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A COMPLETE TREND-TRADING INVESTMENT
SYSTEM FOR STOCKS, OPTIONS, & FUTURES
By following the superior stock's upward "path"
you tap a source of infinite wealth.
And the instant you commit to a trend, you are in harmony
with the ever-present
moment of "now," (which is all there really
is). Investing then becomes an act of faith.
THE 7 LAWS OF HARMONIC STOCK TRADING
There is nothing to it. You only have to hit the right
notes at the right time
and the instrument plays itself." Johann
Sebastian Bach, composer
THE LAW
OF LEAST EFFORT - Flow
with the trend.
THE LAW OF SURRENDER
- Faithfully follow a stock's "TAO."
THE LAW OF ALIGNMENT-
Be in harmony with the
markets.
THE LAW OF POTENTIALITY
- Trade absolute strength.
THE LAW OF EXPECTANCY
- Expect to gain more than you
risk.
THE LAW OF VISUALIZATION
- See the trade before you make it.
THE LAW OF ATTUNEMENT
- Trade the "middle-ground,"
never the extremes.
These timeless laws work as well now as they did in
the past.
By following these seven laws you will
be in alignment with the forces that move the markets
and individual stocks. Ignore or fight these laws and
you will eventually be defeated like the great majority
of individual investors.
Warning: These rules are deceptively
simple but following them can be very difficult for
most people. Your "egoic" mind will want to
complicate things. There will also be countless "seductive"
diversions like news headlines, "expert" opinions,
etc. that may sway you. Staying on the "path"
can become a life-long practice.
THE LAW OF LEAST EFFORT
Flow with the trend.
BUY
ONLY WHEN
THE STOCK IS TRADING
ABOVE IT'S 20-DAY MOVING AVERAGE
Notice how the 20-day line becomes "support"
as the stock moves higher.
ONLY BUY DURING UP-TRENDS
A stock is in an up-trend when prices make "higher-highs"
on a daily chart.
As stock's trend higher they typically have normal
"reactions," then continue trending higher.
Remember, when you trade "with" the trend
of a stock, your chances of success improve greatly.
"Yield
and remain whole
Bend and remain straight"
THE LAW OF SURRENDER
Faithfully follow a stock's "TAO."
The "TAO" is an ancient Chinese concept that
translates as the "way," "path,"
or "route,"
to the true nature of things. To trade a stock, simply
follow its "TAO."
The "TAO" (gold line) is draw this
way.
HOW
TO DRAW A BASIC "TAO" LINE
If a higher-high is made, draw the TAO line to the new
high.
If the stock fails to make a new high, draw the TAO
line to the low.
If a lower- low is made, draw the TAO line to the new
low.
If the stock fails to make a new low, draw the TAO line
to the high.
That's it. I suggest you practice this valuable new
skill till it becomes second nature.
HOW
TO TRADE THE "TAO"
Notice how the TAO line will make highs and lows.
BUY
ONLY WHEN THE "TAO" IS IN AN UP-TREND
When the TAO line makes a higher-high, it's now in an
up-trend.
When the TAO line makes a lower-low, it's now in a
down-trend and you should
sell your shares immediately.
Remember, only buy a stock when it's TAO line is trending
higher.
"Long
and short reveal each other
High and low support each other
Music and voice harmonize each other"
Being able to "stay on the path" will be
your biggest challenge.
THE LAW
OF ALIGNMENT
Be in harmony with the markets.
The
great majority of stocks follow the direction of the
leading indexes (Nasdaq, S&P 500, Dow). If
you buy only when the markets are heading higher, your
odds of success improve dramatically.
Here's a simple technique that will always keep you
in harmony with the markets:
BUY INDIVIDUAL STOCKS
WHEN THE NASDAQ IS
TRADING ABOVE IT'S 20-DAY MOVING AVERAGE.
There were lots of days in April and May of 2008 when
you could have taken "buy" signals.
You would have been in cash in June and July and not
fighting the downtrend as the markets
collapsed into "bear market" territory.
The Nasdaq is the most relevant index because it's home
to many of the
newer and more profitable growth companies.
