Buying and Selling Amounts
- The following is an edited version of Walter Bressert’s system. This is a very useful idea for managing trades in either the STOCK or commodity market.
- To put this into action, you must scale the figures to fit your 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 can be entered at once, or bought at different times and price levels.
- Contract No. 1: The Money Contract
- The first contract, called the Money Contract, is the most important.
- Profits on the money contract accrue after a very short term rally and are minimal in the larger scheme of things. Profits on the money contract should be taken as quickly as possible guaranteeing a profit. Profits on the money contract are greedy profits and are reasonably guaranteed in a minimal rally.
- When the money contract is liquidated, your risk is lowered and you have closed profits in your account.
- Contract No. 2: The Short-Term Profit Objective Contract
- The Short-Term Contract 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 as prices approach your price objective or move stops closer and let the market take you out.
- Contract No. 3: The Long-Term Profit Objective Contract
- The purpose of the Long-Term Contract is to keep you in the market for the BIG moves. Assuming you have liquidated your other two contracts at a profit will give you breathing room during the corrective phase. The purpose of the Long- Term Contract 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 instead of remaining long term following Contract 1 and 2 rules.
- As the correction is ending, three more contracts are bought for a total of four contracts. You now have two Long-Term Contracts, one Money Contract and one Short-Term Profit Objective Contract.
- With the purchase of 3 new contracts, you repeat the same scenario outlined above. Liquidate the Money Contract and the Short-Term Profit Objective Contract as they meet your short term objectives. The two Long-Term Contracts 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.
- If you fail to purchase 3 new contracts as a correction ends, you will have your Long-Term Contracts and can still participate on 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 can be liquidated at different price levels as the long-term objective is met.
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