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From the publishers of The Daily Reckoning
"Some investors will lose their 2009 gains this year. If you want to hold onto yours – and continue to make good money – then you need to know about..."
The 'FREE OPTION' Objective
How you can use 'free options' to capture 'in-and-out' gains like 14%, 26% and 31%... with low risk, and
no matter what the market does this year Friend and Fellow Contrarian Investor, I'm going to introduce you to something I call 'free option' trading. Don't worry it's got nothing to do with 'covered calls', 'protective puts' or any kind of risky derivative. This is straight buying and selling shares. The 'free option' I refer to is something else entirely: a way to capture very quick gains ranging from 14% to 31%... from the biggest stocks on the Australian market. For reasons I'll explain, I believe it's the safest way to aggressively trade in 2010. Today I'll show you how to work it into your own investment strategy, whether you're a novice or an experienced trader. The idea behind 'free option' trading is this... What If You Found Yourself in a Trade
Where You COULDN'T POSSIBLY LOSE?
That would be something pretty special, right? That's what I aim to do with each and every trade I make. And I do it by creating 'free options'. Let me explain... I spent six years in the snake pit of the Sydney Futures Exchange, first in the bond and option pits and then in Share Price Index futures pits. I've made money and lost money, and seen a lot more made and lost by other blokes. There was one recurrent theme: the guys who lost money were the guys who lost their nerve. And they lost their nerve because they had too much at stake. Instead, it was the guys who took profits off the table... and got into a risk-free position early... that seemed to consistently cash in. Think about it... If you can – quickly – get into a position where you cannot possibly lose money on a stock... where your initial stake is no longer at risk... what kind of frame of mind are you in? You're confident. You're calmer. You're not plagued with worry. You make the best trading decisions in this mental state. That's the core of the strategy I want to show you. It's a way – using price action displayed on a chart – to get into a risk-free position in a stock as quickly as possible. From there, you can look at the trade as a 'free option'... because you get to participate in whatever happens from here on for FREE. Everything from here is a bonus... every decision you make is not tainted by worry or anxiety. Before I show you how to get yourself in such a position – multiple times – let me first explain why this method of trading will become increasingly important in 2010... Strap Yourself in For a Volatile Year As the market bull approaches 10 months old, one word probably sums up investors' views: cautious. While indices have thrived for months on end, the mental scars of 2008 remain. So, too, do many of the systemic problems that caused the Global Financial Crisis in the first place. For this reason, I believe it's going to be a very bumpy ride this year. S&P's chief investment strategist, Sam Stovall, agrees. He reckons this volatility will be due to the impact of hedge funds, computerised trading, inverse ETFs in which investors can profit from a declining market, and "the mindset that you really can't engage in buy-and-hold anymore." He's right. Buy-and-hold will not be a winning strategy in 2010. I believe FREE OPTION trading – the strategy I'm going to show you in a second – will be the very best way to play the markets this year. See, right now you've got two competing trading mindsets... Fear the market is going to fall over, just like in 2008... versus the fear that you'll miss out on more gains in 2010. Because of this, "we'll be in a year of heightened volatility," says David Rosenberg, chief economist at Gluskin Sheff & Associates. "We'll see periods in 2010 where the VIX (the index that measures stock market volatility) will be north of 30 in a period of risk aversion as the economy and earnings very likely fail to hold up to expectations. I see more of a 30 to 40 range in the VIX." And it's in a volatile market – more than any other – where you want to get into a 'free option' position as quickly as possible... Many Traders Will Get Killed in 2010 A Small Few Will Make a Killing... For the rest of this report I'm going to show you how to use volatility to your advantage in 2010. Specifically, I'm going to show you how to use this volatility to get into a position where you can take money off the table... and create a FREE OPTION... where, no matter what happens, you can't lose money. Traders often make bad decisions when money is on the line. I saw it time and time again in the futures pits. Heck, I've been guilty of losing money in the past when I've let nerves get the better of me. I know better now, though. Creating a 'free option' eliminates fear from the trading process. That's why you want to do this as soon as possible. Is it easy? Hell no! Nothing in trading ever is. There are a million ways the market can screw you over if you take your eye off the ball. But if you start this year with a clear trading plan... and an objective to turn your stock positions into 'free options' as soon as the market allows... then you could do very well in this rocky, unpredictable market. Read on and I'll show you exactly how I use chart analysis to create 'free option' positions in ASX 200 stocks... How to Create a 'free option' Position Now, I'm going to hit you with some charts here. Don't worry, I'll explain everything clearly. And you don't need to be any kind of technical wizard to add this strategy to your investing playbook. I'll kick things off by answering a simple question... How do I know when to trade? Every trader has his own set of signs that indicate a stock is worth trading. But I'll show you the one thing I personally look for to indicate a potential trade... My bells start ringing when a sustained move in a price reverses... and then enters a period of consolidation. For simplicity, let's call this a 'Zigzag Zone'. See, when people think about a stock price, they usually think two-dimensionally. It can either go up or down. But price action is more complex than this. The truth is: the market oscillates. It has periods of being in balance and out of balance. Take a look at this chart for Newscorp and you'll see what I mean...  