In this lesson, you’ll learn how ‘magic pivots’ can help you identify when prices change direction early…helping you time your entry and exit points for more profitable trades.
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Welcome back to the Port Phillip Publishing Magnetic Trader Workshop.
Over four days, you’re going to discover a price action trading strategy that could give you an incredible investing edge…especially in today’s uncertain markets.
It’s an approach to trading shares on the long and short side that’s trusted by one of the wealthiest families in Australia.
And if you’re interested, it could soon be guiding your trading decisions too.
Now this strategy, to remind you, has had great success over the past year. Even throughout the first coronavirus panic, when markets crashed 36% in a single month, some of my readers are sitting on:
- 82% on McPherson’s Ltd
- 46% on Red 5
- 145% on West African Resources
- 34% on Newcrest Mining
- 17% on Paladin Energy
- 77% on SciDev
- 68% on Nine Entertainment Co
- 219% on Redbubble
…all while managing risk super tightly.
In our last lesson, I revealed the technical basis of the system.
I showed you how it finds tradeable ranges in a stock price, where it sets the upper and lower limit that the price swings between, and, crucially, the midpoint — the all-important point of control for price action within that range.
I showed you how that point of control acts almost like a magnet, and how prices appear to be drawn back to that central point.
In fact, I showed you a good example of that with the Redbubble trade I recommended to readers:
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Most importantly, I showed you how each of these moves is tradeable on the long or the short side.
Well, today I’m going to delve a little deeper into the technical aspects of my system to reveal how it’s designed to tell you exactly when to buy, and when to sell.
You’ll learn how these indicators are able to anticipate changes in the direction of prices within these ranges.
And how they fire off in advance — giving you the chance to trade the move, long before most regular investors see it happening.
You could call this the ‘secret sauce’ of the system because these are the signals you actually trade.
And it doesn’t matter if the market is soaring to new highs, or plummeting through the floor. This system is completely market agnostic.
These pivots can signal a trade regardless of which way the greater market is moving. All this system needs is for price action to be on the move.
If it’s on the move, you can trade it.
The signals I’ll be telling you about today give me my first sense of where price action is headed, and I begin to set up my trades from here.
For the last few years — up until the beginning of March 2020 — we’ve been in a bull market, so I’ve had mostly buy signals.
But as the coronavirus ravaged the markets earlier in the year, I started getting lots of sell signals that allowed me to take profits on many stocks right near the highs.
How to Limit Your Risks While Trading Volatile Stocks. Learn more.
That’s what makes this system so valuable — especially now
You’ll hopefully learn over this series that risk management is an important part of this strategy.
Ultimately, that’s what leads to minimal losses and consistent returns. And that’s what we’re aiming for here.
It’s never a bad time to improve the way you manage your risk as a trader — but it’s especially so now as markets are still finding their feet after a challenging few months.
So, let’s talk about pivots.
Every trend you’ve ever seen starts with one. The market can’t change direction without them.
This is a very simple diagram that illustrates what I mean.
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These bars represent the price of a stock over a specific trading period. For example, each day.
The green bars represent the daily price closing at the top of the bar. And the red bars represent the daily price closing at the bottom of the bar.
You can see during the first few days that when the stock price is trending upwards, each day it closes higher than the previous one.
SELL pivots occur when the price closes below the low of the highest price, as indicated by the first red bar in our example above.
When that happens, it gives you the sense of a change of direction.
The opposite is true too.
You can see the red bars in the example above are closing lower and lower each day.
Then there’s a BUY pivot where prices close above the previous high of the lowest price.
Every single trend you’ve ever seen starts with one of these pivots.
Now, just because a pivot signal pings, it doesn’t mean it’s time to trade.
It’s WHERE this pivot happens that gives me the perfect entry point.
Let’s look at an example of a trade that I recommended to my clients, Newcrest Mining.
It’s one of the biggest gold miners in the country with a $26 billion market cap.
You can see below that the price was trending to the upside for almost a year:
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Now yesterday, you learned that my system can indicate whether a range is forming after a big retracement, but the opposite is also true.
Here we have a range forming from the bottom to the top of this upside trend, where prices turned around.
Once we’ve got the top and bottom of that range, and the all-important point of control, we can start to make a calculated guess as to where the price is headed next.
Now, where am I interested in buying?
In the green highlighted area that my system automatically calculates below:
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The green shaded area here is the buy zone of the range. The red shaded area is the sell zone. These areas are where I’m looking to act.
Why?
Because these areas are where prices often change direction and head back to the point of control. You can clearly see it on this chart.
To be interested in this trade, I wanted to see a buy pivot within the buy zone.
