Friday, 13 November 2020
By Murray Dawes, Editor
[6 min read]
The Insider is an exclusive newsletter that’s only sent to current customers of our business.
You may not realise the value you receive in these articles. I mean, with three free dailies and the 15-plus subscription services, we send out a lot of intel each week.
But today I want to show you why it’s especially worth making time to tune in to The Insider.
I send out a video every Monday in The Insider (it’s below the main article), where I analyse various stocks.
Here I give you a detailed look at many aspects of the trading model I use to find opportunities for members of my trading service Pivot Trader.
Just by using this information alone, without even paying for my service, you could make some great investing moves.
For example, I’ve analysed eight stocks in those updates recently, not counting the stock I talked about this week.
Of those eight stocks:
- One was up 140% in five weeks (Dreadnought Resources Ltd [ASX:DRE]).
- Another was up 100% in four weeks (Nova Minerals Ltd [ASX:NVA]).
- Two others are up 15% in six weeks (Botanix Pharmaceuticals Ltd [ASX:BOT]) and 30% in four weeks (Dubber Corp Ltd [ASX:DUB]).
The others are trading around the same price as when I sent the video out.
At time of writing, not one is more than 1-cent out of the money.
There was one stock called Pure Minerals Ltd [ASX:PM1] that was trading around 4 cents two weeks ago when I sent the video, but I said it was looking too hot and would probably fall to 3 cents where it would be good buying.
It closed at 3 cents yesterday.
I have to keep the best trades for members of my service of course, but I am making sure the companies I discuss in The Insider are good examples of the types of trades I look for. I don’t release these videos to the public.
It’s an added benefit of being a current customer of Port Phillip Publishing and Fat Tail Media. And of course, I hope it gives you an insight into what it’s like to be a member of Pivot Trader.
The theory I use to analyse stocks isn’t something you’ll find anywhere other than here. It is my own model that I have built from the ground up.
I’m happy to share a lot of the theory with you here because I know that it takes a few added steps to find the exact entry points, and in the end there are a lot of moving parts that require experience to navigate.
If you haven’t read any of my articles about how I analyse charts, I should give you a quick outline, so you understand what I’m chatting about in the videos.
You see, most traders — both professional and amateur — tend to always look for ‘breakouts’ in a stock. That’s when a stock’s price punches up, out of a sideways trading range. This is the move…the breakout…most traders try to trade.
And most of them lose money doing it!
Well, what many of them don’t realise is that most breakouts never actually materialise. They turn out to be false.
In fact, one of the main things I want you to understand about price action is that ‘false breakouts’ occur far more often than ‘true breakouts’.
If prices break out above a key resistance level, traders who were short will scramble out of their position. Traders who think a breakout is occurring will enter new positions trying to catch the breakout.
Once the shorts have capitulated and the new longs have entered their position the music can stop, and prices can rapidly fall back below the old resistance zone.
The same thing will happen when prices break below a support level. Longs will hit the sell button and bears will enter new shorts thinking prices will fall further.
Buyers will back off due to the strong selling pressure. But once the selling is done, they will return…and prices can shoot higher rapidly due to the vacuum of sellers.
Visualising this process leads to one of the universal structures that I see across all-time scales and all markets.
It is the cornerstone of my trading approach. That’s because there are so many interesting characteristics of these structures that can be used to build trading plans.
The universal pattern I am talking about is called the ‘widening distribution’. And understanding this is what can lead to identifying the opportunities and the subsequent gains that I mentioned above.
Here, let me show you it in action with a chart…
Traders’ mistakes create opportunities
Source: Port Phillip Publishing
If you’ve read any of my past articles or watched previous videos, you have seen the above picture and I apologise for going over old ground.
But it is imperative that you understand what the pattern is and why it happens if you want to improve your trading and investing results.
When I find a good trading opportunity it will involve various aspects of the theory behind the widening distribution.
The Point of Control (POC) that you see in the above picture should be thought of as a gravitational point around which prices oscillate.
Prices constantly go back over old ground shaking traders out of positions before being ready to shoot off into a new trend.
If you don’t understand the process you will be a victim of it.
Here is a quick list of a few of the characteristics of widening distributions that I use to help me make trading decisions:
- Amateurs buy in the top half and sell short in the bottom half
- Amateurs are uncomfortable at the POC
- Markets gravitate back to POC often to shake out traders
- Size of false break is related to the size of the initial range
- Once prices hit double the size of the range the distribution is over
- The best entry point is 61.8% outside the range against the trend and 25% outside the range is also useful
- Trading the false breaks is a powerful strategy based on risk/reward
- There are areas within the range that often see reversals to the POC. They are known as buy and sell zones. The calculations are 12.5–25% and 75–87.5% retracements of the initial range
- Calculations for buy and sell zones within a range also work for retracement of waves in a trend
- Prices will revisit the POC for one last time before blasting off in a new trend
- You can use the characteristic of mean reversion to lower your average entry price
- After about five false breaks of the range the probabilities increase that a continuation or reversal of the trend is close
Now, I know there is a lot of information there.
And to be honest, you don’t really need to understand all this if you are already a Pivot Trader subscriber, as I do all this work for you!
However, one of my passions is not just trading, but showing people HOW to trade properly. Too many people enter the market and needlessly risk their hard-earned capital on positions that are doomed to fail.
The thing is, once you begin to understand my thought process, while no strategy ever eliminates risk entirely, you will begin to see those opportunities that are WORTH having a go at.
Like I said above, the trading advice I’ve given away in my Monday Insider videos alone have seen gains ranging between 30% and 140%.
And it’s using the exact same strategic principles that is helping my subscribers enjoy a trading portfolio that currently looks like this:
Source: Port Phillip Publishing
Now look — I hate talking myself up like this. I really do. In fact, my publisher insisted I put this in. So here it is.
But if it encourages you to tune into my ‘Week Ahead’ video on Monday (and every Monday after that) then I’m happy to do so.
I can’t promise any successful future trades. No one can predict the future. All I have is my current P&L and the results of past trades. And you can see those clearly.
What I can promise you is that you will learn a lot.
Have a great weekend — and see you Monday!
Editor, Pivot Trader