Y-Swing 4.0 - Trading Strategy

Here is the latest version of my trading strategy, Y-Swing 4.0. I made a full review of my Y-Swing 3.0 strategy, However, the most important modification I made was to go back to setting automatic -8.00% stop loss orders after every entry.

Keep in mind that this strategy may require you to do a few simple but time consuming calculations, and you should therefore create an excel file where you punch in your numbers with Excel making the calculations automatically. My file gives me all the information I need to know automatically such as the maximum number of stocks to invest in, the number of shares to buy or sell, how much money to invest, and at what level should my stop orders be set, while calculating and estimating how much money I would be giving up and cashing in. I may eventually share this file with you that I'm continually updating, and keeping track of all my trades.

Y-SWING 4.0 Trading Strategy:

With this strategy you should never hold more than 6 stocks (based on your total funds attributed to your portfolio). This strategy is not a mass diversification strategy that would dilute your returns with a holding of 20 stocks for example. The moment you start holding on to too many stocks, you could probably select any random stock and lose or gain the average market return. Keep in mind that when the whole market moves down, holding 3 or more stocks over 2 exposes you to more risk as you may most likely see all your stocks move down.

This strategy forces you to look after possible outperforming stocks while keeping track of their performances; you do not want to eliminate the non-systematic risk (business risk) because if you picked a good company you want to be able to reap in the returns of their individual performance, rather than an average return of the market itself. However, even by holding 2, 3 or up to 6 stocks, you should never hold more than one stock from the same sector.

Goal of Strategy: The ultimate goal of this strategy is being able to trade while always knowing in advance under all possible scenarios how to react. Knowing in advance what to do when you either have gains or losses will remove the emotions you may undergo while trading. The reason for that is that you will be trading in a mechanical and calculated way. The moment you have to start thinking about what you should do based on the stock’s current price, whether to buy, sell, or hold is when you will run into problems, and is a warning sign. You never want to react in the moment, and that’s why there should be a set of strict guidelines to follow as to what orders to place under different situations whether you have gains or losses. The purpose of this strategy is to remove all uncertainties and emotions during the process of trading. You want to be able to hold on to a stock as long as possible when it starts moving favourably in the direction you are trying to profit from. The goal of this strategy is not to capture quick gains but being able to ride major trends as long as they are sustained while not risking more capital than required.

1 - Determine the total value of your portfolio & the maximum number of stocks you can hold in your portfolio

After determining how much money you want to contribute to your portfolio, you must decide up to how many stocks you would be willing to invest in.

Total Portfolio Cash Balance	Maximum Number of Stocks to Invest In
<$5,000	2 stocks
$5,000-$9,999	3 stocks
$10,000-$24,999	4 stocks
$25,000-$50,000	5 stocks
>$50,000	6 stocks

Respecting these criteria may force you to not invest in more stocks than you need to and possibly prevent you from diluting your returns. This will force you to make a more though out decision, and should force you to get rid of your least performing stock in case you want to add a new stock that would go over your limit. For example, if you have a total portfolio cash balance of $9000 and you are already holding your maximum of 3 stocks, you would have to sell your least performing stock to replace it with a new one.

With this strategy, each stock you buy should be from a unique sector. Some people may argue that this strategy implies not having a well diversified portfolio. That is partially true, but the reason is because you have to be able to follow your stocks and if you have a portfolio of 20 stocks, it will be hard to keep track of where each stock is heading. On top of that you will be diluting your gains.

2 - Determine your maximum investment for each stock

If the total value of your portfolio is of $9000, you could choose to invest up to $3000 per stock ($9000/3=$3000 per stock).

Current Portfolio Balance: $9000

Maximum Number of Stocks to Hold: 3

Maximum Amount to Invest per Stock: $9000/3= $3000

Maximum Investment
Stock 1 - ABC: $3000
Stock 2 - DEF: $3000
Stock 3 - GHI: $3000

You should also note that your current portfolio balance will continually change as you trade and you should update it every time you close any position.

There are two possible future scenarios:
1) the value of your portfolio increases with time, and enables you to invest in additional stocks
2) the value of your portfolio decreases with time, and forces you reduce the number of stocks you invest in.

