“Plan the trade. Trade the plan”
- Arnout Ter Schure, Vice President of NorthPost Partners, LP
NorthPost Partners’ successful method consists of several well-defined layers that adjust to the markets’ environment. (Please see the attached chart.) Market movements on any time frame can be expressed in five stages. These different stages follow set ratios which allow us to estimate price targets using precise mathematical equations.
1. The first stage, called wave 1 is the initial stage where stocks are moving higher after having made significant bottoms. Here is where we buy longs and/or sell puts.
2. The second stage, called wave 2 is where Bearish sentiment takes over and stocks are sold off again, but to a higher low. Here’s where we sell calls and/or buy inverse ETFs. What happens next is the money-making stage: wave-3.
3. In the 3rd wave most stocks will rise and a “Buy The Dip” mentality arises as traders and investors are chasing because they got shaking out during wave 2. Here we buy common longs.
4. Once everybody has bought, all that is left is selling and wave-4 takes over. Often this is called a “high-level consolidation”, with numerous whipsaws taking up a lot of time. We exit our positions prior and either go all cash or sell calls.
5. Then wave 5 is where the masses finally catch on and step in, while big money is selling to them. The market tape is weak as not all stocks are participating. Here we sell puts, and only go long very strong names but exit quicker. Before wave 5 completes we exit all positions and await the markets next move.