Shark trading method dot com.
In this video, we will explain the short trading method.
This may be the video that you've been waiting for.
I do apologize for the whole Karate Kid.
Wax on, wax off, build up.
But it was necessary to lay the foundation for the short trading method.
Hopefully you will find the following very simple, intriguing, educational, and ultimately very profitable.
Like I said in the last video, we want to change your thinking about stock ownership.
In fact, we want to completely change the way you think about investing entirely.
Let's look a little more deeply into this idea instead of the old way of I own X amount of shares of
this company or that index.
You now begin to think in terms of the total dollar amount you have invested.
Instead of looking at the number of shares you own.
You think about the amount of money you have invested instead.
You don't think to yourself.
I own 20 shares of X, Y, Z stock and it's worth $10 a share.
Instead, you think to yourself, I have $200 total invested in X, Y, Z stock.
That's 20 shares multiplied by $10 share.
That equals $200.
As we said before, isn't the amount of money that you have online more important than the total number
of shares you own?
Who cares how many shares you own?
You are investing this money to ultimately make a profit, not to own more shares.
Start to think of owning stocks as more of a loan with a principal amount at risk.
So if you enter our position of 100 shares of X, Y, Z at $20 a share, you are risking $2,000 of principal
money.
That's $20 a share multiplied by 100 shares equals $2,000 total.
That's what you're risking your principal.
Now, if X, Y, Z stock goes up $1.
You now have 20 $100 invested in that stock.
So you have a paper gain of $100, right?
Instead of thinking, I own 100 shares worth $21 a share, you think to yourself, my original $2,000
principal has now a gain of $100.
Got that?
So here's where the short trading method comes into effect.
Pay attention.
Okay.
Your $20 a share stock went up $1 today, your 100 shares.
So you are up $100.
Great.
Now, what should you do?
Well, you could do nothing and just wait and see what happens the next day or the next week or next
month or next year.
That's what most people do.
You could sell your entire position and get that $100 profit out, which is what active traders do.
They buy in and sell out.
But then you no longer have a position at all in that stock if it continues to go up.
Or you could start thinking like a shark and only take your profit out of that position.
Of course.
How do you do that?
Well, that's simple.
You sell only $100 worth of your X, Y, Z.
Or as close as you can get if your broker does not offer fractional shares or partial shares.
So you could sell four shares for $84 or five shares for $105 immediately.
You then get your profit out of the stock, but you still have your original amount or close to it invested
in the stock in case it continues to rise.
You take your profit when the market is kind enough to give you some before the market takes it all
back.
Remember, the stock market is fickle.
It does not care about you, your stock, or your money or your future.
So in this running example, let's say you sell five shares of X, Y, Z for $21 a share right now for
$105.
What is the result?
You have $105 profit in real cash.
No longer is this just a paper game.
You got your money out and you still own 95 shares of X, Y, Z, which is currently trading for $21
a share.
So your investment or your principal, your money at risk is now $1,995.
You still have roughly the same amount invested, or if you prefer to say at risk, if the stock declines
tomorrow, you will be going down on 95 shares instead of 100 because you already took your gains and
thusly limited your risk.
This is profit taking.
Now let us imagine the next day, X, Y, Z goes up another $2 on some kind of good news.
Your 95 shares, which you own now, are worth $23 a share.
Or more importantly, $2,185 total.
What on earth should you do if you're a bull?
You hold on or maybe even buy more.
If you you're a bear now, you'll sell it all.
But if you're a shark, you will sell as close to your gain as you possibly can.
Your original investment or principal amount at risk is $2,000.
The investment is now worth 2000.
$185.
So you sell eight more shares at the current market price of $23 a share for a total of $184.
That transaction will bring your investment back down to the original amount of $2,000.
So now after two days, you have gained $289 in real profit on your original purchase of x, y, z for
$2,000, you are now left with 87 shares worth $23 a share for a total of $2,001.
That's awfully close to your original investment, but you do have $289 more in cash from selling your
gains.
Okay, but what happens if the stock goes down, you ask?
Well, let's see.
The next day X, Y, Z gets bad news and a sell off commences.
When you look at your brokerage account, you see that X, Y, Z has fallen a full $5 a share and is
now only trading at $18 a share.
That's a total disaster.
Your 87 shares are now only worth $1,566.
That's the total.
If it's worth $18 a share.
