timing is everything

AAPL

Continuation from yesterday…...To summarize, Apple’s stock price appreciated 3,700% (37 bagger) between its 2003 entry point and today. In fact, as our earlier analysis showed, we would have taken a position in Apple, Inc stock in May of 2003 at $2.50 a share. Yet, it would not be an easy ride up. Over the last 11 years the stock had suffered a 60% drop in 2005, another 60% drop during the financial crisis of 2007-2009 and a 45% drop in 2012-2013. Leaving us, once again, with two primary questions.

Would most investors be able to hold on to their Apple stock while going through such massive sell offs?
Should investors trade out of their positions and even go short when such declines occur?

As discussed earlier, most investors would not be able to sustain such massive drops without first getting out. Most likely at exactly the wrong time. That is why a proper application of set trading rules becomes so important. So much so, that in many cases it can easily double or triple the overall return on the underlying stock. Easily turning Apple’s 37 bagger into a 60 bagger over the same time length. Let’s now take a closer look at Apple’s trading history to ascertain if we would have been able to trade in and out of the stock at the right times.

Our first significant decline in Apple’s stock price originated in February of 2005 at around $12.71 a share. The stock price then proceeded to collapse to $6 a share within a week, only to bottom at $5 a share a few weeks later. Delivering a rapid 60% loss to Apple’s shareholders. Unfortunately and as mentioned earlier, fundamental analysis would not have helped us anticipate this collapse. We have rely entirely on our technical and mathematical/timing analysis in order to foresee such moves.

Between our May of 2003 entry point and February of 2005 top, Apple’s stock price had already ran up from $2.50 a share to $12.71, a 400% increase in little over a year and a half. Even though the company’s iPod sales were surging as well, any investor should have been wary of his or her stock appreciating that much and over such a short period of time. Particularly, after Apple’s stock price went parabolic in mid 2004. It was a clear warning sign.

To Be Continued Tomorrow……..

Trading Apple Google

Continuation from Friday…..Never Commit To Anything: Never attach your forecast to any fixed outcome. If you do, you will shift from a position of power to a position of fear and hope. Opening up your trading strategy to risk and losses. Instead, remain flexible and move with the market even if your forecast indicates otherwise.

Move Stop Losses: As the market or stocks continue to move with the main trend you must continue to move your stop losses up or down to avoid unexpected developments and to protect your profits. By doing so you eliminate the unnecessary risk of losing money.

Don’t Be Afraid To Be Out Of The Market: There is absolutely nothing wrong with being out of the market completely. Sometimes for prolonged periods of time. It is better to sit on the sideline than to lose money. Particularly, when the direction of the financial instrument you are looking at is unclear.

Don’t Wait Until The Trend Changes: DO NOT hold your losing position in hope of a trend change. That is how people lose most of their money. For instance, the bears who have been holding short positions throughout 2013 have been decimated (even though they will eventually be right). Once again, always move with the main trend.

Get Out As Soon As You Realize That You Have Made A Mistake: Even if your in-depth research shows one thing, the market might do something completely different. At such times you might realize that you have made a mistake. Do not hold your position and hope that the market will reverse itself and allow you to exit at a better price. Liquidate your position immediately.

Always Wait For A Confirmation: Do not establish a position until and unless your work is confirmed by the market itself. In most cases the market will do so by setting new highs or new lows. Only after receiving such a confirmation should you establish a trading position based on the main trend of the market and/or based on your own work.

Avoid Hope & Fear: This is probably the main reason why people lose money in the stock market. They trade and/or invest on emotion rather than technical, timing or fundamental work. They hope, pray and fear instead of following the main trend. Do not behave in such a fashion. Never trade based on hope or fear. Always follow the rules.

Avoid Loss Averaging: Contrary to a popular believe, it is not a good idea to buy more stock when the price declines after your original purchase. Buying more at a discounted price means you are going against the main trend and not with it. While you lower the overall purchasing price, the main issue remains. The main trend is down. Instead, you should average up when the stock price is going up. That way you are going with the trend.

Now that we have looked at the overall guidelines to profitable stock market operations, let’s take a quick look at a simple set of specific trading rules.

Rules For Trading In Stocks

RULE 1: Buy at new high prices or old top levels.

RULE 2: Buy when prices advance above old low prices.

RULE 3: Sell when prices decline below old top levels or high prices.

RULE 4: Sell at new low price levels.

RULE 5: Wait to buy or sell until prices CLOSE above old highs or below old lows on the daily charts. Closing price is incredibly important.

RULE 6: Use stop losses. Your capital and your profits must be protected at all times with STOP LOSSES. Implement stop losses at 1-3 points above or below your original price and at the time of the original trade.

RULE 7: Do not lose money.

To Be Continued Tomorrow…….