If you follow the principles shown in one simple chart, you will have the chance to double your trading gains.
We’re not talking about a one-time boost to your brokerage account, either. If you follow the chart we’re about to reveal, you will have the opportunity to quickly and permanently improve your trading results.
You don’t need to know anything about technical analysis. You don’t have to interpret confusing indicators. You only need to recognize a few lines on a chart. And if you’re willing to use this chart to create a new trading plan, we guarantee you will see immediate and lasting results.
Best of all, this chart works for any time frame. Your investing horizon doesn’t matter one bit with this strategy. You could be looking at a weekly chart, a daily, or even a 30-minute chart for a quick swing trade. The technique remains the same.
This Chart Will Improve Your Trading Performance
Without further delay, here’s the chart that will renew your trading success:
The name of the stock and the time frame are not important. What we want you to concentrate on is the area inside the blue box. The price movement inside the box contains the meat of this particular stock’s big move from $20 to $110. But if we had to bet, we would guess that a majority of traders and investors who attempted to play this stock did not book the gains you see contained inside the blue square.
That’s because most traders allow greed to creep into their analysis. They want to profit from the entire move — not just the strongest, most predictable section. Using our chart as an example, the trader wants in at $20. And he wants to exit at the trend’s absolute peak.
Not only are these expectations totally unrealistic — they can quickly damage your overall returns.
How Most Traders Destroy Their Performance
Let’s say our trading friend times his entry correctly and waits for the stock to break out. He buys near $40 — right as the stock crosses into the blue box. The market proves his analysis correct as the stock moves higher. Fast-forward a couple of weeks, and our trader is sitting on big gains when the stock breaks $100.
Unfortunately, the stock’s strong performance has distracted our trader from the realities of his investment. That’s when the greed kicks in. He becomes obsessed with the potential profits. Instead of diligently planning his exit, he’s counting down to the next big move.
That’s when the stock shows its first signs of stress, hitting $90 again. It then takes an even bigger hit, dropping below $70. Instead of selling, our trader wants to wait it out. After all, he’s already seen those big open gains in his account from when the stock was at its peak. Now, our trader’s reasoning quickly turns from hopeful to irrational…
If it could just get back to $100 — then I’ll sell.
This is exactly the kind of thinking that turns big winners into average trades… or worse.
Our trader was looking for home-run gains. Now he’s sweating out a big reversal. As the stock continues to drop, our trader friend finally decides he wants out. In a panic, he sells his shares as the stock finally dips into the $40-range once again.
Instead of more than doubling his money by taking a huge gain, our trader ends up stubbornly waiting for windfall profits. In the end, he takes profits that are a little more than a tenth of what he once had on the table.
Keep It In ‘The Box’
That’s why you have to trade inside the box. That means limiting your expectations to the middle section of a stock’s big move. You’ll never get rich trying to guess when a stock will bounce. The same goes for guessing when shares will peak.
But if you patiently wait for a stock to break above resistance, you have a chance at riding a big move like the one shown on our example chart. And if you already have a plan in place, you don’t have to let hope take over. When the stock’s move begins to lose momentum, you can set a stop-loss just below the final leg of the big, inside-the-box move. Once shares fall back into the trading box, you sell.
In our example, that would have turned a break-even trade into a triple-digit gainer. By trading with a set plan to only go after the middle portion of a stock’s move, you would have been able to ride this stock from $40 to about $85. That’s an amazing trade — and it can be done with just a little planning.
Why This Matters
Every trade matters. Turning just one, hopeful break-even trade into a 100%-plus gain can double your gains every single month.
Think of it this way: if you have two losses adding up to $500, two break-even trades, and two gains adding up to $1,000, your trading profits for the period would equal $500 (excluding commission). Now let’s say you improve one of those break-even trades by planning ahead. You decide to only go after the strongest part of the stock’s move. This turns your trade from a $0 gain into a $500 gain — effectively doubling your profits for the period.
It didn’t cost you any extra commission or fees. All it took was my simple rule and a little planning. You’re not making any extra trades. You’re not even improving your winning percentage. In this scenario, you’re only booking gains on 50% of your trades. And you’re still doubling your gains! The big gains offset the smaller losses, quickly adding up to substantial profits.
The next time you’re about to trade a stock, remember to set your sights inside the blue box. Trading with a solid game plan will make a world of difference. You’ll see the results every single month when you tally up your gains.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.