Basic Concepts
The Philosophy of
Channeling Stocks
Channeling Stocks have a very clear and
identifiable historical pattern. Stocks that Channel up and down in repeated waves. Notice in
the example how the price Channels from $3.25 to $4.10 per share.
Where would you think the
price is going next?
These waves may become predictable. If you answered that
the price is probably going to go up, you understand the very basic strategy of
Channeling Stocks. Look at the chart below and see what actually happened to the price of
WNI when
we add another 8 days worth of data.
In addition, a line can be drawn across the peak and
along the bottom. The area between these two lines is called the channel. The upper line is
commonly referred to as the resistance level and the lower line is referred to as the
support level. It is in this area that you will want to buy and sell your stock. Selling
your stocks is the key. When investing in the stock market, it is not when you buy that
counts it’s when you sell. You should know when you are going to sell your
stock before you even buy them. Knowing when you are going to sell before you buy the stocks helps
eliminate the emotional factors of fear or greed that sometimes push or pull individual
investors. As you become more familiar with Channeling
Stocks.com, we
are confident the nervousness of being an investor will subside.
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Do the Math
The following is a true life example of how one could have
profited using the Channeling
Stocks.com concepts. Our example will not include any commission amounts as
they vary from broker to broker. Also, while we have rounded all the numbers off, it will
not interfere with the actual results. We will also be referencing something called a GTC
(Good 'Til Canceled). A GTC order is an order placed by an investor that instructs the
broker that the order shall remain in effect until it is filled (either bought or sold at
a predetermined price), or canceled by the investor. Annual percentage returns figures
will be further defined when you get to the Practice Trading page.
In less than 6 months you could have bought and sold shares of a company with the
symbol WNI on 4 different occasions. Each time you bought and sold this stock you would
have taken in a profit of 50 cents per share. WNI had established a support level of
$3.25 and a resistance level of $4.10. So your buying price in this stock would be set at
$3.50 and your selling price would be at $4.00. As you can see, you are not going to be
buying at the lowest possible price nor will you be selling at the highest possible price.
The reason for this is simple. When you buy into a Channeling Stock, you will always want to
insure that the price has reached the lowest level and has now begun its
channel back
up.
There is no way to determine the absolute bottom until you see it going back up. The same
holds true for the highest possible price but you have already addressed this by knowing
when you were going to sell the stock prior to even buying it. There is more in-depth
detail regarding this on our Advanced Concepts page.
* Channel #2
on the chart above should show Selling Date
of 2/9 - not 2/8. *
Back to the real life example. Let's say
you purchased $2,000 worth of WNI stock for $3.50 per share on Dec. 31, 1999. That would
have given you ownership of 571 shares. You then would immediately put in your GTC, (sell
order at predetermined price), to sell those shares at $4 per share. On
January 11, 2000 the
stock price reaches $4 and your GTC would have triggered the sale of your
571 shares for a 50 cent profit per share.
So your $4 sell price, less your
$3.50 buy price,
gave you a profit of .50 cents per share. You originally bought 571 shares with your
$2,000 investment. You would then multiply the profit you made on each share of
.50 cents
by 571 to see that you made $285.50 on the transaction. If you divide the
$285.50 into the
original $2000 initial investment total, you see that you received a 14% return. The total
time it took for you to get this 14% return was twelve days.
By adding your profit to the original
investment amount, you now $2,285.50 to purchase this stock again. On
Feb. 8, 2000 you could have purchased 653 shares at $3.50 and again set your GTC to sell the stock at
$4.00. On Feb. 9, 2000 the stock again reached $4 and your GTC again sold your shares for
a .50 cent profit per share. (Note - the chart above has the incorrect
sell date of 2/8 on it. It should read 2/9 instead.)
Now you have made .50 cents a share but this time it was for 653 shares which gave you
a profit of $326.50 in just 1 day! Dividing your profit of
$326.50 into your $2,285.50
investment again gives you another 14% return on your money. But you’re not done yet.
By adding the profit of
$326.50 to the
invested amount of $2,285.50, you now have $2,612 to purchase 746 shares at
$3.50 when
then stock channels back to $3.50 per share on March 24, 2000. By now you know that you have
your sell order, (GTC), in at $4 once you purchase the stock. On April
11, 2000 the stock
reached $4 which triggered the sale of your shares again.
By multiplying the .50 cent per share profit by the 746 shares you bought, you have
just added another $373 in profit to your portfolio. Another 14% return. Your original
$2,000 investment is now worth $2,985 after you add up all the profits. But you are not
done yet !
Now you have $2,985 to purchase
852 shares
at $3.50, which you do on April 20, 2000. Your GTC (sell order) set at $4 triggers on
May 4, 2000 and you again sold your shares for a .50 cent profit per share.
You just added another $426 (14%) to your bank account.
All
told, your initial $2,000 investment has grown to $3,411 over a five month time frame.
...you have just made a
70% annualized
return on your money in just over 5 months! The reason why the annualized total is
only
70% is because of the time that passed while you waited for WNI to
channel back down to $3.50 after your sold it for a profit. It is during this "down time" that you
should be looking at other Channeling Stocks to invest in and diversify your money. That is
why Channeling
Stocks.com provides our members with a weekly updated list of stocks that are
Channeling.
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We continually search for lower priced
Channeling Stocks because they allow more investors to get involved. We would rather be able
to purchase 1000 shares of a stock that Channels between $4 and $5 per share than the stocks
that Channel between $20 and $24 per share. The reason is simple. We can buy more shares at
$4 than at $20.
AMOUNT INVESTED SHARE PRICE # of shares
| $1000 Divided by: |
$4
per Share |
= 250 Shares vs |
| $1000 Divided by: |
$20 per Share |
= 50 Shares |
For the sake of example,
let’s assume both stocks increase in price by $1 per share. If you had invested
$1,000 in the $4 stock, you would have just made $250 because each share is worth $1 more
and you were able to buy 250 shares. If the $20 stock also rose $1 in price you would have
only made $50 because you could only buy 50 shares for your $1,000 investment.
Channeling Stocks have no price boundaries. At Channeling
Stocks.com we will find them for you at all levels.
At Channeling
Stocks.com our efforts are concentrated on identifying
Channeling Stocks that trade more than 50,000 shares per day. In doing so, we reduce the
possibility of manipulation of prices. Thinly traded stocks, less than 50,000 shares,
often will have wide bid (how much you are willing to pay) and ask (how much the seller
wants to charge you) prices that threaten your profit. Our experience in researching and
investing in Channeling
Stocks.com, takes all of this into account
for you prior to posting our weekly selections.
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