How One Chart Can More Than Double Your Trading Gains

This post How One Chart Can More Than Double Your Trading Gains appeared first on Daily Reckoning.

Think outside the box?

Forget it. If you want the chance to double your trading gains, you need to think inside the box…

So here’s the deal: If you follow the chart I’m about to reveal, you’ll have the opportunity to drastically improve your trading results. Permanently.

Don’t worry… you don’t need to know a thing about technical analysis. You don’t have to interpret confusing indicators. And it’s so simple not even Hillary Clinton could play dumb. Think “inside the box” and I guarantee you’ll see results…

Best of all, thinking inside the box works for any timeframe. Your investing horizon doesn’t matter one bit. You could be looking at a weekly chart, a daily, or even a 30-minute chart.

Alright, so here’s the chart that’ll renew your faith in trading:

I want you to focus on the area inside the red box. It contains the “meat” of this stock’s jump from $45 to $90. The name of the stock and the time frame aren’t important here.

Some move, huh? But dollars to donuts, I bet most traders playing this stock didn’t book the 55% gain you see inside the box.

Why not?

Because most traders get greedy. It’s that simple. They want to squeeze every last ounce of profit out of the stock. They’re not content grabbing the strongest, most predictable gains found within the box.

In this example, the trader wants in at $45 when this stock begins exploding higher. And he wants to exit at its absolute peak near $90 for a clean double.

OK, newsflash, pal: Getting out at the exact top is as rare as a pink unicorn. It hardly happens—if ever. Sure, it’s easy to play Monday morning quarterback and say you would’ve sold at the top. But when you’re intoxicated by the prospect of triple-digit gains? Please…

Let’s say our trading friend buys this stock near $45, right as the stock crosses into the red box. The market proves his analysis correct as the stock takes off. He feels like Gordon Gekko…

Fast-forward a few weeks and our trader’s sitting on a double when the stock rockets to $90. Pure genius, right?

Right. But the stock’s smashing performance has got him so full of himself he can’t think straight. Greed kicks in. He becomes obsessed. And instead of diligently planning his exit, he’s thinking about turning his double into a triple…

Then the stock slips on a banana peel, and suddenly it’s at $75. Then it takes an even bigger hit, dropping below $65. Now what, genius?

But instead of selling, our friend wants to wait it out. He thinks he’s got a tiger by the tail, he’s convinced his thesis is correct and the stock will be back to $90 lickety-split.

So his reasoning turns from hopeful to downright irrational before he knows what hit him…

If it could just get back to $90 — then I’ll sell.

If only! That’s exactly the kind of thinking that turns big winners into average trades… or worse.

As the stock continues dropping he finally wants out. So he sells his shares in a panic as the stock finally dips back into the $50-range.

He ended up selling just a few dollars higher than his purchase price for less than a 20% gain. Nothing to scoff at—but not the 50-something percent he could have made with a plan.

Our tragicomic trader was looking for home-run gains. Now he’s stuck with a meaningless single up the middle.

That’s why you have to think – and trade – inside the box. That means limiting your expectations to the middle range of a stock’s major move. You’ll never get rich guessing when a falling stock will bounce. Or when it’ll peak. “Thinking inside the box” takes all the guesswork out of it…

If you patiently wait for a stock to break above resistance you have a chance at riding a major move like the one shown here. And if you “think inside the box” you don’t need hope. No guesswork, no hunches. Just the facts, ma’am.

So if you’ve got a winning stock like this that loses momentum, set a stop-loss just below the final leg of the big move. In this case, a tad below $75. (Take another look at the chart). Once the stock falls back into the trading box, dump the sucker. In our example, that would have turned a mediocre, frustrating trade into a big winner.

So next time you’re about to trade a stock breaking out above resistance levels, remember to keep your sights inside the red box. Don’t get greedy. Stick with your trailing stops. And never play catch-up.

Trading “inside the box” will make a world of difference. You’ll see the results when you tally your profits every month…

So start thinking inside the box.


Greg Guenthner?
for The Daily Reckoning

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The post How One Chart Can More Than Double Your Trading Gains appeared first on Daily Reckoning.