How I Trade Stocks For a Living -- [Chapter 10]

CHAPTER 10:  MY MASTER GAME PLAN
 
In this last chapter, I'd like to give you some ideas on how I personally
approach the stock market and how I use The Beanieville System, basically
my own master plan, which may be different from yours. 
 
So, you might ask, what do I do everyday as a daytrader?  Well, for one, I
salivate when the market gaps higher in the morning so I can Fade The Gap
buy selling my stocks and then buying it back lower as the gap closes.  A
nice bunch of $BVI's to start the day (though fading the gap is not for
everybody)!  Yum yum.  In the middle of the day, I might make some intraday trades.  ​This doesn't mean I will make a positive $BVI for all the trades​, nor is it possible, but what is important is the net total $BVI I make after all the trades are done for the morning.
 
I check the charts of my stocks everyday to see if any of them are
intermediate term overbought.  I use both the charts on my trading platform
and charts from http://stockcharts.com and http://finviz.com .  If a stock
seems overbought and candlestick patterns show it's likely gonna go down, I
might sell the stock and wait a few days or a few weeks or a few months to
buy it back, thereby generating $BVI's (assuming I'm buying back lower
than what I sold it for). 
 
I just don't think I can deal with all of this craziness without The Beanieville System​.  ​I get to trade as often as I like or as less as I like, and still be able to enjoy all the benefits of Investing that long term investors enjoy​.  If any of my stocks (maybe FSLR) becomes the next Intel, I get to enjoy all the benefits of what long term investors in the stock enjoy. 

If a stock gaps up after earnings and runs like a maniac, I get to enjoy the
gains as well, because I'm usually back in the stock by the closing bell, or back by earnings date.  ​I get to make money both ways, short term and long term, all in the same stock​!  The Beanieville System allows you to run a truly magnificent and efficient business.  ​Why would anybody want to treat the stock market any other way?
 
I try to own good businesses from different sectors.  Imagine putting all
your money into home builders two years ago, and re-investing back into
homebuilders with your $BVI's.  Even though you generated potentially lots
of $BVI's the last two years, most of these homebuilder stocks are down to
the low double digits and have lost lots of volume and volatility, making it
very difficult for you to continue generating $BVI's here.  The stocks no
longer move at a big range like before, for you to generate decent income. 
Had you diversified into, say, the oil and energy sector, you get to pick up
the $BVI generating action over there.  So, be sure to diversify your
businesses as you start building more of them. 
 
If you don't know which kinds of stocks to own for the long term, just start
with companies you know (i.e. Costco, Wellsfargo, etc.).  If you want the
absolute best companies, pick a few from Warren Buffett's list.  If you want
blue chip growth, go check out Louis Navellier, Motley Fools, Investors.com,
Jim Cramer or myself for selections. 
 
I personally do not like to own stocks that started above $50 and then goes
under $50.  If my stock goes under $50 from above $50, I usually park it
into cash or even short the stock.  Stocks that goes under $50 from a higher
price tends to go lower to 40, to 30 and frequent times much lower.  Also,
some mutual funds and hedge funds do not buy stocks below $50.  This
means less institutional support for stocks under $50.  By selling the stock, I
avoid all the possible bad scenarios, both fundamental and technicals, that
could eventually take the stock much much lower.  If it goes lower than $50,
I may start questioning the long term viability of the stock.  Now, many
great companies in August 2008 have stock prices under $50 because of the
recent severe bear market.  They could make great bargains now after all
the bad juice had been squeezed out of them, and I might consider doing
some shopping if I truly believe it has bottomed.  At least I didn't have to
ride American Express (AXP) from $50 to the current $40.   If I get back in
now (assuming I sold at $50 and I still like the business) that is worth BVI =
10, and I might leave that in cash or reinvest future $BVI's (from trading
this stock) into another business that is over $50.  As you can see, the
choices are limitless.  You define your own parameters and your own game
plan in terms of what type of businesses you'd like to own and how you own
them.
 
Try The Beanieville System yourself and let me know how you do.  If you do
great, send me a testimonial.  If The Beanieville System really opens your
eyes like never before and makes so much sense to you, send me a
testimonial as well.  I'd like to put testimonials in the next version of this
manual, which is basically this version but with the testimonials.  By the
way, if you're relatively new to day trading or swing trading, I suggest the
following settings on your trading platform as the basics (which are pretty
sufficient in most cases, and I myself use those settings): 
 
1) 30 minutes, 10 days, candlesticks, 10 dayMA, 30 to 50 dayMA,
200dayMA, MACD signal, volume

2) 60 minutes, 10 days, candlesticks, 10 dayMA, 30 to 50 dayMA,
200dayMA, MACD signal, volume

