Three stock traders and their systems.
All are interesting, two are ancient,
and one is ...
Nicolas Darvas running
... the fusion
Jesse Livermore sitting
The trading system for trend riders Based on the legends Darvas and Livermore
Financial markets are basically a zero-sum game. Everybody tries to win, but the cake is not infinitely big and the market adapts ghostly to the group of winners that has become too large, leveling their advantage down.
Yet, for a small minority there is a way to consistently escape the crunching mechanisms of the markets. In order to get an impression of what that could be, let's have a look at a chart of one of the recent stars of the stock market:
A 100-fold increase in 3 years
During its steep ascent the price of Hansen Natural's stock got multiplied by a factor of about 100 in a matter of only 3 years. This is of course hindsight and I presented on purpose an impressive example, but the chart demonstrates something.
It shows directly that you could have made hundredfold back of what you invested. Stocks often have large moves, much bigger than the ones of commodities or currencies. But at risk would have been only the investment itself. This asymmetry clearly favors stocks over all other financial instruments. Their leverage is no compensation for the asymmetric price behavior the stock investor enjoys. Trading on margin with Forex or futures can let the account go below zero, which is simply a linear and not a logarithmic growth behavior. Options have a premium that decreases over time, which destroys the advantage their non-linear pricing pretends to offer at a first glance.
But there is something else. The multiplying happened with a trend that went straight up and was almost always at its current high. In such a situation the market forces that are playing against the small trader are diminished....
Most traders, and investors even more, are not aware that a price at the high is a different situation than a price elsewhere. Generally, it is a signal for more of the same to come and not for a retreat, as it may look to so many. It is an exceptional situation, indicating that there is a force hindering the price to swing back, which it normally would do.
Still, trading is what it used to be, a statistical game. There are situations near the high where the odds are skewed to your favor, but you must be able to identify them and to behave methodically. In other words, to exploit this exception, a trading system is necessary.
What characterizes this trading system?
It is a trading system for the stock market that is trying to take advantage of longer-term moves of stocks. That does not mean that only long-time investments are put on. Chances for swing trades are also more likely found and successfully executed within a longer lasting upwards move or a relative price strength in a bear market.
At its best a stock gets held for many month, but only few trades will make it that long and so typical holding periods are starting from one day, commonly lasting a few days up to a few weeks. Trades are not conducted to be swing trades or longer investments, instead a position is held as long as it makes sense - the market decides, according to the rules of this system, of course.
Daily bar charts are the main instrument to feel the stock's pulse technically.
On the fundamental side only the most accessible information is necessary.
The whole system works with tight stops. For that matter, sales can occur at the day of buying.
Often trades can be executed automatically with a suitable limit or stop order. Depending on the situation this may hold true for entry and exit orders.
This system can be applied also to ETFs and more generally to everything that is traded on stock exchanges.
Possibly interested in this system could be trend followers and swing traders, but also investors who want to pursue a more active approach in the market. It may be also valuable for day traders, even if they are not willing to use the longer-term components of the system. But who knows, perhaps one or the other of them will finally find out where the real money is.
Why is this trading system interesting?
The whole stock universe is screened by selection criteria for companies with the right product coupled with long-term price strength of their stocks. The fundamental growth situation of a company that is caused by its special product is something which likely has an ongoing momentum. Together with a confirming price strength this is the best possible indicator for an enduring trend. Consequently this process will find the gems that have the greatest future potential.
There is a set of simple rules accompanied by three groups of buy setups and another set of sell signals. This rigid structure enables a daily bar oriented trading style. There are situations where intraday charts may be used, but the emphasis lies on trading the daily bar chart and you can ignore completely any information with a shorter-term horizon. This rule-based trend trading system tries to achieve efficiency with simplicity.