You'll notice that after big moves in the stock price the price then zigzags. This is a period of consolidation... it's the market deciding on the next direction. What you're seeing in these areas – indicated between the 0% and 100% lines above – are traders being whipped in and out of the market. These 'distributions' – where everyone is trying to figure what the next big move will be – are where most traders get killed. They lock into the momentum of a trend, only to be stopped out when the price gets sucked back. This is how many over-zealous traders lose money – sometimes BIG money. YOU don't want to make the same mistake. Read on and I'll show how to avoid it when you trade... The 'Rosetta Stone' of Profitable Trading Now I'm going to get a little technical here, but this is the real key to 'trading-for-free', so it's worth giving me a minute to explain... Take a look at the vertical centre line on the chart below. I call it the Point of Control. It's the midpoint in those zigzagging price distributions in the chart above... and it's absolutely crucial in creating a 'free option' position in a stock. Look again at the chart above and you'll see the Point of Control is the dotted line – the 50% point – in the centre of each distribution. Think of the Point of Control as the centre of gravity in price action. It's where most of the buying and selling takes place. The further from the Point of Control the fewer and fewer trades there are. There are some trades at prices outside of the range. But they are less frequent. If we graphed this pattern it would look like a Bell curve:  This shows how much volume of trading is occurring around the Point of Control (the centre line) But to really get an idea of how this affects a price, let's flip the picture on its side and put it beside an actual chart of a price distribution like this:  What you're seeing here is the volume of trading occurring at every price. You can see that in the middle, the fat part of the bell shaped curve shows a large amount of volume went through in that middle area. The edges have only a small amount of volume trading and therefore the curve becomes very thin. The most trading takes place at the midpoint – the Point of Control (POC). The POC is the blue line in the picture. Why is this point so important? The POC is basically where most traders are.And if you can do that – you can figure out where a price is likely to move next. In effect, you're unravelling: The DNA of Price Action If I was to draw a generalised picture of what occurs around the Point of Control, it would look like this...  Initially you get a big move up to X. This is met by selling pressure that takes it down to Y. The market then retests the high at X and fails to break out above the price at X, eventually being sucked back towards the midpoint of the range. You now have a trading range, the midpoint being the Point of Control. Remember: this is where most trading takes place. So this is a natural point that attracts the price like bees to pollen. From points 1 to 5 you have a series of what I call false break outs. A "false break" is when the price of a stock breaks through a technical level and appears to be "breaking out"... only to reverse and get sucked back to the Point of Control. This happens several times before the price explodes out of the range and continues a longer term trend. THIS IS THE TREND YOU WANT TO PROFIT FROM. Now here's the thing... The goal of the contrarian trader is to buy on short term weakness of a longer term trend.This might all sound a little complicated, but it's really quite a basic principle – and it's a principle I can help you master. It sounds crazy, I know, but the idea is to buy on WEAKNESS instead of STRENGTH... In a nutshell: you learn to read false break outs... and to not be afraid of buying when most other traders are selling. It May Go Against All Your Instincts – But It Works Here's an example, again using shares in Newscorp. Stay with me, because I'm now going to show you how to create a 'no-lose' trading position...  Here's what's happening:
You Want to Create a No-Lose Trading Position You want to take money off the table so any further profit you make is gravy. A bonus. 100% risk-free. Here's where we get back to the key of my trading strategy for 2010. Listen up... If the price bounces back to the Point of Control and you reach your initial target at $13.75 which is the Point of Control (POC) of the whole range, you immediately sell 1/3 of your position and move your stop loss higher. At this stage you will break even if the stop loss is executed. What you're doing is using your knowledge of how a price is drawn to the Point of Control to put yourself into a 'no lose' position. Everything here is pure upside, with ZERO downside on your initial capital. Your position is now a 'free option'... because every bit of profit you make is free money. You're still in the trade, but your stake is protected. In other words, you've discovered: The Holy Grail of Trading But where to from there? Let's look at the next stage of this Newscorp trade...  You're now in Phase 2 of the trade. You're now in a position where, if the market falls over, you no longer need to worry as you won't lose anything. If – as you're hoping – a genuine breakout occurs, you're locked in for a very decent profit. The chart above shows what happens once you are in a 'free option' position:
You now put the position in the bottom drawer and see what happens. Not all of your trades will come off. But when they do, you'll have a big smile on your face and a hefty wad of cash in the bank. Imagine Creating a 'free option'
With Every Stock You Own Again, it's not easy. But this is how I trade. And it's especially important in a treacherous market. This latest bout of market turmoil – this time sparked by debt levels in several European countries – is a great example.
