Never Be at the Mercy of Big Traders Again
When I started Total Wealth I promised you that we’d not only cover the top money making opportunities of our time, but also the trades, tips, and tactics needed to maximize your wealth.
Today I want to keep that promise with a look at the Lowball Order.
We’ve talked about lowball orders before. But now, with the markets dancing around new highs and the Fed making noises about a rate hike in December, I think it’s a great time to revisit the subject.
This is a discussion you don’t want to miss because lowball orders are one of the simplest, yet most powerful Total Wealth Tactics available to individual investors today. Plus, they’re a great equalizer.
What I mean by that is you can use lowball orders to take away the advantage normally enjoyed by Wall Street’s biggest, most ruthless traders. And, in the process, buy the stocks you want at exactly the price you want to pay.
I believe you’re gonna be thrilled by how easy this tactic is to use, especially when you understand that you don’t have to sit in front of your computer screen all day to bank the kind of profit potential most people only dream about.
Here’s how to become a Market Master.
I’m often asked during presentations around the world for my favorite money making tip and without fail I come back to the Lowball Order every time for three reasons:
- You can place Lowball Orders in advance
- You don’t have to be at your computer to lock in profit potential
- You control risk by buying only when the stocks you want are trading at exactly the price you want to pay.
Using a lowball order is pretty simple.
First, you line of with one or more of the Unstoppable Trends we’re following: Technology, Medicine, War, Terrorism & Ugliness, Demographics, Scarcity/Allocation, Energy.
Second, you select a stock that’s beaten down or otherwise out of short-term alignment with long-term valuations, fundamentals, and earnings potential. Ideally, it’s not just any old stock. I talk frequently about maintaining a “buy list” of companies you want to own if you get the opportunity to pick them up at a dramatic discount. To me, this is Apple at $70, Tesla at $200, or even Facebook at $60. Your list may differ; my point is that you have a list… at all times.
Third, you pick an entry price that matches your expectations, your risk, and your belief about what your intended purchase is really worth.
In most cases, lowball orders align nicely with logical “support” or previous lows that can be chosen based on the time frame you’re trading. While there is no hard-and-fast rule here, many traders find being within 10% and 15% of the most recent annual low is fertile hunting in choppy markets.
And, finally, you place your order to “buy XYZ at $ or less GTC” – meaning “Good till canceled.”
Then you wait for prices to come to you. Why really doesn’t matter. It can be an overreaction to “bad” news, a sector pullback, a down day in the market, China, Putin’s latest move, or anything else that causes emotional angst.
What you’re hoping to catch is exactly the type of unusually large market move that crushed so many investors on August 24 when the Dow plunged 1,000 points. Your goal is to buy at levels others believe are “impossibly low” at a time when your competition is not thinking clearly.
Now, what I am talking about is NOT market timing.
Lowball orders are very carefully planned “profit-traps” that are laid out in advance. You set them in place to take advantage of conditions that favor you as opposed to the institutional traders who normally dominate the markets and whose express goal is to separate you from your money.
The Mechanics Are Simple
Lowball orders are technically “limit” orders. That’s Wall Street-speak for an order to buy or sell shares at a specific price or better. Unlike “market” orders which go into effect the moment you place them, limit orders trigger only when prices reach the limits you’ve specified.
So, for example, Apple is trading at roughly $120 a share right now but you think $110 is what you’d like to pay. Obviously nobody knows whether the stock will drop to those levels. But that shouldn’t stop you from preparing for the possibility.
The point of a lowball order is to pay the price you want. Whether that happens today, tomorrow, or six months from now is moot. To paraphrase my grandfather who played baseball in the 1920s, you miss 100% of the swings you never take.
Lowball orders help you prepare in advance for conditions that favor your money. Placing them doesn’t cost you a thing and you’re not risking one red cent until the order executes and you’re off to the races.
Let’s look at a few examples.
Disney took off on a furious run last January, leaving anybody not on board in the dust. On August 25 the stock tumbled to $90 a share. Yesterday it closed at $113 for a quick 25.55% gain.
The same day, Apple fell to $92 a share. It closed yesterday at $120.92 for a 31.43% gain.
There were dozens of high quality stocks that got shellacked on August 25 and every single one of them was ripe for profits on the rebound… but only if you were prepared to act.
Limit orders do have some limitations worth noting, though.
For example, there is no guarantee that a limit order will execute if there is too much price movement or prices blow past the limit or never reach it to begin with. In other words, a limit order guarantees the price you specify “or better” but not necessarily that your order gets executed.
That used to be a big deal back when floor traders did most of the trading and the markets lacked the liquidity they have today and spreads were quoted in fractions. But now volume is much higher and spreads are in decimals. There’s also computerization, which has heavily influenced order flow.
Depending on how sophisticated you want to be, you can tack on special instructions. Most commonly that’s things like the “GTC,” which stands for “good till cancelled” that I’ve already mentioned. Others include “GTD” which means “good to a specific date” you pick or “AON” which means “all or none” as in the trader have to fill all the shares requested in a single trade.
Here’s a Lowball Order You Can Use Right Now
Raytheon Co. (NYSE:RTN) has proven to be a fantastic recommendation for Money Map Report subscribers for good reason. Subscribers who are following along as directed in the Money Map Report have had the opportunity to capture gains of at least 100% and are now sitting on total returns of 177%.
Folks ask me all the time if they can “get on board” with the trade because Raytheon still has so much potential. In a word, “yes,” – but not by chasing performance.
Buy low, sell high is the path to profits.
What you want to do is pick up shares of Raytheon at a discount, then sit back and let everybody else who actually does chase performance do the dirty work for you.
In looking at the Raytheon chart, it’s apparent the stock goes in spurts. That means it’s tailor-made for Lowball Orders because prices periodically drop to key support levels that give fresh money a terrific opportunity to push prices higher (again).
A price of $95 – $100 per share looks pretty appealing because that’s where traders have duked it out earlier this year and for much of 2014, too.
So, for example, assuming you want to buy 100 shares at $95, the Lowball Order you’ll want to put in play with your broker or your favorite online trading platform would read as follows:
Buy to open 100 shares of RTN limit $95 GTC.
…that’s “buy” because you’re buying shares.
…”to open” because you’re initiating the trade.
…”100 shares” because that’s what you want to own.
…”RTN” because that’s Raytheon’s ticker symbol.
…”Limit $95″ because that’s what you want to pay and not a penny more.
…”GTC” meaning good till you cancel the order or it’s executed.
At the end of the day, it doesn’t really matter whether you are placing lowball orders as an investor or as a day trader. Your goal is the same – to profitably harness quick swings that drive most investors straight to the poorhouse.
Lowball Orders work because every great company gets put on sale periodically for reasons that have nothing to do with the business case for owning them: Visa, Google, Apple, and Gilead just to name a few. There are no exceptions.
That’s why it makes great sense to line up your share of profits ahead of time then wait for everybody else to panic and bring the prices to you on your terms.
And just when is that going to happen?
I think the Fed’s December rate hike is a good candidate.
Until next time,