Know the rules
Know the rules: The other day I received the following question: “Hi Markus, please explain yesterday in your video was a software PowerX – the stock LULU was in red – SELL… The stock is today off after strong earnings…”
See, it is extremely important that when you use a tool, that you know the rules and use it the right way. It doesn’t matter whether you use a tool or a trading strategy, right?
Know the rules – Step 1
First, you need to make sure that you fully understand the trading strategy before you use it.
As an example, let’s talk about Lululemon.
Two days ago, Lululemon said, yes. It is more likely for the stock to go down. But then yesterday, we got a black bar saying that it is more likely for the stock to change the direction or to go sideways.
As soon as you see a black bar, you’re getting out of this and you see, this is how you can easily avoid being trapped into earnings.
First of all, make sure that you understand and know the rules. So, we did have a red bar two days ago, but then yesterday, the software said, you know what? It might reverse direction. So, do not go short.
Know the rules – Step 2
Second, make sure that there’s no gaps
The second thing is when I’m looking at stocks to trade, is I want to make sure that there are no gaps.
Now, what does a gap mean?
A gap means the wide spaces that you see.
What do these white space mean?
It means that Lululemon was trading at $107 and the next morning, it opens up at $119. A strong gap, a huge gap, and it did it again and again.
Now, let me ask you this: When you see that is stock is showing a gap that is jumping every few months, what does that mean? What is causing this gap?
Exactly. Earnings.
So, it seems that Lululemon regularly surprises its investors, right? Regularly, they say, oh, you know what? We did better or we did worse. And this is why you have the gaps.
One of the rules when I trade stocks is that I want to make sure that there’s no gap.
Therefore Lululemon does not even fit my criteria because we have gaps. If a stock has been gapping in the past, it is more likely to do it again.
This is why it is extremely important that you know the rules of this strategy.
Now, there is one more rule that I have before I enter.
Stop orders and limit orders
What I want to see is when I’m getting a red bar to sell the stock. I want to make sure that we break below the previous low, that we really have momentum to the downside.
And in the same way, I want to see that if we see green bars before I enter, that we actually have momentum so that we are taking out the previous day’s high.
If we look at CRC, which is the stock that I tried to buy today, you can see there’s a green bar, and I want to see that we are going above the previously established high.
And this is what the PowerX software tells me. It says, buy to open at $26.42.
It’s extremely important that you let the market come to you.
This is one of the things that I’ve learned over the years trading; I’m no longer chasing the market. I make sure that the market is coming to me.
This is why I’m drawing a line in the sand, and saying, only if we cross this line in the sand then am I willing to buy or sell a stock.
Make sure that you understand the rules of the strategy. This is why it’s so dangerous if you’re using a strategy without knowing what’s behind it.
This is also why, for many years, I’ve been very hesitant to put this software in the hand of other traders, and I want to be honest.
PowerX Software
I’m actually considering of only making this software available if you sign up for private coaching with me so I might actually no longer offer the software.
If you’re interested in the software and want to get it before I change my mind, do it now. Visit www.mytradingroutine.com to schedule a free demo.
You see, your money is important to me. I feel that I have responsibility for your money because you’re following me here, which I really appreciate.
And I want to make sure that you understand the strategy.
Summary
I would never have traded Lulu for three reasons.
- It showed a black bar. A black bar means stay out of it.
- Even when it showed a red bar, it never went below the previous day’s low.
- It did show a gap. And I do not trade stocks that are showing a gap.
Is this making sense? Is this helpful for you? If so, make sure that you leave a comment below.
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