Oh, no.
What in heaven should you do?
Panic and sell everything?
That's what a lot of people are doing.
That's why the stock is so sharply down.
Remember, this is an auction and maybe that's the right thing to do if the stock is extremely risky.
But let's say this is a quality company or even better, an index.
What would the shark do?
Well, you think to yourself without emotion, you originally invested or gambled $2,000, so you will
want to buy 24 more shares to get that total amount as close to the original $2,000 invested as possible.
So you proceed to buy 24 shares for $18 a share.
That's $432 total, and you end up owning 111 shares worth a total of $1,998, $2 less than your original
2000.
Well, that sounds horrible, you might say.
Well, that's not the outcome that we hoped for, but let's consider the facts.
Don't forget that you already took out $289 profit in cash.
You had to put in an additional $432 now to get your principal back as close to the 2000 as you could
after the sell off.
So the $432 buy in, subtract $289 worth of profit leaves $143.
You are essentially down only $143 right now.
Instead of the over $400 you would have been because you took the gains earlier when the stock was up.
So did you just lose that $143?
No, not at all.
You actually just bought more shares of the stock that you originally liked for $20 a share.
You bought these new shares at a discount.
This is a version of doubling down or adding to a loser, and that is also managing the loss.
So let's step back for a moment and consider where you would be if you did nothing at all and just held
the original purchase of 100 shares for an average of $20 a share, you would be down $200 instead of
only $143.
And you would still only own 100 shares of X, Y, Z, not 111 shares.
And your 100 shares would only be worth 1800 dollars with an average cost basis of still $20 a share.
But since you were a shark, you made those moves, you sold some shares high and you bought some shares
lower.
Your average cost basis per share has gone down to roughly $19.31 a share instead of the original $20
a share.
This is dollar cost averaging.
So let's recap what has happened so far.
You lost $57 less than you would have by not taking any action at all.
And you own 11 more shares than you would have.
Oh, by the way, you reduced your average cost per share by $0.69.
That sounds way better than doing nothing and just hoping for the best, doesn't it?
Okay, now let's say the next day, X, Y, Z continues to sell off and it is down another $2 a share.
So it's currently trading for $16 a share.
Many weekends have panicked out of the stock at this point for a loss.
You, however, are a shark and you never panic.
So instead you do some quick calculations.
When you look, you own 111 shares currently.
Worth $16 a share for a total of $1,776.
You calculate that that is $224 off from your original investment of 2000.
So you coolly buy another 14 shares worth $224 to bring your total amount in the stock back to exactly
$2,000.
So now you currently own 125 shares of X, Y, Z, at an average cost of only $18.94 a share.
So let's continue with this hypothetical example.
The next day you see X, Y, Z has made a rebound, much to the dismay of those poor suckers who sold
the last couple of days while the stock was dropping.
It goes up $3 a share and now it trades for $19 a share.
Your position of 125 shares is now worth $2,375.
What should a shark like you do?
Well, obviously, you proceed to sell 19 shares, banking $361 into your cash account.
After you take your $361, you realize your running total is down $6.
But the current value of the position is $2,014.
If you add those together, you are actually up $8 at this point.
Now, if you had done nothing at all with your position, you would be down $100 on X-Y-Z at $19 a share
and would still only own 100 shares instead of the 106 shares that you now own by utilizing this short
trading method.
So the next day, X, Y, Z continues to rise to $21 a share higher by $2.
Your 106 shares are worth $2,226.
So you sell ten shares at $21 apiece worth a total of $210.
This will leave you with 96 shares worth a total of $2,016.
This means you now have a total profit of $220 when you consider your buys and the current price.
How much would your profit be if you were not a shark and you did nothing?
The answer is none because you can't make any money unless you sell.
So let's say at this point you would just feel lucky that you can get out of this trade with a profit
when the stock went back to $21 and you sell all of your hundred shares at that point for a $100 profit.
That would be a 5% gain, and that's not too bad.
So you may even go to work the next day or school and brag to your friends about how great of a trader
you are.
However, because you are a shark, you made $220 profit instead of only the $100 that you would have
made by doing nothing and just waiting for it to come back so you could sell.
And not to mention you still own 96 shares of x, y, z instead of none at all like you would have if
you had sold everything to get your $100 out.
That, my friends, is the shark trading method.
Hopefully that made sense.