Want to understand more about "moving
averages?"
Never
fight the trend of the market, it's much stronger than
you. By simply letting
go, you learn to "flow" with the markets and
harness their inherent power.
Remember,
you don't always have to be in the markets. Buy only
when they are trending higher.
"There
is nothing more yielding than water,
yet when acting on the solid and strong,
its gentleness and fluidity
have no equal in any thing."
THE LAW OF POTENTIALITY
Trade absolute strength.
Strong stocks tend to get stronger.
Legendary trader
Jesse Livermore, who made over $100 million during the
1920's recognized
that the markets are led by a small number of powerful
stocks. Companies that dominate their
field and have explosive profits from a hot new product
or service or from changing conditions.
Big winners from the past include U.S. Steel, RCA, Xerox,
Boeing, IBM, Amgen, Microsoft,
Charles Schwab, Cisco Systems, Home Depot, Google, Yahoo,
Ebay, Apple, etc.
Here's a simple rule that will lead
you to the strongest stocks.
LOOK
FOR STOCKS WITH EARNINGS UP 70% OR MORE
IN THE MOST RECENT QUARTER
High trucking costs and the demand for natural resources
have been good for the railroads. Kansas City Southern
(blue line) and CSX Corp. (red line) have been the dominate
leaders boasting strong earnings and sales. Canadian
Pacific (green line) and Canadian National Rail (magenta
line) both have weak earnings and sales and are laggards
in price. Weak stocks tend to stay weak.
THE
STRONGEST STOCKS BELONG TO LEADING INDUSTRIES
During the 80's and 90's the personal computer and
internet related companies led the markets.
Right now it's being led by energy, alternative energy
(solar, wind, coal, etc.), ship/rail transportation,
agriculture, and resource related stocks as global demand
soars. This is where you'll find
today's winning stocks.
" The strongest groups tend to lead the markets
up and down." - Jesse Livermore
Remember, focus your purchases on the most profitable
companies from the leading
groups and you will be led to the stocks with the most
up-side potential.
You can find information on earnings and industry groups
in Investors Business Daily's Friday and weekend editions.
"Although he may dwell in a grand estate,
simplicity remains his guide,
for he is full aware, that losing it,
his roots as well would disappear."
THE LAW OF VISUALIZATION
See the trade before you make it.
The "buy point" is triggered the moment the
TAO line makes a new high.
The "sell stop" is triggered the moment the
TAO line makes a new low.
PROFIT
TARGETS
Bollinger Bands usually contain prices within the bands.
The "profit target" is the upper Bollinger
Band where you would typically sell
1/2 of your shares. Let the other shares "run"
till the TAO line turns down.
You now have solid buy, sell, and profit points - no
guesswork.
Want to understand more about "Bollinger
Bands?"
"Knowing harmony is said to be constancy
Knowing constancy is said to be clarity"
THE LAW OF EXPECTANCY
Expect to gain more than you risk.
RISK vs REWARD
Put the odds in your favor.
Make sure that the profit you expect to make ("profit
target" minus your "buy price") is
always more than the amount you are risking (your "buy
price" minus the "stop loss").
RISK
CONTROL
You typically do not want to risk more than 5-6% on
any trade.
The lower the better.
"The
great Tao is like a flood
It can flow to the left or to the right
Accepting the world, you embrace the Way"
THE LAW OF ATTUNEMENT
Trade the "middle-ground,"
never the extremes.
"Stochastics" use a "fast" (K) line,
and a "slow" and smoother (D)
line.
"Stochastics" measure "momentum."
"Stochastics" also measure if a stock is "Over-Bought"
or "Over-Sold."
Buy when "Stochastics" are moving up, and
not "Over-Bought."
Remember, trade the "middle-ground" and never
the extremes.
"He
who stretches beyond his natural reach,
does not stand firmly upon the ground;
just as he who travels at a speed beyond his means,
cannot maintain his pace."
All the above quotes are from the "Tao
Te Ching,"
an ancient book of Chinese wisdom.
This
knowledge is a gift from Mark J. Gordon who suggests
that you give
back a portion of your earnings or time to a charity
or cause of your choice.
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