3 - Breaking down your positions into several potential entries

You should never invest the entire portion of money associated to each individual stock all at once. Depending on your total cash portfolio balance you should split your entries for each stock into 2 to 3 entries. If you hold a relatively low total balance you may choose to split your transaction into 2 entries, and as the total portion of money of your entire portfolio increases you should start splitting the entries into 3. One reason for that is that when you have a low balance, the commissions paid for each transaction would have a bigger impact on your net return. Whereas when the value of your portfolio increase the impact of commissions become very minor and therefore splitting your transaction into 3 would not have much of a negative impact on your net return.

Total Portfolio Cash Balance	Maximum Number of Stocks to Invest In	Maximum Amount of Cash to Invest in One Stock	Number of Entries	Position % Splits
$4,000 (<$5000)	2 stocks	$2000	2	Entry 1: 50%=$1000 Entry 2: 50%=$1000
$9,000 ($5,000-$9,999)	3 stocks	$3000	2	Entry 1: 50%=$1500 Entry 2: 50%=$1500
$20,000 ($10,000-$24,999)	4 stocks	$5000	3	Entry 1: 50%=$2500 Entry 2: 32.5%=$1625 Entry 3: 17.5%=$875
$40,000 ($25,000-$50,000)	5 stocks	$8000	3	Entry 1: 50%=$4000 Entry 2: 32.5%=$2600 Entry 3: 17.5%=$1400
$60,000 (>$50,000)	6 stocks	$10000	3	Entry 1: 50%=$5000 Entry 2: 32.5%=$3250 Entry 3: 17.5%=$1750

Please keep in mind that you may choose to change those percentages to different situations accordingly or depending on your risk tolerance.

The moment you start investing, keep in mind that you will never be able to invest at exactly the percentages you have set. Once you enter into your first entry, your 2nd and 3rd entry percentages will automatically increase or decrease. If you had set 50% as your first entry, you may have invested 52% or 48% and thus automatically your 2nd entry may become 34.5% or 30.5%. This is why this strategy can only be easily applied with an excel files that calculates everything automatically for you, like the file I created and use for this strategy. Making all those calculations manually is too demanding and time consuming. Keep in mind that you do not need to always be fully invested. This means that if you can invest to up to 3 stocks, you may at times have only 1 or 2 stocks. The 3 stocks criterion is only a maximum.

4 - Picking your stocks when it's safe

How to find which stock to invest in is perhaps the toughest decision to make. Whatever your strategy is, in the end it all comes down to your stock picks. The first thing I would suggest is to monitor the Daily and Weekly Top Gainers every day. By monitoring this every day, you may start noticing that some stocks will show up more often than others, and this usually indicates it's in a strong uptrend. I think it is a great way of finding great stocks for your portfolio. Although you may not want to take a position in a stock that just moved +25% in a day, you may want to look at others who are perhaps less volatile. This doesn't mean the +25% stock won't move even higher, but it may be safer to go with less volatility. Another thing that I would suggest doing is creating a watch list of basically all the companies you can think of and preferably for which you understand the business, so that you do not have to rely solely on technical analysis when picking a stock. The list will represent your potential stock candidates, and you should check out this list on a daily basis until you manage to find a stock that most often pops in as the top daily gainers.

Once, you start pinpointing a few stock candidates, the next step you need to do is to check out the charts for each of these stocks, and determine if there are any opportunities. You always want to select candidates with the greatest potential returns but also when it’s safe. You may find stocks with the potential to increase a lot and very quickly but they are likely very risky and therefore could potentially cause you to make losses very quickly. When taking a position with any stock, the purpose is to enter when it's the safest, when there is the least potential down risk, not when there's the most potential upside. That's the mistake that most people do when they start trading, they focus too much on their potential to make money in a position, but they forget to look at how much they could lose. You have to primarily focus on your downside, and then look at how much you could gain from that position. So, now the question is how do you determine if a stock is safe or at a safe point to enter?

