Maximizing Net Profits and Minimizing Losses on Overall Trade Setups

When it comes to explaining on paper, this chapter is by far the most difficult. Not being able to describe it in real time on interactive charts created a huge challenge for my editor, and is frustrating for me as a coach.

As I worked on this book I found myself doubtful about including the most advanced strategies. I thought that perhaps I should only reveal them one-on-one to those under my direct training, and not fling them out here capriciously. In the end I decided to add them, regardless of my misgivings. I figured some readers might desire the option to try advanced methods on their own. If they floundered and lost money or otherwise needed guidance, they would know where to find me.

But just as I've often mentioned—and it's even truer in this chapter—I'm afraid of what can happen if you try something tough with real capital and no formal training. At the risk of driving you nuts with my nagging, I'll reiterate that here you're only seeing the framework, the map of my Fusion Trading, and the map and the road are not the same. That's especially true when the unknown terrain gets denser and more convoluted and you're down in it all by yourself.

Advancement in any profession takes formal direction and coaching. It requires a guide who knows the terrain. As a seasoned director in day trading, I decided to omit the chart setups that would illustrate the strategies you'll find in this chapter. Why? Because I've learned that if I show one example on paper, novices lacking training will mimic that setup and apply it across the board in all situations and lose their shirts in the process.

Sorry; it's for your own good. My strategies, and especially my advanced strategies, can only be learned adequately by doing them repeatedly in my one-year training program. Sure, you can learn it all alone by trial and error. That's a choice you have every right to. But I'm not going to push you out of the helicopter over that dense terrain, not alone. You can do that jump on your own.

I do offer the framework of all complex tactics so you can see all their potential, and I do list the rules on procedures for each. That way you can start digesting the logic and have some clear rules to memorize.

The most perfect examples are specific situations where I instruct you to stop-loss—where I tell you to exit a trade in the red—because of my stringent risk management rules. In tandem I show you advanced rules and strategies that help you recapture those losses. You learn how to gain back the losses you incur in the very next trading session or within a few days. The point is to have your overall trade eventually become a net profit.

Overall refers to the fact that a swing trade isn't over just because you exited. Recall from Part 3 that your swing stays in play until the first tier and/or the average of all tiers hits its profit target, typically at $2. This means you can always reenter the trade, and at an even better price level, and ultimately gain back profits. Those new profits on the same swing trade can be allocated toward your previous loss. This means that your net result can eventually become a green trade.

I may have lost you at this point—my apologies. For now just remember this:

Once you've learned the following rules and you're applying them consistently, only then will you be closer to mastery of this system. Of course, on paper it sounds easy. I can assure you it's not. Think of the map as opposed to the jungle. You really have to work for your trade to become a net profit—especially if you had to stop-loss. I like to refer to this process as wrestling the trade. The advanced strategies in this chapter are the best tools I know, to date, that will help you wrestle a losing trade back into the green.

Now you may want to know: “How do I stop-loss but still gain a net profit on the entire trade setup?” The advanced rules you're going to read about are designed to save your butt in two ways. They'll prevent you from losing in one devastating swing trade by keeping you on the sidelines. They'll also help you recapture small losses, soon after you strategy-exit, by reentering at better price levels.

That's enough about losses. These advanced rules are not just to help you when you're in the red; in certain situations, they can help you increase your profits. For instance, when you're learning how to both trade from the sidelines and trade during earnings season, you'll gain knowledge of how to trade in 200-share block trades or higher, not limiting yourself to 100. Also, you'll allow profits to run for $4+ and not just $2 max.

Now I'll define the advanced strategies. They are:

• Pivot trading
• Sideline trading
• Trading earnings release

What Is Pivot Trading?

This is a term I came up with to describe the process of stop-loss when it's used at the market close. The trade can be either a straight swing or an intra-day fusion. The action of the pivot is to wait until the next day. The object of the pivot is to reenter that stock at a better price than when you closed yesterday.