Here's that same example in chart form.
Let's take a look.
Here's the original investment of $22 a share.
You bought 100 shares, which is $2,000 invested.
That's the principle or the amount at risk.
The amount you're gambling with.
Then the price goes up to $21.
Your 100 shares is worth 20 $100.
So your action is to sell five of those for a gain of $105.
Leaving you with 95 shares.
And the new total amount of $1,995 invested.
That gives you a running profit of $105.
The stock continue to run.
It went to $23.
Your 95 shares is now worth $2,185.
So your action is to sell eight shares worth $184, which then leaves you with 87 shares.
So the new amount invested is now $2,001 and you're running profit is $289.
The next day you had that crash.
The stock went to $18.
You're 87.
Shares that you owned is now worth $1,566.
Well, under the $2,000 original principle.
So your action is to buy 24 shares of that stock.
Which costs you $432 to get you back to close to that $2,000 mark.
That would mean that now you own 111 shares of the stock worth $1,998, very close to the 2000.
But now you have a running loss of $143.
After that purchase, the next day, the stock continued to slide, went down to $16.
So your 111 shares that you own is now worth $1,776, 1776 below the 2000 principal amount.
So you buy 14 shares for your action.
Cost you $224.
Get back close to that $2,000 mark.
That would mean that now you own 125 shares.
Worth $2,000.
Exactly.
But now you have a running loss of $367 at that point.
The next day, the stock rebounded, went up $3, went to $19 a share.
You have 125 shares.
That brings the amount invested to $2,375.
That's $375 over your $2,000 principal.
So your action is to sell 19 shares.
Worth $361.
That'll bring the position down to 106 shares worth $2,014.
So now you're running losses, $6, but you have $2,014 in shares.
So that means you actually have a profit of $8 at this point.
But now remember, that's with the share price at $19.
So if you never did anything, you'd be down $100 instead and you'd still own just 800 shares.
Now you own 106 shares and you have an $8 overall gain.
So the next day the stock continued to run and it went to $21 a share, was up two bucks.
You have 106 shares.
So now the total is $2,226.
Your reaction is to sell ten shares at $21 a share, which means you have a gain of $210.
Your 106 shares now becomes 96 shares, and your total amount invested is $2,016.
After you sold those ten shares and you're running profit now is $204.
If you did nothing at all, you would have 100 shares at $21 a share.
That would meant you would have $100 profit.
But because of managing the position in this way, you have now doubled your profit to $204 plus.
Don't forget that extra $16 in the position is now worth $2,016.
So your profit is really $220.
Instead of that only $100 that you would have had, can you see the power in this and the simplicity?
So the basic idea is simple the short trading method is a way to help you systematically buy low and
sell high.
There is no mystery or secret complicated formula.
Anyone can do this.
You can and probably should do this every day.
It would still work if you did it say only once weekly.
But the more often you do it, the better your results will be.
Just be sure to be consistent.
Now that example has been simplified to not include pennies.
Adding pennies, though, does not make utilizing this awesome method any more difficult.
But you will have to track your buys, your sells, the shares you own, and most importantly, or entry
price, cost basis and or principal invested.
I do like the label of principle because it captures the essence of the system.
Like alone, you would want to make a profit from the money that you have invested.
But do not be deceived.
However, an investment in a stock is not a loan to anyone.
The term just helps to better comprehend the ramifications of the process.
Also notice here that the short trading method does demand that you have cash enough to cover your position
in the event it goes down so you can buy more shares.
To be safe, we recommend having a ratio of the entire amount invested in cash, as you have in the
stock for individual stocks.
So if you risk a total of $1,000 on a stock, you should also keep $1,000 in cash to cover the down
moves in that stock.
Now, we would also recommend that you have at least 50% in cash for a good index, since an index is
less at risk than a stock to go down substantially or as fast as an individual stock can.
So if you have a $2,000 index position, you should have at least $1,000 in cash to cover down.
Again, we would recommend that you rebalance your position daily.
The more you do this, the better it does work for you.
Now, do not worry.
If you didn't fully understand this example just yet, feel free to watch this video again.
You will also catch on more in the next video when we look at how to track your trades using the short
trading method.
That is it in a nutshell, folks.
Now, when you feel ready, move on to the next video and we'll talk about how to track the positions.
Short trading method dot com and stay shark ish, my friends.
I.