Rolling Stocks Trading
System Tutorial
This is the perfect stock trading system for those who have a J.O.B. and can NOT
monitor their stock portfolio during the day! The System is simple -- Buy Low - Sell
High, Again and Again and Again!
What is a Rolling Stock?
Have you ever heard the term "rolling" stock or "channeling" stock?
This is a stock that "rolls" between a support level and a resistance level, and
often this pattern repeats many times.
For instance, let's suppose we have the XYZ stock, and it has support at about 50
dollars. As it travels along that support level, eventually buying starts to overcome
selling and it starts moving back up. Now let's suppose it runs up to 58 and starts to
fall back. We now have support at 50 and resistance at 58. Traders will study that chart,
and some interesting things will start to happen.
First, as the stock weakens it attracts short sellers who make money if the stock
falls. Chart readers see that the stock has support at 50, but it hit resistance at 58 and
started falling. They feel they can short it back to around that 50-dollar level, and they
actually help drive it down. This is why bounces off resistance levels are often so
strong. As the stock falls toward the support level, those short sellers will start to
"cover their shorts," and they do that by buying the stock (a short sale uses
"borrowed" stock which must be replaced). So as the stock nears its normal
support level, more and more buying comes from traders covering shorts, along with people
who initiate positions simply because it is at support. That often pops the stock off the
support level.
Once that motion of setting a resistance level and falling back to support is found,
thousands of traders can zero in on the stock, creating a rolling stock.
- As the stock starts back up, all the short sellers become buyers and XYZ gains momentum.
- As it nears the resistance level of 58, the shorters start selling again and down it
goes!
- This pattern of running up, banging against resistance and falling back to support can
repeat 2, 3, 4 or even 5 times!
As the pattern repeats, though, an interesting thing occurs. Usually we see the support
level creep a bit higher each time and the resistance level come down a bit each time.
Why?
Suppose you bought XYZ on its first run to 58 dollars, and then it tanked.
What do you suppose you would do as it nears 58 again? SELL!
That is why there is a resistance level - everyone trapped at the high wants to sell as
soon as the price gets somewhere close. So we see selling begin at the 57 level.
Eventually that becomes the resistance, and soon it is 56.
On the other side, we see the support move a bit higher. That is because the short
sellers don't want to cover right at support (it may not fall that far), and they buy just
ahead of it, say at 51. Soon it will be 52, etc.
But you may have had the chance to buy XYZ at 51 and sell it at 56 several times.
Likewise, you may have had the opportunity to short it at 57 and cover it at 51 several
times. This is a rolling stock.
If volume is strong enough, some major things can and often do happen. We may see the
pattern "cone down" or, in other words, the distance between support and
resistance becomes smaller and smaller. This is commonly called a "pennant
formation" or a triangle. Once the tightening of the pattern gets so small on the
"cone end" that there isn't any room left (say XYZ now has support at 54 dollars
and resistance at 56), we are close to a big move. The stock may break out and run for a
bunch to the upside, or it may break down and fall a bunch. The break--in either
direction--is usually a very strong one.
Other times the pattern doesn't cone down much, but the forces are still in effect for
a breakdown or a breakout.
For instance, let's say XYZ has been rolling between 50 and 58 dollars for a couple of
cycles before topping out at 57 and starting to fall. Naturally, the short sellers are
whacking it pretty hard now, which is driving it down even harder.
But suppose XYZ announces some great news like a stock split, and a tremendous amount
of new buyers appear. Guess what? XYZ could be looking at a short squeeze! That is when an
unanticipated event drives up a stock that has a bunch of short sales in it, and all those
short sellers have to buy XYZ at the higher price just to get out of the trade.
For instance, let's say XYZ has fallen to 56 when it announces that Microsoft is
investing $100 million in the company and everyone jumps into the stock. In no time, XYZ
has broken through its old resistance at 58 and is heading higher on the momentum. The
short sellers must buy, too, creating even more upside pressure. This is a classic
breakout!
As you can see, locating the resistance level and the support level will allow
you to "play the spread" between them. When the stock approaches either
level, you'll know that something is about to happen!
Where to Find ROLLING STOCKS.
We have our own "core list" of rollers most of which we have published in our
nightly trading update. Unfortunately, since 9/11 this list has tanked from over 300
"rollers to watch" to less than 50 -- and they're not rolling well. This
of course will correct itself as the ecomony improves, but for the most part we're very
happy Trading Rangers, Nooners and Mighty Mites.
