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How to Box a Trade Step By Step - YouTube
Channel: StocksToTrade
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- Today we're gonna be talking
about maybe one of the most
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misunderstood strategies,
it's very viable but you need
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to know all the details
so the joke lose twice.
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(upbeat music)
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Hey everyone, lead training
with stocks and trade Tim Bohen
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here, be sure to subscribe,
ring that bell to get notified
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drops, we're doing podcasts,
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long form, short form, I'm
actually going live 10 times
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a week right now, now that
might, when you see this video,
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I may have liked scaled
it back a little bit,
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but as of right now, we're going
live a ton and the best way
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to get notified right
away is to ring that bell.
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That also, if you're
looking to take your trading
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to the next level, check
out the SteadyTrade Team,
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that's a part mentorship
program where Mike Huddie,
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Kim Ann Curtin and a growing
team, we give you all the tools
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you need to speed up your
path to being a consistently
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profitable trader,
there's so much to learn
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and the SteadyTrade Team,
I think is the best way
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to shortcut your path to success.
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That being said, let's talk
about maybe, as I mentioned
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in the beginning one of the
most misunderstood strategies
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out there and we're talking
about boxing a trade
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or shorting against the box as they say.
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So, I'm gonna explain
the why, then the how,
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and then I'm gonna talk
about the dangers of it,
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especially for newer
traders, because again
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if you're watching these
videos, I'm guessing you're new,
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maybe intermediate, maybe
new to short selling
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and boxing, shorting against the box
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is a short biased strategy, okay?
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So, I want you to be
very careful with these,
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remember stocks, especially
right now we're recording
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in summer of 2020, stocks can
go up two, three, four, 500,
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we've seen thousand percent runners.
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You short, too early,
you can I mean, in theory
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have unlimited losses, at
least if you go long in stock,
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you can only lose your whole
position, which is bad,
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but owing your broker money is worse.
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So, let's talk about why
you would box a trade,
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so, the theory is, or not
necessarily the theory,
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the practice is your
looking to short a big,
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low float stock that's making huge moves,
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now, notice I said a low float stock.
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When these stocks have a small float,
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they're gonna be very hard to borrow okay?
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Remember to short a stock
you have to borrow it
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from your broker, you pay
fees and interest for that,
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then you sell that borrowed
stock and buy it back ideally
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for a profit, I'm not
going to get too much
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into short selling, we
have a ton of other videos,
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check those out, we talk
about it on the podcast
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all the time, check out all the archive,
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there is a ton of how to short sell,
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what to short sell, et cetera.
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But back to that, hard to borrow idea,
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so this stacks up huge on
the day on dubious news,
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the chart's a mess, the
company is super sketchy,
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It's known for doing
financing, so you've gone
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through your list like we
use in the SteadyTrade Team
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and you've determined, wow
this thing is a quote unquote,
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perfect short setup, but
it's early in the day,
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you're looking at your broker
and the shares they borrow
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are rapidly disappearing,
maybe this morning at 7:00 AM
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there was 5 million shares to short,
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now it's 8:00 AM and
there's 3 million and now
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you're getting into the market
open and there's a million
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shares or maybe even less.
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So, you know that that
supply of shares to borrow
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is rapidly disappearing.
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So what you do is, you
know the stock isn't done
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going up yet okay?
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You don't wanna short when
the stocks rip and height
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but at the same time, you
see the shares disappearing
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and you know, when that crack
comes, if you don't have
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the borrow, you can't trade the stock,
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it's one of these, it's one
of the most frustrating things
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about being a short bias
trader is you can find
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this perfect setup, go to your broker,
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maybe multiple brokers, a lot
of short sellers have five,
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six brokerage accounts to get the borrows
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and nobody has them and you
see this thing dropped 50%
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and you just watch it, you're
hosed, you can't get in.
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So, the idea behind boxing is you short
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the stock early, okay?
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You're gonna say, well,
Tim, you say never be early
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on a short, you wanna
be late, you wanna short
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after the crack not while it's going up,
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but remember that idea of that dwindling
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supply of shares to short,
you know they're gonna be gone
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before the crack comes,
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so, you enter into the stock
when it's still going up,
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as protection, you box that
trade, so that's where you go
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to another brokerage account,
so you short at broker A,
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say a thousand shares at a
dollar, then you buy a thousand
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shares at a dollar at another broker,
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so now your net zero, okay?
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You've locked in your thousand
shares, you borrowed them,
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they're yours as long as
your broker doesn't buy...
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force buy you in, which is
another thing we talk about lot,
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check out the videos, but
let's say in this situation
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you're not getting a forced buy in,
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your now net zero.