Step 1 – When you look at a stock’s profile, you should focus on 2 things in particular: The Beta & the Average Volume

Beta: Pick Low Beta Stocks (1 to 2.5): To prevent your chances of finding yourself in losses very quickly in the event where you don’t time your entry at the right time, you should focus onto picking stock with low beta and therefore little volatility. Although picking a high beta stock (e.g. over 4) could provide you with quick gains, this also increases your chances of getting stopped out very quickly if you don’t time your entry well, and this could very likely happen within a day or two of your entry. Basically high beta stocks give you less chances of being wrong, as you have to be very good at timing your entry points. That is why that as a new trader, you should start with lower beta stocks and as you gain more experience you may choose to move onto higher beta stocks. Remember that higher betas mean higher risk. For example a stock with a beta of 3, basically represent an average accelerated move of 3 times the speed the market moves, and therefore your holding period of stocks would most likely decrease as the trends would start and conclude more quickly before starting new ones. This means that if you are very good at timing your entries you would manage to make a lot of gains more quickly. However this increases your chances of getting stopped quickly on multiple times; you have a shorter span of time to react, and this eventually brings you closer to becoming a day trader rather than a swing-trader.

The goal of this strategy is not to make the quick buck, but to take on high quality stocks to make slow and steady gains, rather than chase after +5/7% day moves. It might be annoying at times of seeing some other stocks perhaps from the same sector outperforming yours, but you’re more likely to see those stock fall harder on pullbacks. That is why holding high beta stocks would make it harder to apply this strategy in terms of achieving its goal. Also, when you compare the performance of stocks from the same sector, you should look at stocks with similar betas.

If you pick a high beta stocks which is in an uptrend, it might have strong fluctuations higher than your -stop loss order and therefore you would likely get stopped out on the way up despite the stock still trending up. You want to get into stocks that you will be able to hold onto into pullbacks, meaning that they would average pullback less than your stop loss Moving lower than your stop loss order in low beta stocks would most likely mean that the trend may be reversing and becoming bearish.

Volume: When picking any stock you should always make sure to look for stocks with enough liquidity, an average volume of at least 10 million. The lower the volume the bigger jumps in prices you’ll see from one trade to another. For example if you were to observe two stocks with a Beta of 2, with one stock with an average volume of 1 million vs. 25 million, you’ll see that despite moving around the same pace on a daily basis, the stock with the lower volume will have bigger jumps from one trade to another (for each tick). For example you may have two stocks worth $20.00 with a Beta of 2, with the low volume stock making swings of $0.15 within each tick, while the high volume stock would make swings of $0.02 within each tick. You always want to be with a stock with a relatively high volume so that you don’t have to worry of seeing too many changes in prices within each tick when you want to enter or exit your position; especially with a market order. Basically a lower volume increases the volatility within each tick and shortens your time of reaction.

Step 2 – Enter into a position after a BUY SIGNAL near a relatively good support level

When you enter into any position you should not only get a BUY SIGNAL but also look to get in as close as possible to a support level, ideally from which there was a recent bounce back up. However, do not enter into a position with a stock that is about to break down below the support level; you want to see it bounce back up from its support level before entering. Your entry point should not be further than -7% to -8% of the next support level; the lower the better. This means that if you manage to get a BUY SIGNAL from a stock that is -5% away from its last support level, you are taking less risk and less chances of getting whipsawed. This is simply because you want to give yourself less changes of seeing your stop loss order triggered. So if the stock starts moving against you and crosses down below its support level you could choose to sell your stock before having your stop loss triggered and perhaps take a -5% loss rather than wait to incur a bigger loss with your stop loss order triggered.

You may find some stocks with huge upside potential, but who are very far from any support levels (e.g. -15%). This means that you would need to take on more risk to not get whipsawed. This is very common of very volatile stock with high betas. If you get a SELL SIGNAL when you are down -3% to -4% for example, you could choose to sell immediately before potentially having your stop loss order triggered. However, you should note that technical analysis is not a perfect science and you should not rely at 100% on it, and that is why you should set a fixed stop loss order for every position. If the SELL SIGNAL is clear before having your stop loss triggered, just sell. However, doing this too often could perhaps result in more losses despite being lower than your stop loss, as you will likely be over trading as you would not be giving some of your stock’s trend enough time to get into motion. You never want to do more trades than you need to.

