3 Tricks to Trade Like A Pro (#3 Will Melt Your Heart)
This post 3 Tricks to Trade Like A Pro (#3 Will Melt Your Heart) appeared first on Daily Reckoning.
You may have heard that there’s been a higher than expected demand for our “7-Day Fortunes” event.
For good reason, too. The strategy that our resident “man on the trading floor” Alan Knuckman uses is unlike anything we’ve ever seen.
With this demand came a whole flood of questions about Alan himself. Readers want to know more about the man behind this huge market opportunity, and the patent-pending tool behind his incredible strategy.
And I don’t blame them!
Even when he’s commentating on major financial news outlets like Bloomberg, CNBC, and Fox Business Network, Alan doesn’t share insights into his trading strategy. Which is why I sat down with Alan once again to dig even deeper into his strategies, and for tips on how to become a better trader…
Zach Scheidt: Good morning, Alan. Thanks for coming back to Baltimore on such short notice. But the people have spoken, and they want to hear more! Specifically, I’ve received several emails wanting to know more about you and the strategies you’ll be using in Weekly Wealth Alert.
Alan Knuckman: Any time, Zach. I’m hoping to create more of an open dialogue with readers anyway so these interview sessions will definitely help!
Zach: That’s great to hear, Alan. Let’s get to it. You just brought up some specific stocks before we began recording. So I want to ask, what are your five favorite stocks for right now?
Alan: All right. Well, let me give you my stock answer. My stock answer is that I’ll always switch to win. I don’t care what I trade. It’s whatever the best opportunities are. So it’s not so much what I trade, it’s how I trade. It’s the discipline. It’s the ability to have good risk reward plays that have high probability of success.
I come from the school where my mentality is about finding value, especially in this market rally that we’ve seen in the last eight or nine years.
Finding value in some distressed areas has been a recent favorite play of mine.
I’m talking some of these stocks that for whatever reasons had really bad news cycles. British Petroleum after the Deepwater Horizon incident was a big opportunity. Deutsche Bank, when it was at those low levels, around ten dollars, was an opportunity.
From a trading standpoint, I’m not necessarily trying to pick the bottom. What I am doing is using trading strategies on these distressed companies when they put me in a situation where I have increased reward potential for less risk.
These situations occur because most of the big news (and price movements) have already occurred.
I think we’re seeing that right now in the energy stocks and oil stocks. In the long run, I’m thinking that those have some room for recovery. But again, from a reward or risk standpoint, the trading strategies that I use are not to try and pick that bottom turn, but to position myself for success if and when that distressed or depressed sector does make a comeback.
Zach: Good insight, Alan. Now here’s another question that I think could benefit the individual, main street trader: What are three tricks that professional traders including yourself use to make money that you would think the average guy on Main Street is doing?
Alan: You know, it’s funny you specified three because I’ve got exactly three tips that I tell people that come up to me on the street or wherever all the time. Here they are…
Trick #1: I use options instead of buying a stock. That allows you to control your risk, control your probability, and increase your payoff. It’s all about putting the odds in your favor. Think about it, options give me a better payoff while also not tying up all of my funds. It’s a no-brainer.
Trick #2: A major difference between professional traders and amateurs is allocation. Here’s my recommendation in just basic terms: You want to divide your account or your portfolio into twenty slices of pie.
So in your account, each trade is only five percent. And of that five percent, you want to risk half of that. That’s a good rule of thumb that I use. Risk only half. And think about that for a second, under that strategy the most you could ever lose if a stock pulls back is 2.5%. That’s how you set yourself up for success.
Trick #3: Investors need to reward themselves. The reason you trade or invest is to make money. From time to time you need to reward yourself, and remind yourself what that money means and what you can accomplish with it.
Remember that you set your own terms. This is the world’s perfect business. You can make it fit your lifestyle by trading when you want to trade.
Investing can be very, very difficult and very, very draining and costly on your life and your lifestyle. That’s actually why I chipped into options, because I wanted to spend time with my young daughter and take the time to do things with her. Now every summer I take her to softball, take her to wherever she needed to go.
Using options allows me to step back and trade the bigger picture, with also a higher level of profitability. Which certainly beats getting in and out of the market multiple times over the course of one day…
Zach: Alright, Alan. One more question. Talking specifically about your “7-day fortunes” strategy, can you tell me a little bit more on how it works?
Alan: Absolutely, I’ll let a recent example answer that question…
Earlier this week, I saw unusual options activity for a company called NRG Energy. In particular, the $17 call options expiring July 21st had a volume of 18,000 on July 10th… Most of them being ‘buys’ for $25 per contract.
In other words, someone bought A LOT of cheap call options on July 10th.
That’s an insane amount of buying volume, considering the few days prior only had a couple hundred orders…
NRG stock closed at $16.12 on July 10th.
But on July 12th, just two days later, NRG skyrocketed to $21. Those $25 options jumped big time… they were worth over $400 in just TWO days. That’s a 1,500% gain!
Right now NRG is up even more… And those options are worth closer to $550.
Here’s the way I see it…
SOMEONE knew something about that stock – and if they cashed out at $550, we’re talking about nearly $10 million in pure profit!
Again, this is NOT back tested data. This was a stock that I was looking at before the big move… Just THIS week.
You see, insider moves still run rampant in the financial markets. That’s why I’m so excited about a recent development that could help our readers catch some of these big stock moves before the news is reports.
It’s all part of my “7-Day Fortunes” strategy. But, one of the key parts to the strategy that I’d like to share with you, is a patent-pending indicator. By sorting through billions of data points, this indicator gives us the chance to piggyback the insiders who (I think) have the advantage when it comes to trading.
It’s really exciting stuff. That’s why I’m glad we’re able to share this information today in our “7-Day Fortunes” event.
Zach: Alan, thank you for your time. We’ll have to do this again soon.
Alan: Anytime, Zach. I hope the readers find this useful!
Here’s to growing and protecting your wealth!
Editor, The Daily Edge
P.S. Here’s an urgent reminder…
Alan’s generous “charter membership” offer expires tonight at midnight.
If you want to learn more about the patent-pending indicator, and how you could use it for the chance to make big gains BEFORE big company news… you’re going to want to act now.
The post 3 Tricks to Trade Like A Pro (#3 Will Melt Your Heart) appeared first on Daily Reckoning.