Creating Cash Flow Formula

Creating cash flow formula. There are certain stocks that move up and down, repeatedly within a certain price range. Learn how to use strategy to create repeatable cash flow.

Many of us invest in the stock market for long term growth. However, there may be times when you need to generate some cash flow and there are some relatively safe strategies you can use to produce income. One of these strategies is known to many stock brokers as channeling.

There are certain stocks that move within a specific price range in a repeatable pattern and while this can be frustrating for a long term growth investor, it provides a wonderful opportunity for those who could use some extra cash.

The following is an example to show you how this plan works. You bought a stock we will call "xyz" at four dollars a share. In a few weeks, the stock moves up to around six dollars a share before falling back down to the four dollar price range. How is this going to make you money you ask? Simply by selling the stock at six dollars. And when it falls back down around four dollars, buy again. Repeat this method over and over again, of course each time you will have more money to buy more stock.

Let's say you bought 1,000 shares of xyz at $4.00. That would mean you had to come up with $4000.00 for your initial investment. Several weeks later, the stock has moved up to $6.00 and you sell. You now have $6,000.00 which means you have made $2,000. The stock falls

back down to $4.00 a share and you buy in again, only this time you buy 1500 shares at $4.00 which equals $6,000 cash out. When the stock rises back up to $6.00 sell again. This time you will have made $3,000.00. 1500 shares X's 6.00 a share equals $9000.00 minus $6,000.00 equals

$3,000. See how it works? Eventually, you will build up quite a bit of money from doing this play over and over again.



However, there are a few things to keep in mind. What if you buy the stock at $4.00 and then it falls down to $3.00 and never goes back up? You will have lost money then. One way to keep this from happening is to set a stop loss order. For example, place the order so that if the stock falls below a certain price, then the stock will automatically sell before the stock can fall any lower. You will lose a little bit, but you won't lose the whole thing, and your money will be free to do something else.

What if the stock goes higher than $9.00? Won't you lose out on the potential to make more? When you see the stock begin to climb close to the $6.00 mark, move up your stop loss order. Be careful to not squeeze it too closely, because sometimes a stock can fall back momentarily only to surge up higher and limit your potential by selling too soon. So when the stock climbs up to $6.00 place your stop loss order at $5.75 (example only) and then if it moves on up to $6.50 then move the stop loss up to $6.25 and so on.

You should however, have a pretty good idea of when to buy and when to sell. If you wait to sell too long, thinking it will go higher, then you could lose out because the stock can drop back down quickly. Just be sure to use these strategies to keep that from happening.

I am sure many of you are now wondering where you can find these stocks? One thing you can do is buy a Wall Street Journal and the use a free Internet stock chart and then start researching the stocks. It is important to realize though that when you are starting out, especially with a small amount of money to buy stocks within the $1.00 to $15.00 ranges. You can buy more stock this way and your returns are really not that much different from the more expensive stocks at this point.

On the charts you should be able to see a repeatable pattern of the stock fluctuating between a certain price. Of course it isn't as clear cut as it never falling below 4.00 or rising only up to $6.00. You should take a piece of paper and place it horizontally across the chart and see how many times it has hit a certain price, also where the basic support line is at the bottom price range also.

Take your time and be patient. Research your companies well. Keep in mind here though that many lower priced stocks up to $5.00 don't always have just a whole lot of information. Only use money that you can afford to gamble with a little bit. But if you will use these strategies, then you should be able to greatly reduce the risk of losing which will enhance your chances of creating a steady stream of cash flow.

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