Your goal is to cut your losses, and cash in as much gains as you can when you have them. I'd rather take a long position with a stock that has -6% potential down side with a +15% upside, than -15% potential downside with a +30% upside. My main focus is how much I can lose from taking that position. If there is a -6% down side with +15% up side vs. -5% down side with +15% up side, I will take the 2nd option. Another example if there is a -8% down side with +20% up side vs. -8% down side with +25% up side; I will take the 2nd option again. The safest positions are obviously the ones with the lowest down side and the highest potential upside, as long as the down side is not over -8.00%. Taking long positions with stocks with more downside can easily wipe you out and this takes away your chances of being wrong. If you decide to take more risks, you have to be better at picking stocks at the right time.

Example:

Here is a great example of a low risk position, with SBUX chart of November 6^th, 2009: Not only did it give us a BUY SIGNAL by having a break out; it also crossed over its resistance level of $21.00 (you should look for a 50% volume increase over its average on break outs). But more importantly SBUX has a lot of support between $19.75 where its 50 day MA stands. By going long at $21.00, the potential of seeing SBUX fall below $19.75 is low and you could consider SBUX as having the potential hold above -5.95% down swing in price.

Looking at the chart under a longer time range, we can see that there is an upside potential for SBUX to go as high as $27.50 with a return of +30.95% before seeing a potential pullback.

Keep in mind that this may not happen, and SBUX could immediately fall back down its resistance level below $20.00 that will make you take a loss. But the whole purpose of this strategy and technical analysis is not of predicting moves but of getting in when there is the least risk. Technical analysis is NOT a tool that predicts the future; it's a reactive tool that allows you to make decisions when it's safe. You should never assume that what the technical analysis says will actually happen, and that is why that when you start making gains of over +8.00% you should start setting a VTSO that will take away the emotions of having to make decision to sell or hold on to a stock. You do not want to have to risk or sacrifice too much of what you have gained. DO NOT BE GREEDY.

If you bought your stock early enough and you are already into gains; one of the days towards the end will probably show the stock's greatest one day price advance since the beginning of the move up. You should consider selling into this unusually strong price action or at least start setting a VTSO to lock in gains. Chances are that you probably bought earlier when everyone was hesitant and unsure about the stock and you should consider selling when everyone's excited and bubbling about how terrific the stock is. Stocks may be sold when a stock's price goes through its upper channel line by 2-3% (based on 3 peaks over several months; or else the sell may be premature).

You should note that in the end only learning more about technical analysis thoroughly will allow you to improve your ability to picking stocks. This trading strategy will not teach you how to pick stocks at the right time but rather how to manage your orders for each stock. Despite that, learning how to manage your orders is what I consider the first and most important step to learn before even knowing when or how to pick stocks. Even if you are not very good at picking stock, being able to master this strategy will allow you to eliminate a lot of risk and this could still result in a positive outcome. As you become more disciplined into applying this strategy and removing your emotions and trading in a mechanical and calculated manner, you will have achieved the first step into becoming a successful trader. The second step would be to learn technical analysis more thoroughly to eventually become better at picking stocks and timing both your entries and exits.

5 - Placing your orders

Market, Limit, Stop Buy Orders

Now that you have determined which stock to buy, you have to place your orders. So continuing along the first example for which you would hold a current portfolio balance of $9000, you would invest no more than $3000 in the stock you have picked, but only 50% of that $3000 ($3000 x 0.5= $1500) for your first order. So, if the price of the stock ABC is $10.00, you will invest $1500/$10.00= 150 shares @ $10.00. You could choose to enter into your initial position either with a Market Order, Limit Order, or Stop Buy Order. In terms of you entry points, you have to try to better time them rather than buy at any price when you get a BUY SIGNAL; don't worry about not getting your order filled. Don't rush; take your time.

