Stock Market

BOSS MARKET

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Capital Management is one of pillars of any prudent market(s) participant, market(s) “market” herein.
While Capital Management has many, many aspects to it, cash itself is literally the foundation (base) of the “Capital
Management pillar.” While many simply say “Cash is King,” we seek to understand cash more deeply than merely
expressing “Cash is King.” By understanding cash deeper, we see what cash really is: an unleveraged option position,
.i.e, a currency position that fiscal options for all market conditions and as such prepares one for wherever “Boss
Market” randomly “decide(s)” to go, viz.: down, up, or sideways . . . thus, one’s cash position has one prepared to seize
“Boss Market” as “Boss Market” dictates!


As such, and as perennial students of the market, we need to focus on listening to the market itself with as little
distraction(s) as possible in order to fruitfully participate in the market; having one less distraction is simply one more
advantage. This one more advantage is knowing that we are lending our cash to a worthy borrower for safe keeping.
As market conditions have transpired, a current opportunity that has been on hiatus for the past thirteen years has just
come out of hibernation that we might deem fit to fiscally. Why, What, and How?
In 2008 the mortgage-backed security debacle imploded all markets and fear plummeted all assets: Bonds,
Equities, Commodities, Real Estate, Precious Metals . . . yes, even Real Estate and Gold! So what was the result?
“Everyone” went to currency and the world currency of choice was the U.S. Dollar. Sellers of all of the above assets
were consequently buyers of U.S. Dollars and needed to place their U.S. Dollars somewhere other than under
mattresses. The fear at the time was so great that even the bank deposits were in question, so much so that the FDIC
deemed it necessary to raise account insurance coverage by 150% from $100K to $250K to alleviate depositor fears.


However, many were still discontent with the banking option, especially those who had assets in excess of FDIC
coverage and, as a matter of fact, what implicit ignorance depositors must suffer with the bank(s); to whom do they lend and for what? As such, the most prudent investors were wondering where was a more transparent place to lend their cash? As a potential answer, prudent investors gave consideration to Money Markets. However, they too were
deemed vulnerable as some came very close to “breaking the buck;” meaning their potential inability to maintain one
Share equaling One Dollar. It was the most fearful time in global financial history in the new millennia. Thus, the rush to Money Market funds that held only U.S. Treasuries were understood by investors/lenders as a simple, clear, and safest place for cash lending: the Treasury Department of the United States of America, a department of the United States Government of America depicted premier on the back of the U.S. Federal Reserve $10 Note, even more prominent to The White House ($20 Federal Reserve Note) and the U.S. Capital ($50 Federal Reserve Note)! Problem solved? Unfortunately, it was an unfulfillable solution during the time of fiscal crisis.


The U.S. Treasury Money Market funds were so inundated with cash inflows that the funds raised their
minimums to $50K to new investors, and even as the cash flows continued into the fund, many U.S. Treasury Money
Market funds simply closed their fund to all new investors just like the Vanguard Treasury Money Market Fund (VUSXX)
of the Vanguard Group, which was founded by, unappreciated and nemesis of Wall Street, the kind and late John J.
“Jack” Bogle, on May 1, 1975, as a nonprofit owned by the Vanguard Group shareholders which today has trillions of
dollars assets under management [AUM] and counting: as of January 31, 2020, AUM $6.2 trillion. With the latest AUM
figures to be published January 31, 2021. In the world, the Vanguard Group is second only to Black Rock.
Currently there is some very good news. Thus, after being closed to new investors for the past 13 year, the
Vanguard Treasury Money Market Fund (VUSXX), has recently reopened itself to new investors so they can efficiently
lend to the U.S. Treasury, and the icing on the cake is that the initial minimum, which does not need to be maintained,
has been significantly reduced from $50K to $3K — thus, strongly suggest, never to close once opened. While the
returns are free from all state taxes, they are low and were over 2% prior to the pandemic. When rates rise so will returns. The Profit Room is very fiscally serious and please feel free to share this financial education/literacy blog with any financial professional you deem worthy for their scrutiny and feedback. Thank you.

