How to trade the stock market ebook exerpt

The basic problem with all the above items is that they rely on herd reactive mentality. What you need to do is switch from reactive mentality to predictive Contrarian mentality.
What does that mean, you ask? That means that you will be looking at the market at day or two ahead of time and deciding what the market will be doing based on technical analysis (see pages ----- ) and overall news. You will also be using the news to do the opposite of what everyone else is doing in a Contrarian fashion. (See pages ------).
I will not own individual stocks as a average indicator is far more safe in the long run. The QQQQ is not going to go anywhere. But individual stocks can be a problem. Take APPLE for example. Suddenly Steve Jobs, the GURU CEO of apple has pancreatic cancer. And is taking a leave of absence due to illness. This freaks out everybody because Jobs alone was responsible for apples comeback with the IPOD and later the IPHONE. Without him at the helm, who knows? The stock takes a big drop over the next several days. If you were holding this stock trying to do the above, the news of the above would have kicked you hard in the ass. Or if you owned Intel or DELL there suddenly is big problems with their core business model. Or if you owned Mercury Finance, suddenly it comes out that the CEO and others are cooking the books and the stock plunges..and stays down. Now look at the difference of owning a average technical indicator that is the average of 100+ tech stocks. Averages can take the impact of individual stocks like the above and keep going. One or two stocks aren't going to really bump the overall QQQQ direction to a great extent..far more safe for the long run. There are no corrupt CEOS in the QQQQ. Or a CEO suddenly getting sick and resigning. The QQQQ are here to stay and will chug in the overall direction and news of the ENTIRE market, not isolated bits of it. You are protected from individual stocks' bad news, and instead are subject to Macro news, or that of the entire market, which is far less dramatic. Except for a stock market crash like in 2001 or 2008 or 1929. But then you can just ride it down with puts and still make money. Tradable technical indicators are the path to money.
The only time that I actually do purchase individual options of individual stocks is when I am doing my stock bouncing method from part 1 of the system. And that is only holding 1 to 2 days. All the rest of the time I am using the method from Part 2.
Contrarians
Contrarians
There was a book written back in the early 1970s chronicling a trader who would trade the opposite way of the crowd and as a result make enormous profits. He claimed that the crowd was almost always wrong. For example. When everyone was screaming in 1999 buy BUY BUY, there is no better time to buy with no end in sight, he knew that was a signal to sell all his stock and get out, there was a crash coming. The talking heads are almost always wrong, as all the fund managers. When the crash happened, he saw the carnage and the dying funds and the lawsuits. Then he saw the housing market was completely roaring around 2002. Looked like another bubble. As the market was correcting in the early part of this decade, he was selling short and writing puts off ETFs via QI D (will get into ETFs later.) and making tremendous amounts of money as the market kept going down. When the housing market crashed, suddenly everyone wanted to sell their homes and there was no buyers. Except for the contrarian. While everyone else was losing their ass with their homes, he was waiting patiently with his reserve of cash. Now that homes were around 25% cheaper because there was no buyers in 2006-2007, he began buying up homes and renting them. When the housing market comes back in around 2011-2012 the value of these homes that he bought on the cheap will bounce back and then some. He will then unload them for 35% profit. See the pattern? Do the opposite. Be a contrarian. They say when there is blood in the streets and everyone is crying that it is the end and everyone is losing everything, THAT IS THE TIME TO BUY. Lets use the great depression as an example. When the stock market crashed in 1929 almost everyone lost everything (in part due to the liberal margin requirements that have since been rewrittin to protect the public ) stocks plunged to way way low levels near zero compared to what they have been. Can you imagine if your grandfather had the contrarian foresight to start snatching up thousands of shares of GM for pennies on the dollar or thousands of shares of cocacola for pennies on the dollar? Suddenly when the US economy roared in the 1940s-1950s and these stocks bounced back even bigger than thier before hand highs in the mid 20s, he would suddenly be worth billions. Why doesnt everyone trade like that? Because in the middle of the storm, its easy to let fear rule your thinking. The backbone of both parts of my system is contrarian in nature. I will go into detail with examples and charts on how I trade in later chapters. Now, back to you initial capital required and how to use it.
I have a friend in the stock market that did nothing but lose. Thousands up, thousands gone. Over and over. Trying to figure out what works, what didnt. Bang. Money gone. Then he'd replace it. Scortch. Gone again. More in. Torch. Money gone. And so it went. As I watched this, I recoiled. Omg, I thought. This guy has lost close to 200,000 dollars in the last 20 years. Wow. He would try different trading strategies. Learning things. Learning what worked, and what didnt. Now 20 years later with his contrarian style and his knowledge on how the market works, he is one of the rarified individuals that make 200-300% a year. Trade as I outline in both Part 1 and Part 2 and you will be trading like a contrarian. Remember, the masses are asses. The stock market is a zero sum game. If most people lose, the few that win, win big. Cant have 80-90 percent of everyone win. Thats impossible. What you need to do is get into that 10-15% winners circle.
