Welcome to Wall Street, Main Street and Me

Saturday, July 19, 2014

John Carter's "Fake Orgasm"

I'm loving this book!

When large funds (the "big boys") want to get out of a stock, they deliberately push the stock to new highs, sucking in the retail crowd (that would be us) and then they start unloading.

By making the stock look great, when it isn't, institutions fool the masses. So it says in Mastering the Trade. Carter likes to call this a "fake orgasm" setup and if you look at the chart he supplied, you can see how the volume and the RSI indicator show the lie. While the price action is bullish, the other clues show a bearish divergence. This little chart makes it clearly obvious.

Carter has
Rules for Trading a Fake Orgasm setup.

1. Look at stocks that are making new 52-week highs. (you have scan software on your platform that likely you need to learn if you don't use it already which will give you a list of said stocks at new highs.)

2. Look for a bearish divergence using a 7-period RSI (relative strength index indicator).

3. Look for a decrease in volume. (there is no susteained price movement without volume)

4. Short the stock the day after it closes below the previous 52-week high. This would be your entry.

5. Place a 25 cent MARKET stop above the all-time high price.

6. To exit, use a close price above the high of the low day while above key support. If key support is broken, stay in the trade until there is a close above the high of the low hour on a 60 minute chart.

7. Don't trail stops. The exit is the price reversal signal.

Carter gives specific examples and says there will be a lot more information about this later in the book, but I wanted to share! Maybe he won't mind and it'll sell some books? Oh well, sue me. (never been known for my timidity or wisdom)