Yesterday I brought you Part 1 of my interview with Guy Cohen, one of the best investment educators out there. Today I am pleased to bring you the conclusion of that interview.

In case you missed the first part of the interview, it is available here.

---

Christian Hill: Let’s dive right into it Guy. Every system has their own way to find the right stocks to trade. How do you do it?

Guy Cohen: It’s simple, really. I use specialized filters, designed purely to find neat consolidating patterns within stocks.

The reason I focus solely on this is because it gives me consistency. As I noted last week, I’m looking for breakouts. So my obsession with finding these neat patterns is because I’m hoping that a stock will break out, thus triggering my trade – and then continue to move.

CH: So your trades focus solely on breakouts?

GC: You got it. I’ll give you an example…

Here’s a stock I traded just after Labor Day, just after everyone got back from the long weekend. I knew the market was poised for a down move because so many stocks were setting up beautifully for it. And a perfect one was General Cable Corporation (NYSE: BGC).

Check out that purple circle. That’s called a bear flag. It also formed a bear flag just a few days before – which broke down beautifully.

Based on that, I knew we could be onto something again. And the thing about this one was that not only had the stock formed another neat bear flag, it had also made four closes below $50 – something that it hadn’t done for 18 months beforehand.

I knew if the stock broke below these lows, I could have a hugely profitable trade. And check out the chart…

Over the next 3 weeks, the stock dropped by almost $15!

In the first week alone, a deep-in-the-money $55 put option notched up a 160% gain. Over the three weeks, it had swelled from $7 to $21 – over 200%. That’s triple the stake – and there was no drawdown whatsoever.

CH: That’s a fantastic trade Guy. Can we count on this happening every time?

GC: Of course not. But my trading plan enables you to take a quick first profit, then ride the rest until a well-placed trailing-stop gets you out. So you’re always playing for a potential windfall profit.

CH: Does your trading system allow you to be flexible to different market conditions?

GC: Well, it’s certainly flexible enough so it can be adjusted, yes. For example, when the markets are really volatile and gyrating all over the place, you can take your first profit earlier, and then adjust your initial stop.

CH: What else do you look for when identifying your pattern?

GC: Well, for a start, we want to ensure that there are no news factors ahead that could cause the stock to behave in an unexpected fashion. That includes things like an earnings report or other significant announcement.

There are a couple of other factors that can either protect against a bad trade or massively increase the odds of a really good trade. My Flag-Trader application contains the software that finds these patterns easily. You just watch the instructional CDs first, then let the online software do its thing.

CH: So where can my readers go to learn more about your system?

GC: Just tell your folks to go to my website. That’s where people can find out more about me and how my students use my system to trade.

CH: So after reviewing the Flag Trader I am impressed by how user-friendly the whole system is. How long does it typically take for one of your students to become proficient in the market using your Flag-Trader method?

GC: It’s usually very fast. For some, it can take just days, but it might take a little longer for others. However, even with little to no experience, I’d say weeks at most. If you’re already familiar with the markets, then it can be a matter of days.

CH: Can you give us a Cliff’s Notes version of your system?

GC: It’s really simple. I only look for flag patterns on charts. I guess you could say I’m obsessed with them!

But you know, because of that, I don’t need to bother with anything else. Just look for the neatest-looking, compact flag patterns, then trade the breakouts either way. And as I said earlier, if there’s no breakout, there’s no trade – so that immediately provides me with a level of protection.

If the stock does break out, though, I have a pre-calculated first profit target, where I take half my stake, then ride out the remainder with a protective trailing-stop.

CH: And the course covers all of this?

GC: Yep – it’s covered in great detail.

CH: So the software system helps identify the potential trades?

GC: That’s right. That’s where the magic happens.

CH: Do you believe that it’s possible to time the markets?

GC: Warren Buffett has a saying: “Forecasting tells you a lot about the forecaster and nothing about the future.”

So in the sense of predicting prices, I don’t think timing the market is possible. I guess people can get lucky once in a while, but in my experience, trying to predict the markets comes at a great cost to your trading psychology – and your trading account. Remember, even a broken clock is right twice a day!

But can you time the markets in the sense of knowing which type of markets to trade (i.e. trending markets) and the appropriate time to get in? Yes.

The most successful traders I know have a non-prediction based system, where they know where to enter and exit and have certainty about their plan.

CH: I have written before that I felt that “buy and hold” is a bad strategy. Would you agree with this?

GC: Well, let me put it this way: Taking that approach since October would have put your portfolio on the fast-track into the abyss – and probably resulted in some ulcers, too!

Some folks can be wary of the word “trading,” but even in the short-term, it doesn’t need to be that intensive, provided you have a proper system.

CH: By now I am sure my readers will want to learn more about your very user-friendly system. Where can they learn more?

GC: Simply go here to discover more about Flag-Trader. That’s where your readers can see for themselves what it’s done for my students – and what it can do for them, too.

CH: Thanks again for your time Guy and introducing our readers to this fantastic opportunity.

---

I hope that you have found this interview as valuable as I did. It shows you that anyone can become incredibly successful in the markets by using simple pattern recognition and discipline.

What Guy has put together is without a doubt one of the best systems available for investors. I strongly recommend that anyone looking to learn how to make serious money in the markets take a look at Guy’s system. I think you will be impressed with just how easy he makes it to learn what it really takes to make money trading the markets.

You can learn more about The Flag Trader here.

Thanks again,

Christian