Stop Loss Orders

Set an -8.00% stop loss order on every initial entry: The moment your order gets filled you will automatically set a Stop Loss Order of -8.00%. You never want to find yourself in a situation where you would be over trading with stop loss orders that are too tight, as this increases your chances of being whipsawed. You want to give your stock enough room to fluctuate and yourself more chances of being wrong. That is why that with every entry you should set an automatic -8.00% stop loss order. The -8.00% is an arbitrary number but is considered reasonable enough to give your stock enough space to fluctuate while not taking a significant loss that could wipe you out in just a trade or two. If you manage to foresee a further fall in the value of your stock before having your stop loss triggered at -8.00% you should sell your stock beforehand.

You must remember that technical analysis is not a perfect science and does not predict the future, but rather is a tool to help you make decisions based on your timing of entries and exit. You should never rely at 100% on technical analysis as if it would predict every move perfectly, and that is why it is preferable to set a -8.00% stop loss order rather than -4.00% or -5.00%, which gives you less room to be wrong. As you become better at timing your entries you may eventually decide to lower your stop loss order to -7.00%, but when you’re a new trader it would be preferable to stick with -8.00%.

After 20 business days (1 month or 28 days) of having your stock fluctuate between your stop loss and your entry point, you should decide to just sell the stock and move on to another.

Stop Buy Orders

Set a +3.00% stop buy order after your initial entry: The moment you enter into any position, you should set two different orders: a -8.00% stop loss, and +3.00% stop buy. Only when the stock starts moving favourably in your direction should you average up and add to your position up to the maximum amount determined (in this case the maximum would be $3000). So if you should have invested $1500 in your first entry and a place a stop buy order with a mark up of +3.00% to add another $1500 to your position to totalise your maximum $3000. Your stop buy order should be set with a mark up of +3.00%, but as you become better at timing your entries you may choose to lower this to as low as +2.00%. Basically you would be averaging up rather than down. It only makes sense to add to your position when you are making money and looking to make more; this means you probably were right and took the right decision and the stock may continue higher. You should never add to your position once your stock is up +5.00% or more as the trend is probably well into motion at this point, and it would probably be not a good time to add to your position risking more chances of seeing a pullback. Such an order should preferably be set with a 2^nd clear BUY SIGNAL in sight in the event where the stock starts to move higher. If you don’t feel confident enough you may choose not to add to your position yet and wait for another time to enter, such as after a bounce back up support after a small pullback. However, if you don’t feel confident enough to add to your position, you probably should not have taken the initial position to begin with and you perhaps trading with a higher risk stock than you should, possibly with a risk higher than you are willing to tolerate. You should never add to your position when you’re into losses (this means that you probably took a wrong decision and that the stock may continue lower).

Setting your new Stop Loss Order

The moment your 2nd or 3rd stop buy order gets filled you should cancel your last stop loss order and set a new one at either -8.00% and up to -3.00% of your total portfolio value. This means that if a -8.00% stop loss order for your average entry price is higher than a -3.00% loss from the total value of your portfolio, you should set a stop loss order based on a -3.00% loss of your total portfolio value.

Locking in Gains with Virtual Trailing Stop Orders

When you start getting into gains of over +8.00% you should start setting VTSO that will allow you to lock in some gains, and eventually this will be above your average cost. However you will only be guaranteed to exit with a gain the moment you achieve a return of greater than +8.00%. The reason is that the purpose of this strategy is not to capture small gains but rather trying to make big gains. If you were to start locking in your gains the moment you are up +2.00% or +3.00% for example, you would not be giving enough space for the stock price to fluctuate and therefore your VTSO would be more likely to get triggered which will limit your chances of making any greater gains. This criterion is important in terms of daily fluctuations. Of course if in terms of technical analysis, if you believe the stock price gave a SELL SIGNAL and is about to fall, there is no reason to hold on and you should sell your shares. Now it may seem like it would be now harder to achieve decent returns with a stock, and this is true to some degree. This strategy forces or encourages you to try to enter into positions when it’s the safest. Therefore the closer you buy to a confirmed support level, the less chance you have of seeing your stop loss order triggered.