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So, even if the stock
goes from one to 100,
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you're long in another
account, so you're basically
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zeroing out as that stock
runs higher, higher,
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higher, higher, that's your protection.
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I mean, you basically can't
blow up because as the stock
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goes higher, you're losing
money in this account
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unrealized, but you're
making it money unrealized
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in this account, so it just stays even.
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Now, let's say this trade works out great
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and it runs from one to five,
we get into the afternoon,
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stock starts fading, fading,
fading, what's the afternoon
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is the best time to short, but
lots of times you won't get
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the, you won't have the shares to borrow,
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so now it's fading in the afternoon,
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say it breaks below VWAP
or one of these levels,
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key levels we look for, you
now have that top to risk
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your short position offer,
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let's say five, it went from one to five,
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now it's back to 450,
fading, fading, fading.
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So now, you sell your long
position, you make 350 a share,
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now you're still way
upside down on that short,
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but then as that stock pulls
back, pulls back, pulls back,
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pulls back, then, they do
an offering after hours
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who knows what sketchy business they do,
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it drops the 50%, 50 cents okay?
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Again, I'm just using
this as an example of like
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a perfect box trade.
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Now, you made money on
the upside with that long
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as your protection, you
sold into the fading action,
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green on that trade, then
you get the sketchy offering,
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stock gaps down the next day,
you're covering the watch out
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and life is good.
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Now, that's how you
execute a good box trade.
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Now I wanna talk about
the dangers of this,
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what happens is what I see number one,
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even though you've got that
protection, if you short
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too early and you go for
that ride from one to five
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in this situation, your brokers
probably gonna buy you in,
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they're probably gonna
force you out of this trade,
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you're probably gonna have a margin call.
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Now, if you have a million
dollar account, you'll be fine
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but that's one of the biggest
things that kinda frustrates
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me sometimes about a lot
of these Twitter traders,
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they're short in these stocks,
they're boxing these stocks,
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and you don't necessarily
know that they got
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a million dollar, 2
million, $5 million account,
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they can do things you can't.
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If they're down 50,000 shares
on this short or $50,000
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on this short, they've
got a big enough account
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that their broker is
not gonna force them in,
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if you're down four or $5 a
share with a one thousand,
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two thousand, five
thousand dollar account,
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they're gonna force you in, okay?
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They're gonna kick you out of
that trade with a margin call,
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so that's one of the biggest
dangers of shorting these,
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of trying a box trade
with a small account.
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The other thing I see is
people just screw it up I mean,
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no offense, I'm glad you're here to learn,
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I'm glad you're here to pick up tips,
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but it's, when you're
trading these volatile stocks
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like a code, look up Kodak
in summer of 2020 okay?
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It went from like two
to 60 back down to eight
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in the last two weeks okay?
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These stocks move fast
and as a newer trader,
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you've now got multiple
positions at multiple brokers,
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and you're trying to manage
this stuff in a stock
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that's going all over the place
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and when you get stressed,
when you get under pressure,
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you tend to make mistakes okay?
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I don't care if you're an athlete,
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I don't care if you're a pilot,
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I don't care what you do,
anytime you're stressed you tend
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to make mistakes, and I
see that a lot with new,
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newer traders with these
multiple positions and they lose
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on both sides of the box.
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That's a simple fact, they
get squeezed out on one side,
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then they overhold on the
long side, this stock I talked
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about does the offering, it
gaps down, now you just took
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a loser twice.
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So, hopefully this video was
useful to explain how to box,
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why you should want to box,
but I'm just really, really,
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really gonna caution you
that this is in my opinion
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a big account strategy, okay?
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A veteran strategy, now,
doesn't mean you can't get
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there someday, but the thing
is you need multiple accounts,
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you need enough capital
in your account especially
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on the short side, not
to get margined out,
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and you gotta have the experience
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and the intestinal fortitude,
as they say in wrestling
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to manage multiple positions.
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So, please be really careful
with it and if anything,
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one of the great things
about stocks to trade,
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is you can paper trade.
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So, if you wanna test a box
trade, you can actually add
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multiple paper trading
brokers in stocks to trade,
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check out the trial and
you can experiment with it,
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'cause I tell ya the last thing
I want you doing is trying
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one of these strategies for
the first time with real money.
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Check out the trial,
check out stocks to trade,
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you can use those multiple
accounts and you can see
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if boxing works for you.
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Now, if you make half a dozen
paper trades and it's working,
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then you're risking real money.
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Alright everyone, hopefully it was useful,
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it's an interesting question,
I get asked a lot about.
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People see these traders
making these big wins
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and they say they're boxed for
protection and you'll wonder
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what that means.
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Have a great day, check
out the SteadyTrade Team,
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would love to work with ya
in Twice Daily Webinars,
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every single trading day...
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