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Congratulations on taking the first step to building
wealth with the Dow Double Diamond Plan. You have
chosen a robust plan that is capable of producing the
wealth you want, and potentially much faster than you
thought possible. Now, you're asking...
What do I do now?
First, relax. Wealthbuilding takes a little time, even
with the potent Dow Double Diamond Plan. And though
you may be in a hurry to get going, I want to make sure
you get started on the right foot and moving down the
right track. Right off, you are going to have to make a
couple of decisions on how you are going to implement the
Dow Double Diamond Plan. After that, following the trading
instructions is easy. If you have made a stock transaction
before then you already know how to make the trades.
Here is what you have to do first
Because the Dow Double Diamond Plan (DDD Plan) captures
Dow movements in both directions, you will be making both
long and short trades. And Exchange rules require that you
open a margin account in order to make short trades. Having
a margin account does not mean you have to use leverage; you
can still trade on a straight cash basis (for instance, for
income or conservative growth investing). But you will need
the margin account to operate the DDD Plan. Unfortunately, a
retirement account is not allowed to be a margin account,
and therefore you cannot sell short in it. But you can still
use the DDD Plan to build wealth for your retirement. You'll
simply pay taxes on the growth each year, and your
accumulated wealth will be tax free later on. Or you can get
an IRA execution account. They
will make the DDD trades for you, and all your growth will
be tax-deferred (see "Auto Trading" below). Otherwise, if
you do not have a margin agreement for an existing brokerage
account then you will need to contact your brokerage. They
will be delighted to assist you in establishing this type of
account. Do that now.
Next, choose how you will trade the DDD Plan
Once you're familiar with the DDD plan and, preferably, have
set a wealth goal, you'll need to decide how to use it: on a
straight cash basis, at 2:1 leverage, at 3:1 leverage, at
5:1 leverage, or by allocating to two or more of these
approaches. For our purposes we will call them 1x, 2x, 3x,
and 5x. Don't let all these choices confuse you; the DDD
plan is designed to be adaptable to your specific wealth-
building needs.The idea is to simply allocate to one or more
of these approaches, in order to target the annual growth
rate needed to attain your wealth goal on time. Just know
that leverage multiplies the cash DDD return for both
winning and losing trades. The 2x program approximately
doubles the return. The 3x program approximately triples it.
And the 5x approximately quintuples it.
Since the DDD Plan is a conservative trading system, you
can use leverage without excessive risk and that also makes it
acceptable for large allocations. In fact, leverage increases
the volatility or short-term risk, but not necessarily the
long-term risk, as the plan has shown excellent results over
the long term. Look under the heading "Goal Setting,"
which you"ll find on the home page under General Info,
to see how the different levels of leverage impact the returns.
For generating income, you can trade the DDD plan on a straight
cash basis (1x). For a conservative growth approach, you
can choose 200% margin (2x leverage)at your favorite brokerage
firm, or you can open a 2x execution account. For a moderate growth approach,
you can trade the Dow Diamond single stock futures at 3x and for
this you'll need an execution account.
For aggressive growth, you can trade the Dow Diamond single stock
futures at your brokerage firm or with a 5x execution account.
For the cash and 200% margin trading (2x leverage), the
investment vehicle of choice is the Dow Diamond Trust. The
ticker symbol is DIA, and you can bring up a quote for the
DIA on just about any website, such as yahoo.com. You'll
find that it is quite easy to keep up with the daily prices.
You can also trade the Dow Diamond single stock futures,
which trades at 500% margin (5x leverage). The current
ticker symbol on my quote machine, Thompson One, is
DIA1C/H5. If you are going to use this alternative, I
recommend you first familiarize yourself with the single
stock futures and the risks of trading them. I am not trying
to discourage you from trading them, as the futures did
produce far greater returns in both our 8-year and 28-month
test periods, but I want to make sure you understand that
there are some differences involved in trading these
vehicles, and because of the high leverage factor you'll see
much greater price swings in your account. Typically, the
disclaimer for futures trading goes like this: There is a
high degree of risk in trading futures and this asset class
is not suitable for every investor.
Getting starting trading the DDD Plan
Once you have an account and have chosen how you will
trade the DDD Plan, you are ready to trade. But when do
you actually start? Most likely, the Dow Double Diamond
Plan is currently either long or short. Should you jump
right in or wait until the next trading signal? This is
the only judgment call you will encounter in your trading.
And it's up to you. Consider that, on average, the plan
trades about once in ten days. If you are unsure how to
proceed, then wait to begin on a fresh signal. From time
to time, however, I will mention in the daily updates
whether or not it is a good day to establish new
positions.
Reading the daily email briefing and trade alerts
On a daily basis before the market opens, you will get a
brief email showing our current position and the day's
trading levels. I will also mention how likely it is that
we will make a trade on that particular day. These are not
fancy or long reports. They are short and straight to the
point. From time to time, I may add a little commentary
regarding important issues or longer-term market
expectations. But most of the time they will be very brief
and give you just the information you need. This saves you
time.
Sample report for a Thursday
Thursday November 11,
2004
The DDD system went long on October 28, when the Dow was
at 10,018
The Dow closed at 10,385 yesterday and we are still long.
The current stop is 9717. But our plan may issue an "exit
and go short" signal before the Dow falls to that level.
If that happens I will send an email trade alert.
I do not expect a change in our position today, but keep
the stop number in mind just in case.
Most trades will be made on Friday. Friday just happens
to be a very important day of the week. What happens on
Friday often sets the tone for the upcoming week. This
phenomenon is one of the core principles on which the Dow
Double Diamond Plan is built. On Friday, when or if the
Dow reaches a pre-determined point, we will make a
position change. Most of the time we will be going from
long to short, or from short to long, so technically you
will be making two trades at the same time.