3) 1 minute, 1 day, candlesticks, 10dayMA, 50dayMA, 200dayMA, MACD
 signal, volume

4) daily, 100 days, candlesticks, 10dayMA, 50dayMA, 200dayMA, MACD
signal, volume
 
The above works nicely on an Etrade platform; in fact, there's where I first
use the settings.  On the Moving Averages, I usually only use 1 per
timeframe, instead of 3 listed above.  Find one that works for you for
whichever timeframe you use.  Etrade is a pretty good platform, not the
most sophisticated but pretty good.  I still use the Etrade as one of my
preferred platforms, even though I no longer have money with them due to
their subprime exposure.  Ameritrade is fine too - you can use the
50dayEMA or 9dayEMA, volume, and MACD, and the timeframes to use are
the 5 days, 1 minute, 5 minutes, 15 minutes for those who like trading short
term.  The MACD signal on both the 15-minute and 1-minute charts, and the
50dayEMA on the 1-minute chart, are my favorite signals to trade on for
daytrading.  I suggest you pay special attention to them, as you will start to
see patterns you can most definitely trade on.  Learn as much about the
MACD signal as possible.  I think it is a very potent signal to trade on.  You'll
be glad that you use it.  For daytrading purposes, the 50dayEMA could be
set up on the chart of 1-minute interval and the 9dayEMA could be set up on
the 15-minute interval.  Those moving averages are very useful for
daytrading.  But if daytrading is not your forte, just do swingtrading and use
methods that swingtraders use.  The Beanieville System really is a powerful
money and portfolio management concept.  If you trade well, your account
will be magnified tremendously in the long run.  The system also makes
trading easier because it forces you to focus on YOUR stocks, forcing you to
learn their individual behavior patterns.

I'm sure some of you will make some adjustments in how you apply The
Beanieville System to fit your own personal style.  The type of business you
invest in will certainly be different from mine, although I recommend you
"build" businesses from different sectors.  Most of your money should be in
strong stocks, with a small portion of that reserved for more speculative
stocks.  As you continue to generate $BVI to either buy more of the same
business or to add other businesses to your portfolio, you could one day end
up picking a stock (like FSLR) that could become the next Intel or Walmart,
which could really set you up for a lifetime of massive networth and the
massive $BVI you could generate from your trading.  But picking a growth
stock is not necessary.   You can do very well with big brand name stocks
like Visa or McDonalds, which I personally prefer over high flyers like FSLR. 
Remember the power of compounding!!!  Always think long term results and
always think like a true businessman.  Having a pen and notebook to track
all your daily BVI/$BVIs on your trades is a good idea.
 
Speaking of long term results, this bring us full circle back to chapter 1, to
Warren Buffet.  So how does one beat Warren Buffett's results over a 40 year period?  I believe you can do this if you ​buy few of the stocks he buys from various sectors, and apply The Beanieville System​.  If you have a small account, you can buy 1 or 2 Buffett stocks and then work it. 

You should do this in your IRA instead of your regular taxable accounts. 
Warren Buffett has another advantage in that the way he structured
Berkshire Hathaway the yearly income from the investments doesn't get
taxed until distribution.  It's almost like he's trading stocks from a huge
IRA.  Because the stocks he owns are so large in market capitalization, they
hardly move a big range even though they have lots of volume.  To beat him
with a regular taxable account might be a bit difficult, but not impossible.   If
you like to own safe stocks, this route might be what you want to take.  Buy
the stock(s) from Warren Buffett's list.
 
Don't let me scare you.  It's actually not that hard to get Buffett's 23%
annual return trading his stocks, even in a taxable account.  Let me break it
down for you.  You own Buffett Stock A, which is trading at $60 per share. 
Assuming your stock stays the same price a year later (just for simplicity
sake), you only need to generate 14 BVI (from $60x23%).  That's just 1.2
BVI (14 BVI / 12) per month you need to generate on average if you break it
down into 12 months.  You can generate 1 BVI per day quite easily as a
decent trader who knows what he's doing!  I'm pretty confident a good
trader can generate 14 BVI within less than 2 months, or less!  If you can do
this, you can easily blow Warren Buffett out of the water!  Don't forget you
can also short the stock if you're more aggressive.  Remember: If you sell a stock and ​short it​ and then cover and buy it back lower, you are actually generating ​twice the BVI​.  ​By generating BVIs, you have a huge advantage that Warren Buffett doesn't have - you have "active" income​.  He may have a bit more diversification than you, but your BVI generation will more than make up for that and you can use the money to buy another Buffett stock.  Remember, by generating 23% profit through BVIs, you are already up 23% over Warren Buffett who owns the same
stock.  If, at the end of the year, the stock ends up at the same price as at
the beginning of the year, Warren Buffett would be up 0% for that stock but
you would be up 23%.
 
