Stock Traders Daily has secured 18% from a short recommendation made this week on VeriSign VRSN �. This call was made in conjunction with a proactive trading strategy called " Stock of the Week" where one stock is chosen every week with a defined trading plan associated with it.
Each week a new stock is chosen based on Stock Traders Daily's expectations for the week that follows. The basis is anticipated market direction, and from there proprietary correlation tools are used to determine which stocks are likely to be most responsive. We have our own correlation tools, but anyone can do this. The idea is to find stocks that have been moving with the market, look for chart patterns that line up with market moves, and identify stocks that have been correlated to the market recently by doing this. From the list that is revealed one stock is selected as a prime candidate for trading, and this week that stock was VRSN - short from near $40.99.
Over the past few weeks other notable selections for this strategy have been Wynn Resorts WYNN �, KLA-Tencor KLAC �and John Deere DE �. Since its inception in December of 2007 this strategy is up 235% versus the S&P 500 ETF SPY �, which is down 0.40%, The Dow Jones Industrial Average ETF DIA ,� which is down by 0.3%, the NASDAQ 100 ETF QQQ � which is up about 25%, and the Russell 2000 ETF IWM ,�which is up about 9.3%.
The stock of the week strategy is up so significantly against the market because it is proactive, because it is rule-based, and because it can work in any market environment regardless of economic conditions or market direction, but it does something else that is very important.
The stock of the week also ends every week in cash, and that means investors can make positive headway without worrying all the time. Investors can be present with family on the weekend without worrying about what the market will do on Monday, and they can also automate the strategy using simple conditional orders at their brokerage firm so they don't need to worry about it during the week either. The strategy can be used by anyone, but it has its drawbacks too.
Inherently investors want to be right, they do not like having stops, they even hate it if there are a series of stops, and that is exactly what can happen in this strategy over periods of time. The risk controls are tight, normal stops are small, and the gains are designed to be significantly greater than the stops in percentage terms, but there will be more stops than gains, and that is something most people cannot wrap their heads around. Even with the great performance, investors still run the risk of failing because they let human emotions get in the way, but for those that can overcome those this strategy has worked well over time to beat the market no matter what the economic or market conditions.
Here's how to do it:
This stock of the week is easy to follow and easier to understand.
1. Using simple technical analysis determine where the market will go in the week ahead. We use a straight line approach that identifies pivot points in the market and we think this is the best approach. Pivot points using the straight line method usually produce the best result for this.
2. Use filtering tools to identify the stocks that are most likely to correlate. I have described the types of tools we use above; the goal is to find stocks that have been following the market because those are most likely to continue to follow the market as well. This increases the probability of success in our favor.
3. Investigate the top candidates in more detail and avoid stocks set to report earnings.
4. Select the long or short trading plan based on the determinate in step 1.
5. Conduct this analysis over the weekend and avoid mid week changes.
6. Execute the trades during the week (this can be automated with existing tools)
7. Close the trade and the strategy on Friday before the market closes.
8. End every weekend in cash.
9. Enjoy your weekend.
10. Repeat the process.
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