Sample report for the
following Friday
Friday November 12, 2004
The DDD system went long on October 28, when the Dow was
at 10,018
The Dow closed at 10,469 yesterday and we are still long.
If the Dow falls to 10,386 then "close the long and go
short."
The Dow closed well above the reversal point yesterday and
I don't expect a change, but we have to be ready to act if
the Dow starts moving lower.
Then on Friday, let's say the Dow goes down. During the
day, an email alert will be sent to you as soon as the
trigger point is reached. Often, if it looks as if there
is a good chance we will make a position change, I will
send a pre-trade alert. This is a heads-up alert, so you
will know you need to pay close attention. But, and this
is important: even when a pre-trade alert is sent, you
must not jump the gun. This is a mechanical system. Human
judgment has intentionally been removed from the process.
If you jump the gun then you will be making a "judgment
call" and that is not what this system is about. Follow
the trade alerts diligently. That's important if you want
good results.
The Dow Double Diamond
Plan is a robust system that
capitalizes on the market's natural tendencies, which
interestingly are a direct result of the "human judgment
calls" that we are avoiding. When taken in mass, however,
there is a great deal of predictability in the behavior
that drives the market, and that is precisely what we are
taking advantage of. There is always a temptation to try
and out-fox the system, but we want to follow the system
and let it do the work. Let it make the hard decisions.
All we have to do is wait until a previously stated signal
price is reached. Then we can make the trade.
Sample Trading Alert for
Friday
Friday November 12, 2004
!!! TRADING ALERT !!!
The DDD system went long
on October 28, when the Dow was at 10,018
Today the Dow fell to the trading point of 10,386.
Sell the long position and go short now!
The new stop is $10,697.
It is important for you to act on the trading
recommendation immediately, in order to make sure your
entry price is at or very near our recommended price.
There will be occasions when time is critical to obtain
the correct price. If you are like me and have a hectic
day job, but unlike me, are not sitting in front of a
computer screen watching the stock market all day, then
you may want to consider an execution account.
Auto Trading
execution is a practical way to handle things if you are too busy to watch the market
and make the occasional DDD trades, and the fees are quite reasonable. Basically, your DDD
execution account is a regular account that you set up with a broker who offers DDD
trading. You remain in control of your money, and the broker simply makes the trades for
you. Currently, there are two brokers providing this service. One is Robbins Securities, who will do
straight cash (1x) and 200% margin (2x) trading using the Dow Diamonds, but only for regular
accounts (no IRA). Another broker offers 2x, 3x, and 5x DDD trading for both regular and tax-deferred
IRA accounts, using Dow futures, and this makes it easier to take advantage of the DDD
wealth-building protocol (for details, click on the Goal Setting tab on the home page).
For the name of this broker, send us an email, as CFTA regulations prevent us from advertising them
here. Once you have established your execution account with one of these firms, they will execute
the DDD trades for you automatically, based on the trade signals I send to all DDD members.
Simply put, DDD execution is simply an agreement with your broker, instructing them to
execute the DDD trades when the DDD signals are triggered. You can always adjust your allocations
or change your agreement at any time. Keep in mind that you remain in control of your money
and can access it at any time. This is the easiest way to follow the DDD plan, as there is
literally nothing to do but monitor your results and periodically adjust your allocations,
if necessary, to stay on track for success.
Follow the Dow and trade the DIA
Now, you probably noticed I mentioned the best way to
trade the signals is by using the Dow Diamonds, ticker
symbol DIA. In the trading alerts, however, I have list
prices for the Dow. When the Dow reaches a signal point,
don't worry about the price of the DIA because the system
is more accurate when triggered by the Dow. Here's why:
The DIA is equal to the price of the Dow divided by 100.
The ratio is fixed, but during the trading day there is
some fluctuation. When the Dow is at 10,000 the DIA will
be very close to 100. They move in tandem. If the Dow
moves, then the DIA moves an equal amount on a relative
basis. That is the way it works and that makes it easy. So
when it comes time to make a trade, say "sell and go
short," you should sell the DIA at the market (close your
long position) and then sell short at the market.
So, you ask, why not focus on just the DIA? The problem
with that idea is the DIA is a derivative and it tends to
overshoot things a little. If the Dow was above 10,000 at
say 10,050 and then fell 50 points to 10,000. The DIA
might overshoot on the downside and trade at 99.95. If our
signal point on the Dow was 9998 and the Dow bottomed at
10,000 and turned higher then we would not make a trade.
But if we followed the DIA we would end up making the
trade, and that would be wrong. This may sound a little
confusing, but I have studied the issue in depth, and the
DDD Plan works best when we use the DIA as a vehicle, and
the Dow as a trigger. Over time the potential for slippage
is present, but it is not significant. If you are using
futures with leverage you should anticipate some minor
slippage. However, once you fully understand futures and
how they work, you'll see that this is not a problem. Over
time, the minor fluctuations tend to balance out. And
since we are focused on the long-term goal of
wealthbuilding this issue is of little concern.
That about covers everything you need to know. If you have any further questions please
see the FAQ page first. I also recommend that you read the monthly articles from our publisher,
Dick Sanders, on the subject of wealth building. He'll be discussing the benefits of the
plan as well as several practical things you can do to ensure your success. Finally, feel
free to email me with any questions that are not covered on our web site. You'll find a quick
link in my daily email updates.
The important thing is to get started. The sooner you do,
the sooner you'll be on your way to the wealth you want.
Thanks for joining us!
Jim Patterson
Editor
Dow Double Diamond Plan
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