I have written a number of articles on Canadian Stock Alerts, now let’s visit this as it relates to your TFSA (Tax Free Savings Account).
As you know, your $ 5,000.00 per year TFSA allowance will not give you a kick back like your RRSP. But the good thing is, it grows tax free. Don’t understate the value here. With a 20 year timeline, your TFSA could turn into a small fortune and every cent of growth, will never be taxed when withdrawn or regarded as income as it relates to existing pension plans.
I have dedicated my own $ 5000.00 TFSA to my Canadian Stock Alerts. Following the strategy I have outlined in other articles, I track stocks with unusual daily trading volume, and then look for the stock price to pullback. It has proven quite easy to generate a 5% to 10% per trade by following this simple strategy. Follow the unusual volume and then the pullback, do it on paper for a week or two and you’ll see how well it performs.
The absolute best days for the pullbacks are after a few straight up days in a row. You’ll notice after a few great days, that all of sudden, the most active volume stocks on the TSE or Venture in Vancouver are red or down. Herein lies a terrific opportunity. Why? Because all stocks are being sideswiped by the overall downturn in the market, not like a single stock having a bad day, all are down.
Quick example: Markets are up on both Monday and Tuesday, a stock moves from $ 1.50 on Monday to close at $ 1.75 . On Tuesday it runs further and closes at $ 2.10 .. wow, that’s quite a run but on Wednesday all stocks are down, and our stock pulls back to $ 1.75 on great volume.
Besides us trying to buy at the $ 1.75 is level, the shorters are also buying to cover, as Level II clearly tells us that the pullback is now over. This alone creates an extra volume surge and all that extra buying sprints our stock up again. It will inherently want to retest $ 2.10 but we aren’t greedy, we want out at $ 1.97
Why not let it run? Because all stocks have a psychological threshold. Stocks that are .92 want to test $ 1.00 and stall at .98 . Penny stocks all do this as well. A little .24 stock will stall at .29 and eventually break through .30 but maybe not today. We want to take this knowledge and get out with a decent profit and come back to fight again another day. Cash is king, avoid getting stuck in any stock.
So we bought 2,800 shares in our TSFA account at $ 1.75 or $ 4,900.00 . We then sold 2,800 shares at $ 1.97 or $ 5,516.00 for a 12.5% gain, minus commission. Now on the surface this may not seem like much. If you were able to invest your TFSA and earn 10% per week with just one trade every week, within one year your TFSA would be worth over $ 600,000.00
And as exciting as that sounds, it only works well by doing things a certain way. Follow the unusual volume first, then look for the right pullbacks, and the rest will take care of itself. Break that simple formula, and you’ll be dancing with the devil himself. And trust me, over the years that scoundrel has waltzed me right into the poor house on several occasions. He is a master of stealing your money!
Stay logical, let no emotions of any kind (greed & fear especially) have a say in why you buy or sell any stock. Turn off the TV, stop reading newspapers or stock message boards, it’s all just noise and distraction.