It's at these times that traders step back, and coolly decide how to play the gyrations of the market. It's right now – when fear and uncertainty are everywhere – that a 'free option' becomes a life saver. That said, when $30bn gets wiped off the ASX200 in a single day, no trader comes away unscathed. Luckily, there are two 'short' trades in the Slipstream portfolio, and they are up 17% and 14%. There are three more open positions, all long. One is up 35%. The other two are down -3.5%. The idea, when things get dicey, is to act quickly and decisively. Hold onto your very best trades, and cut losses on the rest. Market drops happen. To protect my readers from big losses, I've closed out six trades. The idea is to not be afraid of letting go of long trades when the market mass-sells... and to keep losses to a minimum (the average loss was just -6.5%). Now here's something you might find interesting... All of these stocks
are LARGE CAPS You don't often see these kinds of gains – generated in a matter of weeks – from the largest stocks on the Australian market. These returns usually belong to the small cap investor – who has taken on a massive amount of risk in order to achieve them. It's because of the market we have right now – the one I believe will prevail for the majority of 2010 – that short-term trading gains like this are up for grabs from blue chip stocks. Markets like this don't come around often... which is why I urge you to focus your attention on large caps in 2010. Even though it takes more money to move the big name stocks, the risks of getting caught when a trade doesn't go your way are significantly diminished for stocks with large market caps. With higher trading volumes, you have an infinitely better chance at getting in at the price you want, as soon as you've identified a trading opportunity. But, as I've just shown you, they can move – fast and hard. And, if you know what to look for, you can make as much money from these moves – with far less risk – than by taking a punt on a speculative small cap stock. Look, many so-called experts would have you believe it's impossible to "time" the markets. That's just not true. There's actually a secret to market timing. It's not just a matter of the economy. It's a matter of anticipating how a price will react in a specific trading climate. Ultimately, though, if you're serious about trading, you need to rely on people who have an edge in the market, either through specialised knowledge, discipline or unusual analytical skills.That's why I'd like to offer you my services... on a 60-day risk-free trial basis, of course. If you'd like to test-drive Slipstream Trader for the next two months, I'll give you a rundown on how we go about making money from Australian stocks... The Simplest Way to Trade a Complex Market "Investing is rather like the children's game of 'Musical Chairs'. We must dance while the music is playing, knowing full well that when the music stops we shall all be dashing for the few chairs that are there to be taken... and we shall fight for them when that time comes.I confess I'm not a regular reader of The Gartman Letter, but I love this quote. It accurately describes the mindset of Slipstream Trader, my own investing advisory. If you prefer to sit this game out, I don't blame you. This is a very complex market we're entering. The harsh reality is that much of the data coming out remains abysmal – employment, retail sales and auto sales being prime examples. The financial sector is yet to discharge allits toxic assets from the subprime crisis. In fact it could be about to despatch the next lot of toxic waste from commercial loans or defaults from prime borrowers (people with sound credit and conservative, fixed rate mortgages). Odds are that the financial markets and the economy will muddle through. But, as I've said, this muddling is likely to create volatility. You've seen how I plan to help my subscribers profit from such a climate in 2010.