Burn Level
Burn Level
This is a concept where you have to have a job at the offset where you have REPLACEABLE MONEY at the drop of a hat at the beginning of your trading. Replaceable money at the point where you will not sweat replenshing your beginning funds over and over again...at a level that is confortable to you. When you start off and the money becomes burned for whatever reason you lost it, you will be able to easily replace the funds and fire away again.
This accomplishes two things. 1) Things will be shaky with your trading and even with instruction you are going to make a few mistakes, hit the wrong button, misinterprit something and you are going to torch the segment you happen to be using as you are learning. Know this is going to happen. 2) Having an acceptable Burn Level prepares you for the likeyhood of possible loss, thus FREEING you from giving a shit. This lets you trade with confidence. If you know you have other soilders (money packets) waiting behind the lines to take the place of thier fallen comrades you will trade more correctly and with confidence leaving fear behind. Without fear of loss, you will be more apt to trade correctly in the correct contrarian style and weather out the pressure to sell when everyone else is selling and instead hold or buy more like you are supposed to (depending on the situation of course, I will go into this later.)This will allow your profits to accumliate and continue.
What the proper Burn Level is depends on your income and your bills. Someone with a 100 dollar burn levels is someone who can throw around 100 dollar starts in your trading account, have the 100 burn up on a bad trade and then throw another 100 dollars down the next day and trying again the day after that, would be someone that makes about 35,000/yr. That is pretty much the base amount for this trading system. If you make anything like 25,000 a year, you better have a part time job as well in the evenings bartending or something to compensate. Of course, as your salary increases up the scale, so does your burn level. Someone making 250,000 a year because they own thier own business or are a high flying MBA has a burn level of say 700-1000 dollars. A person like this can drop 1500 without breaking a sweat knowing that they can replace it pretty easily the next day if they torch it.
Now this does not imply that this system Im going to show you has holes in it, it is pretty solid. There will be the beginning period where you need to build up your trading confidence and there will be that occational chaotic period when down is up and up is down in your trading 2-3 times a year where you are going to have a good estalished burn level so that you can absorb your losses financially and most importantly emotionally, so you can accept it and immediatly keep going onwards to profit.
In any positive expectation upward growth on a chart weather it be a business, trading, or a professional positive expectation poker player, there will be statistical dips and eddys and temporary losses. This is simple statistical math. Look at any upward chart, very rarely will things go straight up. There are downperiods, dips, etc. Your Burn Level allows you to deal with this, knowing that in the long run you will always be making the money back and then some as things continue to advance. Pick up Artists in a way have a burn level. They know that by flirting out of 10 women will result in 2 dates. Out of all the dates, 2 in 20 will end up in the sack. Its all numbers, the pickup artist knows what the long term gains are, and doesnt let the rejection deter or stop him. In the long run he will always win.
Replaceable money is the key here. That is the backbone on Burn Level. Scared money never wins. Have your initail measured supply and have your backup ready. At a certain point you will be able to fly full time, but not until then. Dont quit your job yet. Finance your endevours and keep your supply present while you fine tune your trading abilities. Determine what your burn level is and go from there. Think: While I am learning, What level of money can I constantly resupply with fresh incoming funds? This allows you to trade true with confidence.
As an aside, a lot of people that got started in business or trading lost everything, several times. Then they found thier stride and picked it up and excelled. If you want to succeed in the market you have to be obsessive about the dedication that you put into studying it. Like me. I spent 15 years studying the market and finding out what works and what didnt work. So now you have all my information that I learned the hard way in this book that you can now begin to use.
You will be starting with Part 1, or the option bounce trading method. Unless you have 4 piles of 5,000 dollars apiece to begin with...then you can go right straight to part 2. If you dont have this money, then this burn level section applies to you as you will be using part 1 to get your account up to snuff so you can begin with Part 2. Burn level applies to those people who will be trading using Part 1 of the system.
Create a list:
This Burn Level information applys to Part 1 of the stock trading bounce method. With the proceeds from the first part you will fund the second part. If there is a mistake or loss from the second part, you will return to the first part and resupply the funds for the second part.
With your burn level money create a list. Lets say you start with 2000 dollars and you are at the 100 dollar burn level. That is you are going into option trades with 100 dollar trades. With that 1900 you have left, thats 19 more 100 trades. Each trade you do write down the date, the stock and the price you got in at and the price you got out at. In the collumn next to it have a collumn with an area to write why the trade worked or why it didnt. Hindsight can greatly benifit your future trading. This allows you to track if you are doing something wrong. This will also allow me to track what you are doing wrong. Later in this ebook I will give you instructions on how to send this list of yours to me so that I can evaluate your trading and help you adjust correctly to a profitable trading pattern.

Tommorrow: More on Burn Level