When you reenter, you use the fusion-trade strategy. After that execution, you allow your profit on the new trade to run far enough to recapture the loss of the day before. That amount will usually exceed it. Typically you'll capture $2, just like with any swing trade and/or fusion trade. But I'm warning you, there's much more to this advanced strategy than what you're reading on paper. The most complicated factor, as I've told you before, is that all stocks must be treated slightly differently when applying these rules and procedures, and timing is everything.

For instance, when trading TSLA I may choose to pivot trade by reentering on a third tier. But when trading GS I'll reenter the trade after the second tier. Or maybe I'll choose to fusion trade an intra-day level past the first tier.

Those are all options that can only be determined by the specific stock that you're trading. Here on paper I offer a dangerously oversimplified framework to pivot trading, just to minimize your confusion.

For instance, if the trade is not in a current (first-tier or higher) swing, there can't be a pivot trade. In other words, you must have at least entered the original trade after a swing level has hit. This is one reason why I always tell beginners to wait for the second-tier swing to hit, prior to their first entry. Why? Because they don't yet know how to pivot trade, and neither do you. So beware!

Once you've mastered this system, you should use pivot trading in three primary situations:

1. You enter off a first-tier swing, but you don't hold it overnight, because you really should have been waiting for a second-tier swing to hit. So you stop-loss on your first-tier swing entry at the 4 p.m. close. Next day, you pivot to recapture your small loss by reentering off either the same price you closed at or the second tier—and you choose whichever is higher.
2. You've been fusion trading and your intra-day entries didn't profit, so you stop-loss at the 4 p.m. close with however many shares were being traded off the intra-day levels. The next day you reenter with the same amount of shares as with the fusion intra-day trade at the stop-loss, but not until you wait for the swing tier entry. In other words, on the next day you don't try to fusion trade the exact same levels again.
3. You stop-loss your swing positions on the day of an earnings release. You reenter the trade the next day, or if the release is in pre-market, later in the day.

Sideline Trading

Sideline trading is pretty much what the wording suggests. You're off the beaten path, and you're hovering. You're waiting to enter a trade when it's past the standard initial entry point(s), and you enter at optimum levels if/and/or when they trigger. And for every sideline entry, you follow the fusion rules. You can't dive back in simply because the price is higher or lower than the first tier.

A great example of sidelining is when a trade is in play and I'm waiting for the first-tier entry price to trigger, and when it does I don't enter—I wait. I wait for the price to move even further in my favor. I wait for the second-tier swing level to trigger—that's my initial entry.

That is a classic sideline trade. But you'll recall that it's also a safety measure. In Part 3, as I introduce you to swing trading, I direct you to sideline. I warn that trading a first tier is very risky for beginners, and that you should wait for the price to run further before you enter the trade.

So it seems that you, the beginner, will be using a very advanced tactic as you learn how to trade. It seems like a pretty big irony. But not so fast—nothing's advanced, not if you enter the first trade with only 100 shares. Yes, I do tell you to enter a trade at a second tier or higher, but safety first: 100 shares, period.

Right now I'm introducing you to a higher sideline kind of trading, which means 100+. Once you've mastered this system, you can start with 200 shares on the first entry, or 300, or even 500—whatever your capital permits.

Think about it this way. If I were to enter a first-tier swing trade with 100 shares, and then the price ran against me, my trade would have triggered more swing entries. So let's say I reentered off the second tier with another 100, the third tier with another 100, and finally a fourth tier with 100. That translates to a 400-share position with an average price. With sideline trading I could have simply waited for the fourth tier to hit and entered the swing trade with 400 shares. This is a perfect scenario, especially when you consider that I had no average price. Instead I entered at the optimum fourth-tier price level. That sounds great but it only works if the fourth tier hits.

This strategy of course has its downside. The obvious benefit is you're much better positioned to enter the trade initially, and profit sooner than you would in a first-tier entry. But you can miss the trade altogether. If the price reverses for a profit just after the hit of a first-tier swing level, then your sideline trade is over. Most swing trades reverse before they hit the second- and third-tier entries. So, yes, you may be safe on the sidelines, but no cigar!