You should set a fixed dollar VTSO which is a fixed amount in terms of price swing you would allow your stock to move before selling your position. If you set a -$0.80 VTSO when your stock is worth $10.00, a stop loss order would get triggered at $9.20, assuming $10.00 is the last highest price. However, as the stock moves up without incurring bigger swings than -$0.80, the stop loss order will automatically adjust itself, so if the stock’s last high was $12.00, the new stop loss will now be $11.20. Initially, this amount should be calculated on a percentage basis, but as your stock’s price continues to trade higher the VTSO will adjust itself up accordingly while keeping the same fixed dollar amount set. This means that if you set a -8.00% VTSO of -$0.80 when a stock is at $10.00, when the stock continues higher at $12.00, the VTSO will remain at -$0.80 while the percentage will become lower and be -6.67%.

One other important factor is the dollar amount you are willing to sacrifice; -8.00% of $1000 (-$80) is not the same as -8.00% from $5000 (-$400). Basically, when you trade or set your stop losses you should focus as much on the percentage level as the dollar amount you would be willing to sacrifice in the event of a pullback. This also applies to when you find yourself in gains. When you’re up let's say $500, how much are you willing to sacrifice of it to have the potential of seeing it move higher? It would make no sense to say that no matter how much gain you have that you would be willing to sacrifice the same percentage. So, when your gains become heavier, you should focus more on the dollar amount you are willing to possibly sacrifice. It can be a fixed amount, and you may increase it a bit as you move up. Once you start getting into gains you may choose to be willing to lose as much as $100 in swing trades, no matter how much money you have invested.

Set VTSO or manually update Stop Loss orders when you start making strong gains:

- The best way to protect gains when you have them is to set a VTSO between -5.00% to -8.00%: As long as you are up less than +8.00% you should stick to your -8.00% stop loss order which is based on your entry point. Some people may argue that it would be too stupid to potentially give up your entire gain when you’re up less than +8.00%; however the goal of this strategy is not to be able to lock in small gains but rather try to capture big gains. The moment you’re up, you want to be able to hold on as long as you can.

- As you get close to a +8.00% gain you could choose to adjust your -8.00% stop loss order at technical point that would trigger a SELL SIGNAL

- When you are up +8.00% to +9.99%, or +3.00% of portfolio value, you should set a VTSO of -8.00% which would guarantee you to exit your position with no loss or with a small gain.

- When you are up +10.00%-20.00% you should set a VTSO of -5.00% to -8.00%

- When you’re up +20.00% in less than 8 weeks, set your VTSO at -8.00% which will lock in a minimum gain of +12.00%

- If you’re up +20.00% in more than 8 weeks, you could decide to sell at this point or watch for a technical signal

Order	Current Gain	Minimum Locked in Gain
-8.00% Stop Loss*	-8.00% to +7.99%	-8.00%
-8.00% VTSO	+8.00% to +9.99% or +3.00% P	0.00% to +1.99%
-5.00% VTSO	+10.00% to +15.00%	+5.00% to +10.00%
-6.00% VTSO	+15.01% to +17.00%	+10.00% to +11.00%
-7.00% VTSO	+17.01% to +19.99%	+11.00% to +12.00%
-8.00% VTSO	>+20.00% in less than 8 weeks	>+12.00%
Sell on technical signal or set maximum VTSO of -8.00%	>+20.00% in more than 8 weeks	>+12.00%

*Please note that the -8.00% VTSO should never have you incur more than -3.00% of the total value of your portfolio. Incurring a loss of -3.00% of the total value of your portfolio should always be the maximum amount of losses tolerable. In the event where a -8.00% VTSO exceeds a -3.00% loss of the total portfolio value, you should simply adjust your VTSO to remain below this maximum limit.