We hope you have found this fiscally informative, and with your good due diligence, perhaps you might also find
the Vanguard Treasury Money Market Fund (VUSXX) of the Vanguard Group as a good fit for your distraction free cash
position to facilitate your fiscal preparedness for any future market(s) opportunities you might deem worthwhile.
Meanwhile, both accounts to be prudently considered: Individual and IRA. Thus, a good lock and load cash position for
both types of accounts?
With all due respect to Janet Yellen, prior to the Pandemic Crisis, the former U.S. Federal Reserve Chairwomen
and Janet Yellen, U.S. Treasury Secretary, expressed that it was unlikely the U.S./global economy would
ever suffer another financial crisis like 2008 in our lifetime. Thus, do what you can, with what you have, when you can,
would seem to be a reasonable response to an only good times ahead prognosis.
Likewise, please also consider the following proactive notification: as of now, Fidelity has recently closed it’s
U.S. Treasury only Money Market Fund (FDLXX) to new investors.

h Pattern- Our Favorite Pattern

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We find great success when we recognize this particular pattern before it even occurs.  It’s called the “h” pattern, it’s rarely used amongst other traders, however The Profit Room’s team can spot this pattern on any time frame.  It’s our bread and butter for easy money making.  In early 2014 The founders of The Profit Room made the h pattern a trend amongst many traders that crossed their path.

The pattern occurs when the stock has a steep or sudden decline followed by a very weak bounce (all the following candles are inside bars)  As the bounce begins to fail, the price formation resembles a lower-case “h”.

Many technical traders will trade any pattern based on a break.  As in the break of support.  We like to enter a trade before the break of support.  It’s all in anticipation! With the h pattern, you will enter the short at the top/curve of the highs, with a stop way above the highest candle. As the stock begins to drop, you can add to your position.  The next stage is when the stock actually breaks support– your next add will be below support, therefore maximizing the profit potential.

Our Students have the eye for it, which means our teachings are golden! And our Students are trained to react ,attack and profit in that exact order.  The “h” pattern can be found in any market, Stocks, Futures, Forex, Crypto….. Below our Student posted a chart of ES Futures (E-mini S&P 500 Futures)

Below Are Charts From 2015

You are looking at AMZN chart- right where the arrow points, our entry was at the tail of the candle, with the stop above the second candle to the left of it.  If you are familiar with candle stick analysis, you will understand that there are sellers at the wicks of those candles.  Our Candle Stick Analysis Course is like no other! We get rave reviews as we are able to break down simple concepts into elementary lingo.

Notice where the support occurs, Master traders are able to anticipate the break in structure. (Yes The Profit Room Team anticipates future price movements before the moves occur)
The large red bar is the result of technical traders entering this position at the break of support – this trade resulted in a $22/share move from our short call

2020 Charts

FB h pattern

2021 Charts

ROKU h pattern

Preferably, a daily chart “h” pattern will result in substantial gains. We are talking about a Major move.

Are you ready to be a Full Time Day Trader?

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It is very important to have an established trading plan, rules, and a back-tested strategy.  Many new traders get caught up in the glitz and glamour that are often associated with professional/successful traders.  The new traders forgot about the learning process and the amount of time needed in order to perfect a strategy. Poor preparation leads to failed results from a skewed reality of trading. As you know Theprofitroom is pro-education! It’s a proven fact that the proper training shorten learning curves.

Too much debt.  The Key is to be debt free! as in no car note, student loans, credit card or even a mortgage debt.  You want to be at ease when it comes to trading because financial obligations can easily burden and hinder your trading performance.  The stresses of trading is one thing but stress under the pressure of a “need” to perform is another thing.

Savings.  You need about 2 years minimum savings! I would advise 3.  Savings in case of emergencies, medical, or if your car got towed etc. Savings to help cover your basic cost of living expenses, such as a cell phone bill, groceries, a place to live etc. Savings just in case the first year of trading full time is absolutely horrific! You will need a cushion in order to give your mind some peace and to transition properly without the pressure to perform.

