the pattern that had
been established is no more.  You certainly can hang on if you think
it’s going to bounce back, but it’s probably smarter to sell since now
you don’t know how low it will go.  Again it’s up to you, these are just
my ideas.

 

So that’s  the other half of the buying the dip strategy, watching
for a pattern and then buying at, or near, the support level.  You can
sell as soon as you capture small gains, and do this over and over
again.  You can also hold and hope for further gains the next day or in
the coming days and just use the support level as a good entry point for
a longer trade.  I personally think it’s better to just repeat the
strategy throughout the day, play it safe and just keep cashing in small
gains over and over again. You can make even a 3-5% gain a decent
amount of money if you buy a lot of shares.  That’s how a lot of hedge
funds operate. That’s just my opinion, you really shouldn’t buy lots of
shares if you don’t have the experience for it or if you aren’t prepared
to lose every penny you invest…because anything can happen.  

 

That about sums up how the buying the dip strategy works and a few
different ways you can take advantage of it.  The great part about it is
overall the company doesn’t have to have a great day, or even a good
day, for you to make lots of money.  If XYZ company opens at 10 cents,
drops to 5 cents, then ends up closing the day at 8 cents…XYZ would
have closed down 20% from the 10 cent opening price, BUT if you bought at the low of 5 cents, YOU will have made 62% off XYZ that day!!

 

So that’s pretty cool I think.  That’s just day trading.  There is
also plenty of money to be made by playing the more basic old-fashioned
way and just buying at the open and selling when you feel the time is
right, at the end of the day or even days or possibly weeks later.
There’s even long-term investing, which is probably the most profitable
of all but is extremely risky with small companies.  Most of my alerts
aren’t for those, but a few are and we’ve made a lot of money from some
of them.

 

Some of the biggest gains take time.  It all depends on your
personal preference for what trading style you like.  There is money to
be made, fun to be had, and skills to be learned no matter what kind of
trading style you prefer.

 

 

Now if you’ve been reading my newsletter for a while you know I’m a
bit of a workaholic.  I haven’t exactly been taking time off, despite
the lack of emails.  I’ve actually been observing the market and a few
particular companies quite closely.  Companies that perform well or show
certain signs during a slow or down market, often go wild once the
market strengthens.  The good news is things are getting better.  The
trading volume is picking up and the gains are starting to appear
again.  Today the market hasn’t been great, but has definitely spent
most of the day in the green.  I want to continue to observe a little
more, but if things look good in a day or two I’ll be sending out some
new alerts that are especially appealing.  So keep your eyes open, if
the ocean has a little motion I’ll be up to my old tricks again soon
enough.  Bad jokes and big profits may be coming to a computer monitor
near you

 

Hope everyone is well,

 

The Trader

 

 

 

 

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