Once you’re up strong (e.g. +20.00%) you may choose to not to set the -8.00% VTSO as you would now be in a more flexible situation, and you might perhaps choose to follow technical signals rather than incurred losses. For example if your stock is riding neatly along its 50 day MA, while having average pullbacks of -6% you could set a VTSO that would possibly get triggered when or if the stock crosses its 50 day MA. However, keep in mind that new trends may start and you may want to adjust a VTSO accordingly. What I do most of the time, is sell the portion of shares representing my gains. For example if I managed to invest my full $3000 for one stock and I'm up +20.00%, so my shares are now worth a total of $3600, I would sell $600 worth of stock. This allows me to not risk some of the gains I have, while it continues to allow me to profit from any more upside the stock may have. The price point at where you sell your portion of gains is the equivalent as if you brought back your investment to $3000 ($3600-$3000). At this point the cash invested in your stock is starting to proportionally represent by gains. If you're lucky enough and the stock moves much higher, you may eventually find yourself with a position in a stock with only cash from gains, since you will have already cashed the gains you have accumulated. In reality when you cash in gains, you're actually cashing in the money you've invested and reducing your risk.

At times may get stopped out and then see the stock move higher again. This could possibly be because your stop loss order or VTSO was too tight. If that happens, you could just choose to re-enter when it bounces back up a new support level.

6 - Reviewing your mistakes

Review your trades every time your stop loss order gets triggered: When you take on a loss, always review what went wrong. Do not wait until the end of the year to review all your failed trades. If you are trading with stocks with high betas, this will cause your holding period to decrease and therefore increase your number of trades. This would be a warning sign and tell you that you need to shift towards safer stock with lower betas. This probably means that your timing of entries is not good enough to trade with these higher beta stocks. Make sure you don't rush to make your trade and prevent any more losses; this will save you the time of reviewing your trade every time you get stopped out.

Stop trading for 2 weeks after 4 consecutive trades being stopped out: In the event where you have 4 consecutive failed trades with your stop loss order being stopped out, you should stop trading for about 2 weeks and review carefully what it that you are doing wrong is. In that event this probably means that your timing in entry is not acute and you should perhaps learn more about technical analysis to improve your timing.

Typical Trade Example:

$20000 portfolio with 2 stocks – Stock ABC: $10000; Stock DEF: $10000

Stock ABC - Position 1: 50% Position 2: 50% (Position 1 & 2: $10000x0.5= $5000/ea.)

1) BUY 500 shares of stock ABC @ $10.00 = $5000

2) Set -8.00% Stop Loss order @ $9.20 ($9.20x500= $4600 - $5000= -$400 maximum tolerable loss)

3) Set +3.00% Stop Buy order @ $10.30 for 485 shares ($5000/$10.30) for $4999.50

4) If Stop Buy order gets filled set new stop loss order for all shares up to -3.00% of total portfolio value of $20000, so -$600.$5000+$4999.50=$9999.50/(500+485)=$9999.50/985= $10.15 Average Purchase Price

5) $20000 – 3.00%= $19400 - $20000= -$600 max tolerable loss

6) $10.15 – 8.00%= $9.338 è $9.338x985= $9197.93- $9999.50= -$801.57> -$600= Set according to -$600

7) $9999.50 - $600= $9399.50/985= $9.54 Stop Loss order (-6.00%)

The moment you start getting into gains of higher than +8.00% you should start setting VTSO based on technical signals to lock in gains, until it gets triggered to sell your entire position.

Average Purchase Price: $10.15

Order	Current Gain	Current Price
-8.00% VTSO	+8.00% to +9.99% or +3.00% P	$10.96 - $11.16
-5.00% VTSO	+10.00% to +15.00%	$11.17 - $11.66
-6.00% VTSO	+15.01% to +17.00%	$11.67 - $11.87
-7.00% VTSO	+17.01% to +19.99%	$11.88 - $12.17
-8.00% VTSO*	>+20.00%	>$12.18

* When you’re up +20.00% in less than 8 weeks, set your VTSO at -8.00%. If you’re up +20.00% in more than 8 weeks, you could decide to sell at this point or watch for a technical SELL SIGNAL.

Conclusion

To conclude what you may have learned from reading about my Y-Swing 4.0 strategy is that the main focus is about how to limit losses and keep most of your gains when you have them, while leaving enough room for your stocks to fluctuate. Before even learning how to do technical analysis you have to learn how to manage your orders. If you already have this figured you will have already made a huge step forward. Once you have this figured out you can start learning more about technical analysis. This is what technical analysis is all about how to pick stocks, but more specifically when to enter and exit.

