Last week's essay and "Strategy of the Week" presentation unleashed a flood of phone calls. Customers were asking questions ranging from the concept's versatility to exactly how to place the trades.

As a reminder, the concept we're talking about is that of placing successful trades before the market opens. The technique involves three basic steps, stock selection, order preparation and order placement. Here's how it's done:

STOCK SELECTION.
1. You should consider buying stocks only when the Primary Wave is Up, and preferably when a green light is showing in the Price column of the Color Guard. All of this information is on your home page.

2. The technique, i.e., buying rising stocks in rising markets, works with all kinds of stocks. Therefore, you should select stocks that are consistent with your investment style. See Chapter 11 of "Stocks, Strategies & Common Sense." If nothing else, you can buy high VST 'B' rated stocks whenever the Color Guard says it's OK to buy stocks. Regardless of what Strategy you use to find your stocks, I suggest that you always study the stock graphs and favor the stocks with smooth, rising Price patterns.

3. Once you have identified some stocks you would like to buy, it's time to prepare your order.

ORDER PREPARATION.
1. The whole idea is to place your order in such a way that you know the stock's price is rising when you buy it. The Buy-Stop-Limit is designed to do this for you. In last week's essay I suggested that you place your order to buy when the price of the stock has gone a small amount above the prior day's High. For low-priced stocks, this could be as little as a penny. For higher priced stocks, it's typically 1/8 of a point or more.

2. The Buy-Stop-Limit Order instructs the broker to enter a Buy Limit order when your Buy trigger price is hit. This order has two parts: the Buy price and the Limit price. When a trade has occurred at or through the Buy price, the order becomes executable and enters the market as a Limit order at the Limit price.

3. Once the Buy-Stop-Limit order has been prepared, you should prepare a "One-Triggers-Other," OTO, order to exit the trade. This order will execute a specified exit trade when a specified price is hit. This price can be higher than your purchase price to capture a gain or lower than your purchase price to protect a profit, depending upon how you want to play the game. Typically, I prefer to let my profits run and use a Trailing Stop in the order of 5% to 10% to protect profits.

ORDER PLACEMENT.
1. As a final precaution, always check the Stock Futures, if you can, before placing a pre-market order. The closer you are to the market's Open, the better you can judge the market's likely direction. A lot of game changing news comes out at 8:30 AM, so wait until after that news comes out before placing your trades if you can. If the Futures markets are up, go ahead and place your orders. If the Futures are down, wait for another day.

Consider the following example: Let's suppose it is 10:00 PM last night and the Color Guard is "somewhat Bullish" with two green lights and an UpUp situation. You're tired and feeling lazy, so simply click on Stock Viewer. Immediately, you can see that Medifast, MED, is the top VST ranked stock once again. The graph makes you wonder why you didn't buy it months ago. So you finally decide to give it a try. It closed at $33.84 per share and hit a High of $33.89. So now it's time to prepare your Buy-Stop-Limit order. Enter your Buy trigger price as $34.14, ($33.89 plus 0.250 = $34.14 per share). Set the Limit Price at $34.27, ($34.14 plus 0.125 = $34.265); then prepare an OTO with a 10% Trailing Stop.

Medifast opened at $34.30 today and traded as low as $34.21 and as high as $34.49 in the first minute of trading with a volume of 46,978 shares. Theoretically, the trade should have gone through and I would have purchased 100 shares of MED at $34.27 per share, but I don't think it would have happened. So I learned that I could miss a trade by the price not going high enough or by the price going too high too fast. In either case, I'll take what I can get within my specified price range.

You may have observed that many of the methods used in this technique, such as buying rising stocks in rising markets, are similar to what we do in Riding-the-Wave, but there are significant differences. Most of all, this technique is far more flexible than the strict rules we've created for Riding-the-Wave. This technique does not entail buying a basket of stocks and it doesn't depend upon the Major Indexes to perform in a certain way to signal a time to buy. It is a single stock system and simply depends upon the performance of the stock in question. I like it and I'm looking forward to Executing the Daily Double.

EXECUTING THE DAILY DOUBLE.
We are fortunate this evening to have Mr. Steve Chappell, Director of Educational Services, show us how to do all the things cited above. So join Steve at the VectorVest University to see this week's "Strategy of the Week" presentation: "Executing the Daily Double."