FNGs free strategy of the week. ”The Finger”

Here is a strategy that works both long and short with cheap or higher priced stocks.

It utilizes observation instead of thinking so if you are just starting out or are having problems it is an easy program to follow.

There are no chart patterns to memorize or think you are seeing, there are no fancy named indicators to decipher.

Ok, lets start with the rules:

1. Entry - The underlining-operating premise is trading stocks that are hitting new highs or new lows. That is the only qualifying action that you will follow in order to put on a trade.
2. Set your stop at the previous candles high/low or .10 whichever is higher/lower +/_ .01.
3. Exit – (A) When it stops moving in the direction it was going, you exit the trade.

(B) When it makes a big move in the direction it was going you get out.

(C) If it continue trending, you get out before the end of the day.

4. Start one hour after the open and trade only the next hour and a half and the last 2 hours of the trading day. Set an alarm clock to remind you if you need to.

5. Trade only small spread, .01-.02, high volume 800,000 + share stocks using market orders.

To start with, the less you massage the rules and think about freelancing the better of you’ll be. In time, simple tweaks and more indepth observation will yield even better results but for now if you implement this simple plan you’ll gain:

1.An immediate appreciation of probabilities

2. You’ll get used to taking profits

3. You’ll gain a lot of confidence that the markets can pay you for your time and are not fundamentally difficult to learn.

Putting it into action.

Put on some relaxing music.

First you’ll need to have a real time hitting new highs and lows indicator. It’s not possible to do without this.

Use only a 5 minute, 1 day chart.

Eliminate all other indicators and lines from your 5 minute chart. You want it naked.

Watch the news highs/lows indicator like a hawk

When you see a stock making the new high or low, check out the daily volume and the spread. If they are in line with what you are looking for, put on the trade.

Do not think about winning or losing, just do it.

Follow the plan.

Lets check the following 5 examples from today(TUESDAY, MARCH 30, 2010 ). After I put them on the screen and asked her, my 4 1/2 year old daughter identified these movers. “Look daddy, this one is green at the top(or red on the bottom)

All of these trades happened to work out but that is not so much the point although trading this way you will find the % of winners is quite high.

AMLN new highs

AMLN exit

CSIQ entry new highs

CSIQ exit

ITMN new lows, cover after big move.

MPG entry new low

MPG exit

LVS entry new low

LVS exit

Intelligent ignorance.

The other day, I was talking with someone who casually trades and they asked me for my opinion on some of some popular stocks, AAPL, GOOG, RIMM. I said I know what general business they are in but that’s it. I know nothing else nor did I care to know. Furthermore I don’t know what levels the markets are at or if it’s earning season or a Fed day.

They almost started to argue with me stating that the more I knew the better off I’d be. Wrong on all counts. The less you know the better off you are I said.

The hours and hours of time I DON’T spend every week doing research, gathering opinions, fostering expectations and thinking I know what a stock will do is much more valuable to me practicing self mastery. You see, after a very short time the basics of charts can be absorbed and a simple strategy devised. The hard part is getting yourself to: 1.Acknowledge what the market is doing in front of you at this very moment.

2. Acting on the information in a timely manner.

3. Follow your trading plan.

Knowing who you are and by that I mean really knowing how you act under “pressure”, your strengths and weaknesses, your full range of emotions and how you typically act when exposed to them, only then will you be able to be comfortable with any outcome the market presents you.

So the journey to self mastery must begin by looking inwards to yourself instead of the what the market is doing. The markets are nothing more than a giant barometer of human emotion namely fear and greed presented by however many different stocks, commodities and forex trading instruments driven by grandiose or petty schemes, promoters and publicity machines. Don’t try to learn the unlearnable. In the end it doesn’t matter what you think is going to happen anyway because the markets are going to do what they are going to do based on whatever information is put to it. End of story.

Now if you’re like me and purposely dumb yourself down in regards to market knowledge by not reading or watching anything to do with it, it’s very easy to get in and go with the flow or change directions rapidly. Opinions and expectations mean nothing. The dumb, thus smart traders don’t try and figure things out. They see an opportunity, they act. Take ABIO yesterday for instance. I’d never before seen the stock or know what they do. After it caught my eye by being up so huge what I did want to know was what’s the volume and what’s the spread. That’s all I needed to know from the market. It already had super momentum. That was plain to see. After that it is all down to me. Position size, stop price, correct order entry, work the trade. Then, when is it going to stop going up and reverse? What is the mob mentality thinking. How much farther is it likely to go up? How will they react when it slows down and stalls? Profit taking, reverse the position, set stops, be ready for it to go in any direction. This is the stuff a trader needs to focus on. To be a master of their actions and thinking ahead on what they will do in the coming moments. There are no surprises when you have such an attitude.

I strongly believe that when you spend your time in reflection on yourself instead of the markets you will be much more successful.