didn't need to know, because my strategy guaranteed that if it made an exceptional move, I would have a disproportionate amount of money invested. This dollar amount is the same as our initial position in dollars, but a reduced number of shares due to the higher price paid for each successive purchase. How to trade on rebounds? So in other words, we add equal dollar amounts to our stock positions as they move up in price, instead of when they move down in price. All of the bullish candlesticks have an upside shadow which means that the price was not going up all the time, there were bounces happening. If you see a strongly marked trend on any chart, then it would be very easy to find an entry point using a shorter timeframe for the same chart. Our other trading rule is: Whenever our stock increases to reach a decision point and then retreats all the way back to a previous decision point, we will sell out our entire position in the stock. However, keep in mind that anytime you use margin borrowing to buy stocks, you are taking a larger risk of loss than if you didn't.
We can catch such awesome deals in this simple way on price bounces from the main trend. Now, I know emotionally it might seem disheartening to you to have to sit idly by while a stock sinks from a peak of 100 down.
Chapters 9 and 10 will cover implementation details and trading rules. The only thing we know about the portfolio is that it is composed of ten stocks. The reason for this is that there are always some folks who know about these pending announcements before they happen, even if they are not supposed to know.
Let us give you an important advice. One of the snowballs, however, happens to have just the right type of snow and a nice steep incline, and its quick start, momentum, and after a while, sheer size make it unstoppable. Large price movements are gradual incremental events, not all-at-once step functions. Like a snowball rolling downhill, the tendency for a declining stock to keep on declining, in combination with the scale trader's foolish trading rules required the poor trader to buy more and more while his position became worth less and less. It also varies considerably from company to company. The main thing is to avoid sorting out unsuccessful deals using the Martingale method as it is not going to help you on the trend reversal. Before we get into the details of the Reverse Scale Strategy, though, let's take a side trip to examine how all portfolios inevitably act over time. You have to choose which strategy you would prefer: One which snowballs losses or profits. Just to illustrate the previously made point about the Reverse Scale Strategy making it hard to get shaken out of a stock prematurely, please note what our sell decision point would have been had the price topped out at only 100 instead of at 101.
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