My Favorite Trades

I am going to speak here of my experience of 15 years in the stock market in and of my experience of 10 years using Elliott wave and Options.

I believe that in the stock market, the only constant is change, and brutal change is quite common. This is why I avoid owning stock, but a diversified portfolio should be somewhat protective, unless events unfold that affect the entire economy.

Options can be traded in many ways, and may be adjusted to different situations. For that, however, knowledge is key. However, that knowledge is not acquired easily, it requires months to years. I have tested both retrospectively and prospectively the 3 strategies that I have described here and in other writtings. They all have drawbacks, but when applied properly can generate good returns with truly limited risk.

My goal when I started the Optionetic courses in October 2002 (ironically, I was in a seminar with George Fontanills when the Dow hit 7,368.46 and 2 days later hit its low), was to find ways to profit from any market in a way that I could invest a lot of capital with low risk. In retrospect, these 3 years have been a test of my perseverance and capacity of analysis. Here are the questions I asked myself and how I would answer them today:

1. If you had 100K (or more) to invest in the stock market, which strategy would you use to reduce your risk and gain about 20% return in a few months and not losing it all? I would responde that the PCRCC on high fliers protects me against the risk of meltdown while assuring me a moderate return.

2. If you had no more than 10K to invest in the stock market, which strategy would you use to grow that account as quickly as possible, to 20K and how would you limit the risk? I would use the Sarmiento System.

I have written down my strategies in detail because not all trades turn out as one expects, but there is always a reason. My job is to reduce the loss from the losers and increase my gains from the winners. That can only be accomplished by keeping a careful record of what went right and what went wrong.

I like the Sarmiento System because I DO believe that when a mayor Elliott pattern has begun, it is usually associated with a jump in volume and in stock price. It is my job to figure out if that pattern will continue for long enough to make good money. I do not completely ignore fundamentals, then again, the fundamentals are usually changed in such jumps. So it is my job to analyse whether the change in fundamentals is worth pursuing.

Take for example AAPL computer on May 5th, 2003, when the company first announced that it had signed on 5 mayor music label companies onto their iTunes legal download business. That represented a mayor shift in the fundamentals of the company that was accompanied by a huge jump in volume and a 10% increase in stock price on that day. I did not have the Elliott wave analysis software at that time, but the retrospective analysis would have shown a change in a multiyear downtrend or AAPL. If you could hold on and wait for this kind of opportunities and recognize them as such, you could always make good money, IMHO.

On the other hand, if your favorite stocks seem to always be going up and you feel like you are missing out on something because you feel that there is a downside risk, the only wait to avoid that is with the PCRCC for high fliers, again IMHO.

I would certainly enjoy hearing from anyone that thinks their system can be used effectively. Although I am spending much of my time in the Sarmiento System challenge, once the goal is met, we could pursue other strategies too.