The recommendations above are conservative/ not factual but rather subjective depending on the person.

How to determine which markets to Day Trade? It all depends on your starting capital as well as the knowledge and information you are exposed to. Day Trading Forex: You can start with $50! Seriously, there are many forex brokers with a low capital requirement when entering the forex markets (but please make sure you perform your due diligence) Not all forex brokers are legitimate. Day Trading Futures: Most future Brokers will allow you to start with $500-$1000. The futures market moves extremely fast and your skills will be tested! Day Trading Cryptocurrency: This is a low entry barrier market as well, you do not need a lot of capital to get your feet wet!

25,000 :: In order to day trade you will need 25,000 in your account, at all times if you are trading Stocks or Options in a Margin account! This rule is a FINRA (formerly National Association of Securities Dealers, Inc. or NASD) You can read more about this rule on Wikipedia and various financial sites.   We know that there are brokers like CMEG which will allow you to day trade with no PDT rule (money under $25,000 :-), they are registered with the IRS and insured by Loyds of London, which has been in business for over 330 years.  Trading with under 25K is optional to the individual but realistically it is like funding any other start up business–you need the Capital.  Many times traders fail because they are under capitalized.  Same thing applies for other start-up companies. There is a difference for someone trading with less than 25K living in their parents basement/home or have a secondary source of income than for someone else with NO CRUTCH trying to achieve success as a full-time trader.  Just know the difference and come to the day-traders world totally prepared.

Pay Yourself First!

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Trading should be treated just like a business. From an employee standpoint it is standard to receive paychecks, whether weekly, bi-weekly etc. From a professional trader’s standpoint we want to treat trading as the business with the expectation to receive a weekly paycheck.

The Team at The Profit Room makes it a routine to withdraw trading profits every 7 business days, while retaining the same account balance. Creating the habit of paying yourself first forces you to realize and reap the benefits of true trading success. There is no real reason to have an extremely large account. Large Accounts without discipline can put you into a situation where you are able to over leverage, double up or down, and just simply add to losers because of the “excessive” amount of capital available. This is damaging in itself due to large risk exposure which leads to larger losses.

Let’s say you started with an account of $30,000 in capital in the Equities Market. The broker provides you the 4:1 leverage, if you are applying for a day-traders account. With this account you have the ability to day trade and swing trade. It’s imperative to have a strategic approach, which involves a trading plan that includes risk/money management. A true winning approach allows you to withdraw your trading profits weekly. Profits of course will vary assuming that A.) You are Profitable B.) You are Consistent. meaning if you have trading losses within days of that week, you are still able to end the week net positive. This thought process is logical, and achievable and should also apply if you are trading the Forex or Futures market with $3,000 in capital. The profits will vary but the withdrawal frequency should remain the same. The concept is to Pay yourself first while retaining the same balance in your account, never adding because you are consistent and profitable. If you have to add to your account, you are obviously losing money and never really mastered the art of being able to trade profitably.

If you are only swing trading, pay yourself bi-weekly or monthly. Most swing trades last an average of 3-5 trading days.

We’ve mentored traders who are now professionals. One Trader in particular traded with a large account and suffered from massive drawdowns. It stemmed from a desire of wanting to have the ability to have 10-15 contracts trading futures, or $5-$10 lot sizes in Forex. The desire to trade large size consumed this trader rather than the thought process of paying one’s self first. After further evaluation this trader finally came to the conclusion to only have no more than $10,000 in their account trading futures. Although this trader was trained by us, the initial greed and inner thoughts we have no control over, but the skill that was mastered for this trader to bounce back and continue to profit is the only thing we can take account for.

Always remember Trading is a business treat it as such.

~ The Profit Room

What is Pattern Day Trading

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Pattern Day Trading is for a stock market trader who executes four or more day trades in five business days in a Margin account. This rule was created by FINRA (financial industry regulatory authority) to protect the beginner traders. (So they say) In order to have a pattern day trading status you need to have $25,000 in your account at all times, as long as you decide to make four or more day trades in five business day.

