Buying and Selling Amounts
- The following is a revised version of Walter Bressert’s system for buying and selling index contracts. This is a very useful idea for managing trades in either the STOCK or commodity market.
- To put this into action, you must scale your figures to fit the situation. It’s necessary to think of your purchase as consisting of three parts.
- Bressert’s example uses 3 futures contracts, but a similar concept scaled into three equal parts works for stocks. If you were going to buy 300 shares of stock, you think of your purchase as consisting of three blocks of 100 shares each. You can buy all 300 shares at one time, but you will sell the 300 shares at different times.
- MONEY MANAGEMENT
- All three contracts/stocks can be entered at once, or bought at different times and price levels. I usually buy all at one time and keep it simple.
- Contract No. 1: The Money Contract, AKA The Money Stocks, is the 1ST 1/3 OF THE STOCK PURCHASE
- The first contract, called the Money Contract/Stocks, is the most important.
- This is also the 1ST 1/3 of your total stock share purchase.
- Profits on the money contract/stocks accrue after a very short-term rally and are minimal in the larger scheme of things. Profits on the money contract/stocks should be taken as quickly as possible guaranteeing a profit. Profits on the money contract/stocks are greedy profits and are reasonably guaranteed in a minimal rally.
- When the money contract/stocks is liquidated, your risk is lowered and you have closed profits in your stock or commodity account.
- Contract No. 2: The Short-Term Profit Objective Contract, AKA 2ND 1/3 OF STOCK PURCHASE
- The Short-Term Contract/Stocks is designed to take profits at a short-term objective. This can be the crest/trough of a trading cycle or a preset objective. Liquidate the contract/stocks as prices approach your price objective or move stops closer and let the market take you out.
- This is also the 2ND 1/3 of your total stock share purchase.
- Contract No. 3: The Long-Term Profit Objective Contract, AKA LAST 1/3 OF STOCK PURCHASE
- The purpose of the Long-Term Contract/Stocks is to keep you in the market for the BIG moves. Assuming you have liquidated your other two contracts/stocks at a profit will give you breathing room during a corrective phase. The purpose of the Long-term contract/stocks is to comfortably ride with the market until your long-term price objective is reached. That objective can certainly be different for everyone. For me, when the market has reached a “possible” major reversal point or during a major 3rd step, I am unlikely to hold an investment position for long due to the possibility of a significant reversal taking place. After that point, I will trade frequently.
- After a past round of 3 contracts/stocks and a significant correction is ending, three more contracts/stocks can be bought for a total of four contracts/stocks held at this point. You now have two Long-Term Contracts/Stocks, one Money Contract/Stocks, and one Short-Term Profit Objective Contract/Stocks.
- With the purchase of 3 new contracts/stocks, you repeat the same scenario outlined above. Liquidate the Money Contract/Stocks quickly and the Short-Term Profit Objective Contract/Stocks as it meets your short-term objectives. The two Long-Term Contracts/Stocks are held expecting higher prices as the long-term objective is met.
- You keep repeating this scenario until the bull/bear market is finished or a major correction is anticipated. You can always use this system when shorting the market.
- If you fail to purchase 3 new contracts/stocks as a correction ends, you still have your Long-Term Contracts/stocks and can still participate in a primary direction move.
- Should the market fail to reach your long-term price objective, fail-safe stops will liquidate your long-term position. Assuming all goes well, the remaining Long-Term Contracts/Stocks can be liquidated at different price levels as the long-term objective is met.
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