Here are some sideline rules:

• When you enter a sideline trade, you must follow the standard swing and/or fusion rules.
• You can't enter if the trade is no longer a swing trade (not in play).
• You can't reenter at the same level twice in one day.
• You can't add more shares to your position simply because you enter at a higher or lower tier.
• You must always have enough capital remaining to reenter again after your initial sideline trade.

Here's a scenario I like very much. I've missed the huge move at the opening bell, so the stock is currently trading off a fourth tier. Right out of the gates, the stock price jumps $8+. When this happens, I can come in and sideline-trade the stock, so long as the fourth tier is still a fourth, in other words, still in play.

Here is the caveat: How many shares do I initialize the trade with—100, 200, or 400? For yourself, you know the answer: safety first. You, the beginner, must enter with only 100 shares. Entering at the fourth tier does not guarantee that the price will not run another 5 percent against it—it can. I'm a pro, so I know how to make those decisions and not lose my shirt. You, however, are a babe in the woods, so you stick with 100 shares or less. You can sideline trade with 25 or 50 shares.

Here's the good news. If you do capture a fourth tier, you can run the price back for a $4 profit, and sometimes even much more. Of course this requires much more knowhow than what's learned from reading this map. But I can tell you this. If you know your current swing profit exit, then that is your exit point; it's as simple as that. For instance, suppose your fourth-tier entry (long position) is at 210.00, but the average of the first, second, third, and fourth tier is 215.00. That means the swing trade profit target price is 217.00 ($2 profit). Therefore you can technically run the price back to 217.00, which means you earn a juicy $7 profit ($700) on the trade.

I assure you that it's not that easy. But my example above does give you a feel for how sideline trading works. It also sheds light on why my online swing trading room shows profits as “minimum.” The swing room shows trades that all start with the first tier. But in reality many of them were entered at higher or lower levels (sideline trades) and with more than 100 shares per entry, thus producing much larger profits. You will read about this in Chapter 10, my trading room chapter. For now, bear in mind that sideline trading certainly offers more options.

Earnings Release Trading

I assume that most of you already know what an earnings release is. So I'm not going to waste paper or your time to explain it. But I will remind you that earnings release dates are the times when you need to be on high alert and ready to apply additional rules and procedures, or else stay away and do nothing at all.

Four times a year—that's every three months—earnings results are announced by each publicly traded company. So every three months I have to switch gears and rev up the engines. That translates to getting up earlier with larger cups of coffee and quadruple-checking all my whiteboard price levels, and much more.

Typically there's an average of eight stocks in my trading room at any given time. That means I experience on average about 32 earnings release periods each year. And so will you when in my one-year program. I've been doing this a long time and I can tell you that those are hands-down the most complicated periods to trade in.

In my first book I flat-out tell you to not trade the day before or the day of an earnings release. If you don't have a system to weather this storm in, you should hightail it for shelter. These periods are chaotic and utterly unpredictable. As a novice, you should just take a break.

Regardless, I've developed a plan—a methodical system of trading on those treacherous earnings release dates. I certainly do not run for shelter—my novice days are far behind me and there are huge profits to be made!

Here I address the basic rules and procedures for trading on those dates. Earnings postings get released in pre-market hours (5 a.m. to 9:29 a.m. EST) or aftermarket hours (4 p.m. to 8 p.m. EST). Previously I've mentioned that the pre-market session is 8 a.m. to 9:29 a.m.; this is partially true. Most high or low prices do hit during that hour and a half. On earnings release dates, however, you need to see the entire session from 5 a.m. to 9:29 a.m. Keep in mind that most brokers allow for you to place trades during both periods, especially direct-access brokers. But just because you can trade then does not mean that you should.

For earnings release I have two ironclad Golden Rules. Remember them just like the others:

I could stop my advising right here. If you follow those two invaluable rules, your trading results will drastically improve. But I have much more free advice I want to share.

The following rules-based procedures will save you from losing mountains of hard-earned cash and dealing with nights of cold sweats and 3 a.m. to 4 a.m. shivers. If you use the rules properly, you can make double or triple your normal amount of profits during earnings season. I do!