Active traders who have $25,000 in their brokerage account can apply for a day trading account. Day Trading accounts your U.S broker will provide you with 4:1 leverage and that is only for a trader who has an account with $25,000 or more.

 In a regular margin account your U.S broker will offer you 2:1 leverage. For example if you funded your account with $500 and you applied for a margin account, you will then have an additional $500 bringing your total purchasing power to $1,000. With leverage comes responsibility. You can lose more than your initial balance and some of your broker’s margin, which will cause a “margin call” You will be required to fund your account to the “margin call balance” deemed by your broker. With a margin account you are able to short sell stocks. You can not short sell a stock in a cash account.

 In a cash account the pattern day trader rule does not apply. Cash accounts, with a buy or sell transaction with stocks there is a 3 day settlement. As in your funds are tied up (assuming you used all your cash to either buy or sell a stock) You will simply have to wait until the funds settle. Cash account traders will limit their trades to a very few due to the cash settlement standards.

Typically traders who have a margin account with funds under $25,000 are generally the ones who often get in trouble for making four or more trades in a three day rolling period. Your broker calls this “free riding” you are trading on unsettled cash even if you have a margin account but not enough to clear you of the pattern day trader status. There is a penalty if warned more than twice, such as freezing (locking your account) for 90 Days.

How to get around the PDT (pattern day trader law)

There are a few ways around this rule, if you do not have the $25,000 in your account. One way is to Swing trade.

1.) Swing Trading is not day trading, you will be taking advantage of time and allowing the trade to work out based on analysis and trend. You can make a few swing trades in your account without over trading. Swing trades generally takes 1-3 days or up to a few weeks to work out.

2.) You can open multiple brokerage accounts. The only thing you will have to keep track of the trades taken in each account. Remember no more than 4 trades in a 3 day rolling period per account.

3.) Learn how to trade a different market. Futures and Forex both these markets require way less capital to trade. There is no pattern day trader rule with these markets.

4.) Open up an overseas brokerage account. The very last step on this list. The U.S markets are governed by the S.E.C and the brokerage accounts are protected by SIPC (Securities Investors Protection Corporation) up to $500,000. Do your due diligence on an overseas broker, if you decide to go that route.

Just know that small accounts have the potential to develop into large accounts. The Profit Room have done numerous small account challenges. We took $1,000 in forex and grew it into 6 figures. As well as our swing trading account challenge. It’s just a matter of the proper education/mentorship.

Do You Want Increased Profits? Then Go After Decreased Losses!

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I’d like to share with you a frequently overlooked source of profits from your trading. It’s a simple concept yet so very important if you expect to be able to continue trading for any length of time! The concept is that of controlling both the number of losses you have and the dollar amount of those losses. I realize that statement sounds so obvious that you might be tempted to put this article away in favor of a night of Netflix, but please stick with me here. I’ll share some things with you that you probably don’t expect to find here!

To better visualize the concept I’m describing, picture a large washtub, the kind you probably remember from your childhood. Now imagine the difficulty of filling the washtub if it has several ‘six-inch’ holes in the bottom! No matter HOW MANY garden hoses you have filling it up, the water is running out faster than it’s going in!! Now imagine plugging each of the holes, one at a time. Plug the first one and the difference is almost imperceptible. Plug the second hole and you begin to notice that there is less water splashing on the ground. Plug the third and you actually may see the water level in the tub begin to rise … just slightly, perhaps, but rise nonetheless! Plug ALL the holes but one and the difference becomes measurable! Now that you’re down to one hole, let’s begin to repair it a piece at a time. First we cover HALF the hole … while the tub still leaks, you can now tell there’s more water going INTO the tub than running out the bottom. Patch half the remaining leak and you begin to adapt to the idea that it’s OKAY if a little water comes out, just as long as there’s more going in than coming out!