What is extremely hard when you start trading, it's the inability to take losses, and set your stops in advance. When I first started trying to apply this strategy, I found myself either cancelling my stop orders before they would get triggered or wait till it hit my stop loss target and tell myself I would just place a market sell order then. At other times I just waited to have high enough gains that I would set my stop loss order then when it will no longer have much impact. The truth when your stop loss order is not set, you are not protected. This is the equivalent of having insurance, and it's free. If you didn't want to bother with stop loss orders you would need to buy options that would guarantee you a certain price but only for a limited time. Also, options are usually very expensive and stop loss orders as opposed to options can be set for an unlimited amount of time (GTC - Good Till Cancelled).This strategy allows you to be disciplined. You may need to follow the price moves of your stocks almost every day, while paying close attention the technical charts when the price gets close to one of your buy or sell points If there is a crash, despite having stop losses, the stop losses are not active during pre-market and after-hours, you would need to place a separate live order, and even if the stops were active during these periods you still won't be completely protected. If a crash occurs the first opening trades during the pre-market for example may be much lower than the previous day's closing price and may be much lower than your stop. For example assume you bought stock ABC @ $10 with a stop @ $8, and the price closes for the day @ $8.25. If a crash occurs the next day, when the pre-market opens the bid and asks could be $6.00 and $6.50. However, if you trade in the stock market this is a risk you have to assume; only the careless would invest all their money that they have earned over the past years, it is important to cash in gains each year. However, during your first years of trading you may need to build a strong enough cash balance to be able to make stronger returns with bigger investments in the future. Basically, only when you start having a stable income should you start cashing in gains. The reason is that if the first time you start trading with $1000 and start incurring losses, this won’t be a big deal, until you get older and have a higher and stable income where you invest $50000 and when you incur losses your income no longer increases. Basically incurring losses with small investments will not hurt you that much at the beginning and will allow you to gain experience without risking too much money. In the long term this $1000 investment may represent very little to you if when your income stabilizes and you make about $50000 or $75000 a year. When your income stabilizes and you invest $50,000 and over the years you accumulated $20000 of gains. You would be stupid to invest your $70000 and risk all every day, you should continue to invest $50000 and cash in about 50% of your gains ($10000), and perhaps each year increase a little bit your investments if you can afford it. If you are good enough trader you may eventually be trading only with gains you have accumulated over the years. During accumulation periods when the market moves sideways it may be harder to successfully use this strategy either way, you would need to be more precise in your buys and sells; and you may need to lower the profit point where you decide to take some profits or sell your position completely (for example selling portion or all shares of gain @ 10%-15% rather than 20%).

It took me about 2-3 years to be able to accept the fact that I had to take some losses. The most successful traders have more losing trades than winners. The reason is because, those traders cut and limit their losses while when they start making gains they try to ride those trends as long as possible and will make huge gains. If out of 3 trades, 2 represent losses of -8.00% each, while your winner made you 40.00%, you are profitable, and that's the goal of this strategy. Most people will hold on to losses and hope they bounce back, while they quickly sell their winners because they're scared of losing it when they have it. Think of it like this, if you are making gains it means that you are doing something right, and probably made the right call, and you should hold on to it as long as you can or as trend persists, without giving up too much of what you have though. The beauty of this strategy is that even if you're not good at picking stocks, by limiting your losses, the chances are that you may be profitable in the end. You may get frustrated, if you get stopped out several times consecutively. If this occurs, you should settle back and stop trading for a little while, and try to figure what it that you’re doing wrong is. You can only learn from your mistakes, and if you just started trading you will definitely lose a lot of the money you have invested. That's why I would suggest that you don't start by investing too much money. Make your mistakes with small investments, you will not learn by investing more. As you gain more experience and make more money you will then increase your investments, because you will have already learned some of the toughest lessons. Keep in mind that when the market is continually up, anyone can do money in the market and you will only learn when the market is down and your losing money. That's why people who started trading and experienced this last recession are much better equipped than people who start trading now when the market is in a huge bull run. In the end you will only get better with time when you gain more experience and this is a process that cannot be accelerated, you have to be patient. It usually takes about 3 years to build a discipline and start making money in the market.