The 10% Rule

This week I had the opportunity to attend some of the presentations from the Las Vegas 2009 trader’s expo that were broadcasted via the internet. As always, there were a group of presenters representing a business of education selling a website, a subscription or a coaching service of some sort. They try to hook you with some piece of knowledge or a system of some sort, such as a moving average crossover, or a gap, or a candlestick pattern, or a certain pattern that they have identified as a great forecaster of the future movement of the stock.

Chances are that if you have never traded before, and you decide to go through their courses you may never deviate much from that original system. It will become your basic trading knowledge. I still think of fundamental analysis because I first entered the stock market after reading Peter Lynch’s book “Beating the Street”, and I will never look at a chart without considering the Elliott wave Pattern at play because in my first few months as a trader I read the books “At the Crest of the Tidal wave” by Robert Prechter and “Elliott wave Explained” by Robert Beckman. They are in the fabric of who I am as a trader.

For many years, I have made a point of listening to many other traders, I have even paid for courses that were probably too expensive, compared to the value they offered me. Perhaps their advice and tips were no more than tips that I needed to test and adjust to my very own style of trading. One of the most intriguing pieces of trading wisdom was one offered by George Fontanills in the book “Swing Trading” edited by Jon D. Markman. It was George’s 5 min success formula. He would look at any stock jumping or declining 30% or more from the previous day close. Of course that was back in the 90’s. Today you would probably not see that change very often, and even then you would probably pick takeover targets only, hardly what I would call an option’s trading opportunity.

Everyone has their one system, everyone modifies it to adapt to their reality, but it is almost impossible to transfer that knowledge or preference to others without some kind of adaptation or modification. We all have different personalities, and these, together with our experiences and knowledge will mold our trading to a place where we feel comfortable and can sleep at night. This is why I have adapted Fontanills basic rule into one of my own, to the point that I have a system with very specific rules from candidate selection, option strategy, maximum risk, time to expiration, to adjustments or exit rules. I have my rational for everyone of these. Even the original 30% rule, has become for me the 10% rule, but that is just only the beginning. It has taken me 8 years of trading and observation to feel comfortable in this form of trading to trade it routinely. Yet, I can with all honesty say that many trades will turn into losers, the goal for me is to limit the loses in the losers, and maximize the returns in the winners.

This week, in my Tuesday webinar, I will be discussing the 10% rule in detail. I strongly believe that it is an approach that takes what the market gives you, rather than to count on some T.A. reading, there is a fundamental rational to every 10% jump, and I have made a list of items that would be associated with good followthrough. I have opened the webinar to all members of my private group that are not yet subscribers to the Tuesday webinar, but you need to contact me so I can include you in the list.

Needless to say, that this is a unique gift to you, with the motivation that you’d Pay it Forward. You can always adapt the strategies fit your personality and knowledge. Still, it is a great piece of information for the experienced and the novice alike.

If you are not a member of the group and would still like to join me, please send me an e-mail. This landmark presentation will remain in my archives for those who join the private group and the Tuesday webinar subscription in the future.

Please don’t forget to Pay it Forward.