That gives me a sense that the direction is changing. Where to?
Back to that magnetic ‘point of control’.
Newcrest made a buy pivot right in our buy zone, so that’s where we entered the trade.
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I told my clients to ‘Buy Newcrest Mining at market up to $23.20’ because there was a very high probability that it was headed back to that point of control.
And that’s exactly what happened.
I then instructed my readers to take a quick 20% profit on a third of their positions at $28, which was right around the point of control.
Taking part profit like this is a critical risk management strategy that I’ll discuss in much more depth tomorrow.
For now, let me show you what happened on this trade.
The price continued to climb higher, and eventually reached our sell zone, highlighted below:
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Now, this doesn’t mean it’s time to sell out of the stock completely.
It just means there’s a high probability that it’s going to turn around and head back towards the point of control.
Newcrest Mining did just that. It made a weekly sell pivot — meaning it closed below the low of the highest price on a weekly chart — right in the sell zone.
So, I instructed clients to sell another third of their position at $33.86, banking a 46% gain.
Now, as you can see, the price continued to head back down towards the point of control.
But by this point, we’ve taken two thirds profit and we’re currently up 34% on the remaining third.
Trading into a strong position like this gives you peace of mind during any further volatility on the remaining position.
I hope you can see how these buy and sell zones help you predict where prices are likely to change direction.
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Remember, when we entered this stock, I didn’t know any of this was going to happen for certain, but my system was able to predict these moves ahead of time.
And knowing all this ahead of time allowed me to make this trade with more confidence.
These pivot signals can potentially make your trades much more profitable too, by helping you time your buying and selling so you catch more, if not all, of a move when the price changes direction.
And that’s what’s different about this system compared to most other trading systems out there.
We are entering trades as soon as momentum shifts.
How many people were looking at the chart below when prices were all the way down and thinking that the price looked good?
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Not many. It looks bad.
But these magic pivots give you the first sense that momentum is shifting. And that helps you get into trades sooner, and capture more of the move.
Now, this is different to other systems you might be familiar with, like ‘moving average crossover’ systems.
I don’t believe these systems work.
The market is far too fast for them.
Moving averages are lagging indicators. And lagging indicators need a trend to be well and truly confirmed before firing off.
And when they eventually do confirm a trend, it’s too late, so you typically only capture a very small part of any move.
When I was developing my system, I knew I needed to find a way of entering trades without using any lagging indicators at all because the market is so fast.
These buy and sell pivots are the key to more profitable trades, more often
They can help you enter trades faster, and capture a lot more of the move, giving you the potential to make much more money on your trades.
Now, not all my trades are winners. But my system has a built-in risk management strategy designed to help you limit any losses, which I’ll discuss in depth tomorrow.
So, having read this far, you now know:
- How it’s possible to identify tradeable ranges in the prices of stocks,
- How the point of control can help you predict the behaviour of prices within that range, and
- Where to get into and out of stocks as they swing between the upper and lower limits of the range before finally breaking out.
These are serious problems we’re addressing here.
I hope you can see how my system can give you more confidence when trading in any market by making price action more predictable.
That’s all we’re trying to do here.
And I believe my system does it better than most things I’ve seen over the years.
It’s been close to 20 years in development through all kinds of market conditions.
With all the tweaking and refining that’s gone into it, you’re looking at a pretty special opportunity here.
One I hope you’ll give some serious thought to on day four when I reveal how you can get access to the buy and sell signals this system generates.
Before we get to that though, I want to talk to you about another big benefit of this trading system.
It’s a risk management strategy I refer to as ‘the breakeven carry’.
I’ll go into more detail about this in tomorrow’s session.
But it’s essentially a unique method I use to protect your initial capital at a certain point, so that the worst that can happen if a stock tanks is you break even overall. In other words, you don’t lose money on a trade, even if the stock price crashes.
Now, to be clear, you always have to factor in trading costs. But imagine knowing that after a certain point, the worst that can happen on a trade is that you break even.
Just think about the confidence that would give you when your capital is live and at risk in the market.
Well, I’ll explain ‘the breakeven carry’ technique to you in our next lesson.
And I’ll show you exactly how it worked to get us out of a trade that turned sour very quickly but still netted us a tidy profit.
I’ll send you an email with a link when it’s ready.
And then, two days from now, I’ll show you how you can get access to all the trading signals generated by my system, with absolutely no ongoing commitment.
Thanks for reading.
I’ll see you tomorrow.
Cheers,
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Murray Dawes,
Host, The Magnetic Trader Workshop
If you missed, or would like to reread, my previous essay, you can find it here: Part 1: Identifying ‘Magnetic’ Ranges
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