Our trading accounts are something like that. Most new traders have HUGE trading account “holes” and the money is draining out faster than they can replace it! No matter how profitable they are on some of their trades, they just seem to give it all BACK! If we’re smart about our trading when we notice that, we’ll STOP trading until we find the challenge and FIX it! What I’m describing are the DIRECT results of FOCUSING on the profits and almost totally forgetting about controlling the losses. There are many reasons for that but despite the reason, the results are the same. Left unchecked, such a situation will take us totally out of the trading business in a very short period of time! Does this describe you and your trading account? Would you like to know how to ‘FIX’ it? Let me share with you four RULES for trading which directly address losses and if followed, can ‘plug’ many of your profit leaks!

RULE 1. Wait for the stock to CONFIRM the anticipated direction before entering the trade

This rule can decrease the NUMBER of losses you experience. As simple as that sounds, it’s one of the most often violated principles of good trading habits. So often is this rule broken that we are all familiar with cute little descriptions such as “catching a falling knife.” What you use for this confirmation is your own affair; price rise or fall, momentum, frequency of trades or bid / ask “size” are just a few ways. Personally I combine them all (more or less), developing a ‘feeling’ about the confirmation, rather than a measurable quantity. However you choose to define confirmation, let experience be your best teacher here and do NOT enter the trade until you’re convinced the stock is moving your direction!

RULE 2. When you are filled on the entry, place a STOP loss to minimize your potential for loss.

This rule controls the AMOUNT you can lose on any one trade. I like to use about 1/2 of the stock daily movement for my stop loss amount. For example, if a stock price moves on average, say $1 every trading day, then I’ll back off 1/2 of that, or 50 cents and place my stop loss there, limiting the losses possibly incurred on that trade. Whatever you use, be FAITHFUL in adhering to the protection afforded by the stop. In other words, DON’T CHANGE IT. If you’re stopped, you’re stopped. He who trades and runs away lives to trade another day!

So much for minimizing the NUMBER and dollar amount of losses. Equally important is allowing your profits to maximize AT THE SAME TIME! Here’s how to do that.

RULE 3. When you become profitable in a trade, replace the stop loss with a TRAILING stop, trailing by that amount of profit.

Say you’re up 25 cents in a trade and you have your stop loss in at 50 cents below your entry (on long positions). Replace the stop loss with a 25 cent trailing stop. At THIS point, you’re WORST CASE outcome for the trade is BREAKEVEN (give or take a couple of pennies)!!! You have virtually NOTHING to lose and EVERYTHING to gain from that point on!

RULE 4. Leave the trade alone from this point on!

The market overall will do a much better job of managing the trade (with the above rules observed) than you or I EVER could! Once you’ve reached the MAGIC POINT in your trade, just go away and do something else. Your trade is on autopilot!

The Profit Room

 

 

How To Trade During A Consolidation or Congestion Phase

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When stock prices start to move within a certain range, falling to established lows and then rebounding up to established highs and fall back again, the stocks are said to be in a consolidation or congested phase.

Most of the time, typical consolidation patterns can be seen, with the most common one being the rectangle pattern or sometimes called a channel.

When prices start to drop, traders get nervous and weak holders will sell their stocks so that they will fall to a support level which other traders will consider a good price to buy. From that level, stock prices will then rebound, often with volume as support comes into the stock.

As the price of the stock improves and increases, it will reach a peak where traders who have purchased the stock at lower prices will sell. At the same time, weak holders who have purchased the stock at higher prices may wish to bail out as their losses are narrowed with the improved prices. At that point in time, resistance is encountered and the stock price then tops over to form a peak.

When you connect the support prices and the peak prices where the price tops over, you will find the pattern of a channel or a rectangle.

During consolidation phases, prices trade within a range formed by the bottom of the channel or rectangle and the top of the rectangle or channel.

The key is to identify the bottom of the channel and to buy closer to the bottom of the channel and to sell as prices reaches the top of the channel or rectangle.

A common mistake newer traders commit is to continue to use their trend following trading system during a congested phase and encounter a lot of whipsaws as prices oscillate between a small range.

When you transit from a bullish market and moves into a bearish market, be contented with smaller gains which come from trading the congested and consolidation phases. Fall back upon the support & resistance areas to track your stock prices and trade them in relation to their location within the price rectangle pattern that you can easily identify in your stock chart.

The Profit Room