It's the compiling of a "core list" of possible rollers that's the
KEY to profitability trading Rollers. Two "other than MoPayDaze"
rolling stock sources are listed below. Rolling
Stocks 100 is very affordable with a very good "free tutorial".
We didn't have that much success using their buy and sell price points, but, it's
been two years since we last used their service. We haven't tried Channeling
Stocks. They are a bit pricey, but if you're making money with their
picks, well, you can't argue with success! Besides, one only needs to stay with a
service long enough to capture a set of "core rollers".
One way to Chose & Trade ROLLING STOCKS!
Keep a close watch on your list for stocks on a downturn.
When you're ready to buy, go through the list looking at all stocks in your price
range. If they are at the lower end of a downturn, write them down on a list for later
reference.
Take this list and go to your Free Portfolio Manager or
one of the below sites:
(then enter your symbol, select "charts" and then pick your indicator, it
changes automatically). They offer Stochastics, MACD and MACD Histogram plus a host
of other indicators.
When the Stochastics is under the 20% line and the fast line crosses over the slow
line, you might be able to start feeling pretty good about the stock. If the MACD and MACD
histogram are both well below the 0 line and upward trending, then you might even feel
better about the stock.
Now the list may be down to 2 or 3 choices and you can run charts on the stocks,
preferably "daily". Now take the highs and lows of the last couple of rolls.
This is where you pick your buy price, and sell price.
Of course you should take some time to read up on the stock, calculate profit, and look
at the PE ratio etc. before buying. Read as much as you can on the stock market and how to
trade and you should review the special reports you received upon becoming a member, many
of these things are covered in them.
A Second (Easier) Way to Chose & Trade ROLLING STOCKS!
From your "Core List" of Rollers, calculate a "buy price" based on
a support level from the highs and lows of the last couple of rolls.
Using the Charting
and Opinion Program, get the % Buy/Sell OPINION on the stock. If it is a
"BUY" and moving up to or past a resistance level it may be a possible "buy
execution". If the opinion comes back with a "SELL" wait for the stock to
bottom out to a support level and turn around heading towards a "buy price".
To better understand and visualize this concept pull up the stock's CHART in the
Charting Program. Check where the stock seems to be heading (DOWN past a "buy
price" or UP past the "buy price").
Now check the OPINION in the Charting Program. If the stock is "ANY PERCENT
BUY" and the stock is moving UP to or PAST the "buy price" it's a possible
"buy execution".
If the stock is "ANY PERCENT SELL" and the stock is moving DOWN to or PAST
the "buy price" hold off and watch for the stock to bottom out.
Once it starts to head back up and you are given "ANY PERCENT BUY" you may
want to purchase the stock at a LOWER price than the "buy price".
Calculating Buy & Sell Price Points
Typically, a stock will "test" a resistance level 3 times. If it
"breaks" through we trade it as a momentum stock. If it fails to break
through resistance, goes down and "bounces" off the support level, we say the
stock is "rolling" or "channeling" (between resistance & support).
So the basis of calculating actual Buy & Sell Price Points for a Rolling Stock
is the identification of resistance & support levels. Check the "Help"
links of your Free Portfolio
Manager for info regarding Resistance & Support.
In an "uncertain" and seemingly "news driven" market, profiting
from Rolling Stock plays can become difficult. Risk can be reduced significantly by
using a CASH MANAGEMENT Software for LONG TERM INVESTORS (it tells you specifically to
buy, sell, or hold, calculates the optimum number of shares with buy/sell price points).
We know, Rollers aren't generally considered "long term investments".
But think about it. Isn't it the "Rolling Stock Trading Strategy"
meant to profit "over the LONG TERM" Buying Low, Selling High, Again and Again
and Again!
If you are NOT using WiseTrade to "Light Your Trades" or you just don't want
to sit at your computer all day, check out PCA (Position Cost Averaging)
Software. It's a very affordable software on CD, no renewal or usage
fees, FREE data feeds, 100% Satisfaction Guarantee. Run it at night (after market
close) and let it calculate the price targets for your "good til canceled"
buy/sell orders. It's great for making and keeping profits on a "Core
List" of stocks, like Rollers!
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