Robert, there is nothing wrong with your thinking. You just need to remember to use the correct tool with the stock you want to play.
Some stks ride the upper BB with a high RSI almost constantly. If you wait for the BB and RSI signals on a stk like CSCO, it'll come -- eventually, and you'll make some money. However, you'll miss the major part the move. That's what happened to me with DELL recently. I wanted to play, but I kept waiting for the BB/RSI signal and was left in the dust as the stk moved 10 points!
Know your stk. Look at the fundamentals first, charts and signals second. CSCO is the leader in it's field. New business is pouring in. Profits are up. Over the long haul, CSCO is a winner. It's not a big point mover. It it frequently moves up about $3 - $5 per month, especially when it bases, like it has between $90 - $95. There simply was no doubt in my mind CSCO would hit $95 by August, unless a major market correction occurred. Then all bets are off.
Even I was suprised to see CSCO at $99 on Friday! But you're not looking for the big score. You're looking for steady, consistent growth of your portfolio. At the end of the year you'll be pleasantly suprised with the 50, 100, or 150 percent gain on your invested capital.
When I see $2 and $3 dips in CSCO I write puts because it's one of my core stks. CSCO dips from 94 - 92, I write the 95. That's aggressive. If I'm just looking for cashflow, I would write the 90. That's more conservative (as far as puts go.)
Make $4 - $5 per month on CSCO for five or six months and the stk would have to drop nearly 50% before you would feel the pinch! Could that happen? Sure. But you face that risk any time you own ANY stk. This way far less margin is tied up (30% with my broker), and the worst case is you own a great stk at a great price. Then you employ Systematic Writing to build even bigger profits.
Sorry for rambling so much. I hope this helps . . . |