These are times when indecision, nervousness, uncertainty, volatility, fake-out moves, and a whole host of emotions are present. Forays in the stock market must be made on a short term basis. This is the goal of Slipstream Trader.Enter a position... create a 'free option' as soon as possible... and go after profits with your stake safe as houses. And in case you're wondering how this all works... I'll Walk You Through Every
Trade, From Start to Finish And that's a pretty rare thing. Unique in Australia, as far as I know. Here's the thing: brokers have ZERO accountability to you. They put you into a stock – often for spurious reasons – and more often than not just leave you there. There is no follow-up. No one telling you how to effectively manage a position. If you lost money in the last crash, you'll know how quickly years of gains can be wiped out. Now, more than ever, you need someone on hand to show you how to manage the stocks you own. My job is to provide you a rigid framework to execute winning trades in 2010. Here's how it will work, should you decide to take my service for a test-run... Membership Demands Very Little On Your Part As soon as I've identified a trade, you'll receive a simple email. It will be brief. Fundamental analysis, while still playing a part, is not the basis of this strategy. Your Slipstream Alert will contain the following 3 critical elements:
It's up to you whether you incorporate the trades in your portfolio. From there, you'll receive follow-up emails that tell you when I think you should take some profits off the table to create the 'free option' position that I described earlier. Here's an example of a recent alert where we did just that (again, I've omitted the name of the stock as it's still an open position)... Slipstream TraderAs you can see, it's pretty simple stuff. All I ask is that you check your emails at least once every day of the working week. That way you'll know if any trades are closed out, and hear about any new trades as they arise. Remember: these are the most liquid stocks on the market. I'm confident you will be able to execute 99% of the trades we send you without seeing the stock skyrocket or plummet before you can send instructions to your broker. Of course if something changes, I'll email you directly about the change and what to do about it. In a nutshell, I believe we will be able to generate regular trading ideas for you (long and short).And all of this will be undertaken with clearly defined risk control measures explained in each alert. If you're interested in ramping up your large cap gains – without having to resort to leveraged investment tools – you should take advantage of the 60-day trial period and test this for yourself. It Doesn't Matter What the Wider Market Does This service will be MARKET NEUTRAL. It doesn't matter if stocks plunge or skyrocket in 2010. We plan to make you money regardless. I believe we can definitely deliver returns much higher returns than a traditional "buy-and-hold" approach – especially in the current market. If you want to wait a year to see how our track record develops, that's fine. But if you're curious – and keen on exploiting CURRENT volatility to make small-cap-sized from larger stocks – then let me extend to you: An Open Invitation
Membership of Slipstream Trader costs $1,495. I believe my buy and sell tips will be worth every penny (and probably a whole lot more). But if you cannot comfortably afford to pay this membership fee, then you probably shouldn't be trading stocks, full-stop. In any case: Slipstream Trader's success will depend on YOUR success. If the analysis makes you money you'll continue to subscribe. If not, you won't. Remember: Your membership is 100% refundable. Because of the medium-term nature of the trades, I want to give you plenty of time to evaluate the service and to make sure it's right for you. For this reason, you'll have 60 days to test-run Slipstream Trader. This should give you enough breathing space to watch the trades evolve. If for whatever reason you want to cancel your subscription in the first 60 days, just let me know. Your money will be refunded promptly and in full (no "10% refund fee" like the one I saw recently for an American options trading service). That is a pretty fair offer. But be clear: If you're in, I want you to seriously give this a go. You don't have to invest real money – you can paper trade for as long as you like. What I mean is I don't want "tyre-kickers" - the folks who sign up without any intention of paying. This costs us a small fortune in overhead expenses. And, frankly, it's not very nice. The deal is simple: if the service doesn't deliver as promised, within two months, ask for a refund. I would. But 60-day 'free-riders' needn't apply. So... Are You In? If you've read this far my guess is you'd like to test Slipstream Trader out. You can do that for the next 60-days, risk free. If you do, here are the only two things you'll receive: Slipstream Trading Primer: This members-only report outlines our manifesto for making small cap-sized gains from large cap stocks in the coming months. You'll get a full run-down on my 'false break-out' technique... as well as my 3 phase process for creating 100% risk-free trades. And I'll show you what each email recommendation will contain, and how to act on them with minimal fuss. Read it right away, before you review anything else.The decision is yours. Remember: this doesn't involve risky spread betting, options or derivatives. My alerts will allow you to nip in and out of your favourite stocks, and bank – hopefully – regular gains... no matter what surprises the market throws at us in 2010. If you'd like to watch your large cap returns explode over the next 12 months, now is the time to light the fuse. To receive our Slipstream Trader email alerts on a risk-free, 60-day trial basis, click here. Kind regards, 
Murray Dawes Slipstream Trader
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1300 66 74 81 Monday-Friday 08:30 - 17:30. Copyright - 2007 - 2009 Port Phillip Publishing Pty Ltd All Rights Reserved Calculating Your Future Returns It’s important to remember that investing in shares can lose you some or all of your money. The potential gains in this letter are based on investing in Australian share markets and do not include taxes, brokerage commissions, or associated fees. Please seek independent financial advice regarding your particular situation. Also, while useful for detecting patterns, the past is not a guide to future performance. The value of any investment, and the income derived from it, can go down as well as up. Investments in foreign companies involve risk and may not be suitable for all investors. Specifically, changes in the rates of exchange between currencies may cause a divergence between your nominal gain and your currency-converted gain, making it possible to lose money once your total return is adjusted for currency. For any investment, never invest more than you can afford to lose, and keep in mind the ultimate risk is that you can lose whatever you’ve invested. If in doubt of the suitability of an investment please seek independent financial advice. Port Phillip Publishing Pty Ltd holds an Australian Financial Services License: 323 988. ACN: 117 765 009 ABN: 33 117 765 009 |