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The great loophole that can make you money every day

OK, if you are reading this I assume that your check for $49.99 is in the mail. If not, then I guess you are getting this valuable information for free.

Actually for experienced investors this is like teaching grandma to suck eggs, but here it is anyway.

Stocks have spreads, the bid price is always a bit lower than the ask price, so if you buy a stock and turn right around and sell it, you are going to lose money even if the price of the stock is static.

However, if you buy the stock using a limit order, then you can name your own price and ignore the bid/ask spread. Either you will get the stock or you won't, but at least if you do get the stock you will get it a little cheaper than it is right now, which means that if you wanted to turn right around and sell it again you may be able to place another limit order at the current price and actually get your money back.

In itself this isn't very useful, but consider that you want to take a position in a stock like ZLCS or ZIOP, two small cap biotechs that I have traded in and out of. If you look at a candlestick chart of these stocks you will see that there is frequently an intraday variation of at least 25 cents per share between the daily high and the low. If you have a block of 1000 shares, that represents $250. I don't know about you, but I find that $250 here and $250 there soon adds up to some serious money.

Chart

By hanging out a limit bid at somewhere just above the 3-day low, you will often get filled at a good price, whereupon you can now hang out a limit sell order somewhere close to the 3-day high, and you will also have a good chance of getting filled sooner or later. Remember that in an IRA account, you don't have to worry about that capital gains stuff.

The other "trick", OK it isn't really a trick, but here goes, is this. If you want to buy a position, you can buy half the shares first with a limit order, then put in a second limit order for the rest of the shares at an even lower price. If the first tranche of shares increase in value, you won't be too sad as you are already ahead of the game, but if they fall in value, then at least you will be able to reduce your average basis in the full position. Of course you will pay two commissions, but if you are using a cheap broker, the amount is very slight, and the lower basis will compensate you.

If you can't get the rest of your shares cheaper, then at least if you buy them for more, you do lose a bit of upside, but once your full position is established it is already in credit and you avoid that sinking feeling when you buy a new position and it is already in the red the next day.

Coming next: How to Get Incredibly Rich Selling Puts.