|
What Makes a Profitable Trading System?
I am getting too far
ahead of myself but this has to be pointed out. When a system is
developed each parameter is called a "degree of freedom". Now
here comes the interesting point. The more degrees of freedom a system
has the worse the performance will be. You see, when a system fits past
data very well (this is called curve fitting) then it will fail
miserably in the future. Yet this is what most system vendors do. They
curve fit some parameters to a back tested market, get spectacular
results, convince the public they will get the same, get the sale, and
the rest is all too well known. Failure follows. And with no money back
guarantee they are stuck with a $3,000 useless trading system.
Let me emphasize how simple trading really is. Have you ever heard of
the "Turtles Trading Group" and Richard Dennis? Well this guy
started with $1,600 and built it up to $200 MILLION in a period of 10
years. Now, what "complicated" technique do you think he used?
Fibonocci, triple smoothed, stochastic, off-set moving average? ( I know
a few people who try to trade this way )No way! This was his trading
style. A 20 day break-out. If prices go above the price extreme of the
past 20 days then go long. If prices go lower than the low extreme of
the past 20 days go short. He practiced sound money and risk management,
cut his losses and let his profits run, listened to no opinion, news,
rumors and simply followed his rules day in and day out. You know it
sounds like he actually traded properly. $200
million!
What about Ed Seykota? He turned $5,000 into $15 Million. His technique?
A simple moving average cross-over. If the 5 day average crossed above a
20 day average then he bought. If the 5 day crossed under the 20 day
then he sold. Does it sound complicated? Simplicity is the key.
In all of my years of reading about the worlds most successful traders
there are a number of characteristics that keep repeating them-selves.
You'll find they:
- Trade one or a small
number of very simple systems.
- Realize the importance
of following their rules and not listening to the rumors or getting
emotionally involved.
- Risk averse. They
always look at a trade from the losing point first. "How much
can I lose?"
- They live balanced
lives. Most of the top traders don't actually spend all day trading.
They manage their trades in 10 - 60 minutes per day and then step
away from the markets.
- Focused totally on
making money, not on being right all the time. Taking a small loss
is not only a part of successful trading it's good trading.
Keep
these characteristics in mind as I talk about my system
Fortunes are made from stalking the potential high- flying shares.
Waiting until they gather sufficient momentum to tell you the move
is really on and then placing down your money. There's no faster or
simpler way to make big money. Don't believe the people who tell you
money is made by investing in cheap shares and sitting on them. Or
even worse some will tell you they can pick ( predict) tops and
bottoms. Non-sense. Don't believe a word of it. The market is always
right. If a share is heading down there's always a good reason. And
if it does turn around well we'll know when to get in.
Just look at my examples and imagine you put these trades on: M-Cell
tripled in three months, (see the chart of a perfect Momentum Trade)
M-Cell Chart. Amazon made over 100% in just over 2 months,
Orange made over 250% in four months. These kind of trades happen
all the time but first you have to know what happens to identify
these potential super shares and then you have to know how to trade
them. ( go to my web site for a look at some of the trades I took
last year)
In the following pages I will briefly show you the benefits of my
system over all the other SO CALLED systems out there. So take a few
minutes to digest what I am about to tell you it may take a while
for you to believe the results I obtain.
Take a look at the charts I have provided. Do you see the power of
this method? Can you see how time and time again I buy into shares
just as they take off , often doubling, trebling my money in a
couple of months. This is the beauty of momentum trading. We look
for the "potential" shares that will blast off and take
our positions.
What if I told you that most shares that go on to be the years
biggest gainers have a certain set procedure they go through before
taking off? Well whether you believe me or not they do and I have a
system, which focuses your attention only on these rocket shares,
ignoring most of the ordinary ones. Why trade in shares that move at
15% per anum? That's not for me. What about you?
Look at Amazon.Com. My system alerted me to the potential of this
share in October 1998. After that it was just a matter of following
my system. What a move! Following my system puts you in @ $79.0 and
out @ $158 in just under 2 months. WOW! That's a 600% annualized
return. You don't need too many of those to make it a bumper year.
Just to show you the system works on shares all over the world (
LSE, HANG SENG, AUSTRALIA, JSE, NIKKEI, NASDAQ it makes no
difference) Let's show you a share that interested my system which
was on the JSE. The share was M-CELL. The share was bought at
approximately 11r, ..and I am still holding on last count it was @
33r.That's a 300% increase in 2 1/2 months. Aren't these fantastic
returns? And it happens all the time. If you know what to look for.
I see nowadays most "newbie" ,and some not so new traders,
want to day trade or trade very short term. But if you look at the
results and the stress these traders put them-selves through you
have to wonder why. You see, I would much rather make say 3 or 4
trades in a year. Cut my losses very early on my losers, let my
winners ride as long as possible, often up to 400%+, sit back and
watch my account grow.
Surely the whole reason you invest in the stock market is to make
money and give you more free time. But if you day trade not only are
you not making as much money but you are now tied down to the
computer screen day in and day out. The stresses can be enormous and
basically you have swapped one job for another.
If you want to read about a way to make a killing in the Stock
Market with very little effort and time involved then read Nicolas
Darvas " How I Made $2 Million". It's a great story. This
guy turned $25,000 into $2,5 million by just looking at the
newspapers for 10 minutes in the evening and trading what he saw.
This guy didn't even use a charting package and he performed better
than 99,5% of other traders. This is why in recent years I have
turned my back more and more on technical analysis and short term
trading. I am not saying they are not without their merits, it's
just that there's a much simpler and easier way to make more money.
As Jesse Livermore said: " The big money isn't in the
individual fluctuations but in the big moves", " It was
never my thinking that made me big money, but my sitting
tight".
In other words "be more long term orientated". Don't go
for lots of small 5-10% gains go for 2 or 3 300%+ moves. That's how
you make a killing. And when you have a winner don't look to jump
out at the first sign of a profit but keep in as long as possible.
It's vital to your success.
Here's another misconception about the market. "You can't go
broke taking a profit." Rubbish! That's exactly how you will go
broke. If you buy into a share at $25 and get out at $30 but then
look in on the share 6 months later and it's at $100. How would you
be feeling? A trade is only a good trade as long as you have
followed your rules. Get out when the system tells you to get not
before and not after. Time and time again I talk to stock traders,
who trade from opinion, tip-sheets, brokers, etc. "it looked
cheap so I bought it". I am amazed. They honestly expect to
make great returns year in, year out. The only way you can beat the
market with ease is to follow a winning system, totally eliminate
opinion and be more long term orientated.. That's the beauty of
Momentum Share Trader.
Let's talk about what really makes a good trading system
If I presented you with the following choices of in a trading system
which one would you choose?
System 1 accuracy of 80%
System 2 accuracy of 50%
System 3 accuracy of 20%
Easy, you would opt for system 1, right?
Let's now add another component:
System 1 Risk /Reward = 1/ 0.25
System 2 Risk/Reward = 1/ 2
System 3 Risk/Reward = 1/ 8
Now let's say the risk any every trade is $500 and look at this: 100
trades
System 1 Total Money Made = + $10,000
System 2 Total Money Made = + $25,000
System 3 Total Money Made = + $40,000
Now which system would you prefer to trade?
Do you see why the accuracy of the system is not the most important
element of a system? It's the RISK/ REWARD and how much money does
it actually make that you should be concerned with.
Momentum Share Trader
1) Accuracy 60%
2) Risk/ Reward = 1:7
3) If Risk = $1,000, then for every 10 trades you will make +
$38,000
Concentrate on making money not on being right!
Momentum
Share Trading System
Only $199.00
|
