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Frequently Asked Questions

I’ve been a subscriber for a couple of months, and I love your strategy and what you’ve been doing. However, I have a question regarding risk management. Why are there times that you deviate from our plan and stay in a trade even when it closes below support?

Thanks for your kind words! Your question is a good one. Critical support levels are one tool I use to judge the health of a stock’s chart, but they are not the final word on a trade. As you’ve seen, there are situations where other factors that move individual stocks and the overall market need to be taken into consideration.

Once the support level is broken, I need to see a strong likelihood that it will bounce for us to stay with it. I reexamine all of the factors that led to the support break to determine if we need to make any adjustments. This is when I get in touch with my thoughts so you are kept updated on my latest outlook.

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I trade based for valuations. Does NexGen include valuation analysis?

That’s a great question, and my stock selection strategy is something we’ll talk about often. One of the first things I look at when analyzing potential investment opportunities (whether for the long or short term) is the company’s fundamentals. Within those fundamentals, I analyze growth of earnings and revenue as well as the PEG (price-to-earnings-to-growth) ratio, which gives us valuation. So it does come into play in my research.

I will say that the fundamentals are not as important when you’re looking for a short-term stock to trade. However, we will still look at them because they help us stack as many factors in our favor as possible. Just because a chart is pointing higher doesn’t mean that the stock is strong on its own. The company could be falling apart at the seams, and that’s exactly what the fundamentals help to tell us.

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I am an amateur investor that loves your approach to investing and the explanations you provide for decisions made. I feel that stocks move on “momentum” when fundamentals and technicals are favorable. Isn’t the RSI a “momentum” indicator?

Thanks for your kind words! The relative strength index (or RSI) is a technical indicator that serves as an overbought/oversold oscillator to measure a stock against itself. It could be considered a momentum indicator when it is moving in one direction, but I wouldn’t put that label on it. There are many times when the RSI moves sideways in overbought territory as a stock remains in a very strong uptrend. In that situation, it would not be a reliable measure of the stock’s true momentum. This can also be said for when a name is falling and the RSI is low.

However, momentum does come into play when using the RSI to identify buy signals. The index is a scale of 1 to 100, and when the RSI moves out of oversold territory (0-30) and back into the neutral zone (30-70), it creates an RSI crossover buy signal.

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What is the best strategy for trading around earnings?

If I had a nickel for every time I came across an investment strategy that claimed to know how to trade earnings I would be a very wealthy man. Unfortunately I’m not swimming in nickels, and the folks who followed the advice of the so-called experts are likely on the lookout for some extra cash.

When it comes to trading around earnings – by that I mean buying a stock right ahead of its report because you think you know what will happen – the only true statement is that it is pure gambling. Unless you have some sort of insider information – which you’re not allowed to trade on anyway – there is no way of truly knowing what the actual numbers will be. And it’s even more difficult to predict how investors will react to the report and management’s guidance.

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Would you consider recommending options?

I believe there is a time and place for options in investing, but I don’t see them fitting into our current approach here in NexGen Investor. Not only does the shorter-term nature of options run at odds with our longer-term investments, but they also carry a serious risk factor that not all of us have the tolerance for.

That said, I do have a lot of interest in options personally and have studied different strategies that range from longer-term covered call plays to more complicated shorter-term trades. I’m not ruling out a future newsletter that incorporates some of these tactics, so if you’d be interested in that kind of service please let me know by emailing

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What is the difference between stop-losses and critical support levels, which you use a lot in your services?

This is a good question and an important point to clarify: stop-losses and critical support levels are not the same thing. The critical support level is the area that a stock needs to hold on a closing basis in order to remain bullish in the short-term. That level could be price support, a trend line, a moving average, or another level of support altogether.

The reason I refer to them as critical support versus a stop-loss is due to the volatility in individual stocks. There are many instances when a stock breaks the critical support level intraday and rallies back to close above the support level. Or a stock may break support for a couple of days before rallying. If we only used stop-losses (orders you place with your broker that automatically trigger when a stock hits a specified price), it would result in us getting kicked out of a position during any intraday pullback and missing out on subsequent rebounds.

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What criteria do you use for the RSI?

One of my favorite and most important technical indicators is the relative strength index (RSI). You can check out my feature on the RSI to learn more about it, but the main criteria to focus on is the time setting. There are a few different time settings you can use with the RSI, and the industry standard is often a 14-day timeframe. However, my preference is the 9-day period setting, which takes the last nine trading days into consideration to determine the RSI number.

This is particularly helpful in identifying buy signals. The index is a scale of 1 to 100, and when the RSI moves out of oversold territory (0-30) and back into the neutral zone (30-70), it creates an RSI crossover buy signal.

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How do you see the next earnings season playing out?

There’s no question that earnings over the last few quarters have been impressive. I’ve gone into recent reporting cycles far more bullish than the analysts, and often even my bullish growth predictions were exceeded. The next quarter should be more of the same as corporations are in the sweet spot right now with low interest rates, modest inflation and a strong labor market. I believe we’ll see more companies beat estimates on both the top and bottom lines in Q2, setting us up for another successful earnings season. Continue Reading…

I have been hearing a lot about Bitcoin. Is it time to buy?

This question made me chuckle because I’ve heard it from multiple people recently! When the woman who cuts my hair, the man next to me on the plane and a relative all ask me about a specific investment, it raises some red flags. That may sound like the opposite of what you might expect, but the overexposure Bitcoin seems to have right now makes me wary in the short term. I do believe that cryptocurrencies are real and that they have a place in the future, but Bitcoin in particular needs to come back down to earth before it becomes an attractive buy. Continue Reading…

Since the market can get choppier in the summer, would you consider using hard stop-losses to protect us on the downside?

The market historically does get more volatile in the summer due to lower trading volume, but it doesn’t necessarily mean we need to change our risk management strategy. I will rarely place a hard stop with a broker on a longer-term holding stock because weathering the swings is part of investing. Plus, I'd prefer to watch my holdings on a daily basis. A hard stop-loss can often cause you to sell out of a position at a low point and miss out on a near-term rebound. Instead, I utilize critical support levels (key levels on a chart, such as moving averages or previous areas of price support) to monitor the action and determine if a change needs made.

That’s not to say I don't ever use hard stops. In fact, they can sometimes be helpful in protecting gains.

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