Both points above suggest that this is the modern version of Nicolas Darvas' famous "techno-fundamental" trading system. However, its entry system is much more elaborated to be better adapted to modern market behavior. The selection of trading candidates is also more sophisticated. Darvas entered a stock only at its absolute high, something that proves to be a real constraint. If, for instance, the whole market is weak, this method allows to trade on relative strength alone far from the actual high. There are other differences like money management. Darvas essentially had none, as he grossly over-traded back then. But luck was with him, as he started directly at the beginning of a bull market. This trading system could be viewed as the successor of the Darvas method. Major parts of it, like the entry rules, got replaced completely and all in all it is much more refined as a system.
A necessary part of any trading system is sound money management. This system maximizes the long-term performance and keeps the principal risks in check. Simply diversifying into many stocks is not the answer, because that would dilute not only the single failure but also the single gain away. Instead, using the right borderlines, knowing what you can do and what not, is the key. While money management principles have to work on their own as a final safety net, this system supports them with strong help from the trading side. Some of the trading rules represent a stiff stop-loss system.
This is a semi-automated system that tries to beat completely mechanical ones. There is a frame of precise rules that incorporate the "tricks" of trading at the high, but there is also the trader. For that reason one whole chapter is devoted to psychology, including a comprehensive list of what can possibly go wrong with solutions or at least ideas to get on the right track.
Ideally this trading system enables its followers to earn with a modest amount of work a maximum of return. Does it make sense to hope for big gains with trading slow moving stocks, dull stocks of dull companies or even slower moving currencies? Or to do the opposite and chase tiny intraday movements with an exhausting maximum of concentration? Is it wise to invest in stocks that fell back and hope that there was no sufficient reason for their fall? I don't say that there are no other ways to trade, but in my opinion the best possible thing to do is to invest in the best trends there are.
Trade the best trends there are. As Darvas put it more than 50 years ago:
"There was nothing else for me to do while Texas Instruments, Zenith Radio and Fairchild Camera went to work for me".
This trading system is available as an eBook, which is written in a focused style and aims to be a thorough explanation of the system and a manual or checklist for day-to-day use. I don't repeat much, if anything, and I don't start with the basics. You should have already at least some trading experience. Any successful trading system requires a user willing to invest some work into understanding and executing it. This trading system can lead to outstanding results, but it is not the magic formula that makes everyone rich by producing infallible buy and sell signals. If you have already traded, you know that there is no such thing. It also should be clear that it can't exist for logical reasons.
The eBook has almost 120 pages and comes as a digital product, namely a PDF file, which can be viewed with any modern PDF reader like the one from Adobe. You can also print it out or read it with accessibility tools.
Interest in fast moving stocks is an indicator that this system is right for you. If you are a convinced value investor, it may only suit you if you are willing to experiment. Of course, you are welcome to try it.
Many investors changed successfully their trading mind. As I mentioned before, if you like Forex, futures or options more than stocks,
I strongly urge you to do so anyway.
In case you want to have this system, you can get it right now. Immediately after your buy, which is securely processed by Clickbank, you will get your personal download link from where you can download the eBook. There will be an email address for possible download problems. Clickbank has also a 60-day return policy and processes all refunding requests. So you can rest assured that you are exploring an investment with some intrinsic security right now.
Why does the system work?
This trading system concentrates on stocks of companies with products of the future, which already have shown a significant upwards move. Trading at the high bends the probabilities around to your favor for shorter trades and longer investments equally.
Whether a trade is for the long run, does not get decided beforehand. Every entered position has the potential to be held for a long time and because of the asymmetric price behavior of stocks that translates to large profits.
With the precise entry logic and a matching stop system that are both designed to exploit situations with pricing pressure near short-term highs, it is also possible to make many smaller gains.
Stock Trading System
"a profitable investment"
Make the right investment now and transform yourself into a successful investotrader.
ClickBank is the retailer of products on this site. CLICKBANK® is a registered trademark
of Click Sales, Inc., a Delaware corporation located at 917 S. Lusk Street, Suite 200,
Boise Idaho, 83706, USA and used by permission. ClickBank's role as retailer does not
constitute an endorsement, approval or review of these products or any claim, statement or
opinion used in promotion of these products.