I recommend everyone to strive to own Buffett stocks first, above anything
else, because the companies he pick tend to be survivors and they tend to
last for many years.  If you think very long term, you would be wise to start
here, instead of speculative stocks.  Don't underestimate the power of BVI
generation on a big non-growth stock like WFC (current price of the stock as
of march 2010 is $30).  First of all, I think it is easier to trade stocks like
WFC because they tend to be slower movers instead of high volatile stocks
like FSLR, thus giving you time to think when you're trading.  Secondly,
stocks like WFC tend to be range bound, which allows relatively easy BVI
generation.  Thirdly, I feel more comfortable shorting (for additional BVI
generation) WFC than a stock like FSLR, because it is less likely that
overnight news will affect WFC as compared to FSLR.  Also, it is much less
likely for WFC to be acquired by another company; so you don't have to
worry about holding the short over the weekend.  If you can generate an
average of 1 BVI per week on WFC, or 48 BVI for the whole year, your
return from WFC is 160%.  And that doesn't even include the compounding
aspect through re-investment!  So that's why I prefer big cap stocks over
growth stocks.
 
Another possibility, if you don't like holding single stock(s), is that you can
own and trade Exchange-traded funds (etfs).  If you have lots of money, I
recommend making the SPY etf your core holding/business.  The SPY will
never go bankrupt and will live longer than you.  You can make a very good
living for the rest of your life with just 1,000 shares of SPY, because for
every 1 BVI you generate you are in essence making $1,000. 
 
So there you have it, my entire system (best explained by example#1 in
chapter 7), what I consider the most powerful stock market idea whose time
has come, for your own personal use.  I believe The Beanieville System is
what will wake people up and make them more excited about the stock
market than ever before.  Be sure to re-read this manual a few more times
to let things sink in a little bit if all of this is new to you.  There are many
roads you can take using this approach.  For instance, you can trade mostly
great stocks, like those of Warren Buffett's.  You can also trade great stocks
and reserve some cash for more speculative stocks or "fallen angels"
(previously great companies whose stock fell apart).  For example, in March
2009, when BAC was slaughtered to $3-5 a share (due to the credit crisis),
you could have purchased maybe 2000 shares and as an investment and
generate BVI's from that.  BAC is now at $17 per share as of August 2009. 
Imagine all the income you can continue to generate from BAC many years
into the future!  The 2009 March low was a great time to pick up many great
stocks on the cheap.  So at times we want to have money on the side to pick up fallen angels.  Note that ​some fallen angels do go belly up.  What you can do is sell 1/2 at or near a double and keep the rest for BVI generation.
 
Some folks are not very attached to any stock or business.  So what they do
is they buy a stock and it gives them a good profit, they sell it and move on
to a stock they like more.  They buy the next stock and if it goes down,
they'll stick with it to generate BVIs until they are net profitable.  Then they
sell it and move onto another stock they like, and so forth.  It's not the
approach I would generally take but you can certainly do this.  
 
So you know now why I always advise people against trading options and
futures?  These instruments are risky and entirely unnecessary.  If you want
to superjuice your returns, then use the BVI generation and use some
shorting instead of just selling higher and buying back lower.  Let's compare
what happens when a trader who doesn't use The Beanieville System shorts
1000 shares of BAC at $17.  When BAC goes to $16, he makes $1000 in
profits.  Now, let's see what happens to the trader who uses The Beanieville
System.  He sells his 1000 BAC shares at $17 that he already owns, and
then shorts 1000 shares at $17....and then covers and buys back the stock
at $16.  That move generates 2 BVIs, 1 from shorting at $17 and covering at
$16 and 1 from selling at $17 and rebuying at $16.  So the profit this trader
actually makes is 2 BVI x 1000 shares = $2000.  Do 2-4 of those good
trades per month and guess what your returns will be for the whole year? 
And that is all done without any leverage or margin.  Understand what I'm
saying and you will never think about options or futures again for as long as
you live.  Even if you don't like shorting, you can still generate massive
returns trading The Beanieville System just by selling and rebuying lower. 
You can do all this just buy focusing on only 1 or 2 or 3 stocks (even big
caps or funds), while all the other geniuses out there paralyze their own
minds with so much sophisticated stuff (i.e., options, futures, penny stocks,
wave trading, economic gurus, complex systems, complex technical
analysis,etc.)  out there.
 
Now, go make a new life for yourself.  You can do it!   I believe what you
have in front of you is the secret to long term success and true "holy grail"
of the stock market.  Guard it well.  Email me at anytime and as often as
you like if you have questions or confusion: info@superstocks28.com .


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