What is the holy grail of end of day stock trading?
Lima, Peru, October 2015
Currently I am on one of my business travels in Central and South America and I have done my business already in Nicaragua, Panama, Costa Rica and Colombia and the last part, before returning to Spain will be Peru.
I always like to do my business trips as it gives me a good feeling of how the local economies are doing and especially “tasting the mentality of the locals”. I was pleasantly surprised about the increased security and economy in Nicaragua. This country, despite a rather left wing Chavez like government, is doing really well and it is noticeable by its increased foreign investment. It is known now as being the safest country in Central America.
Now I am in Lima, Peru and as far as high class food there is no better place in South America. The great thing is, my business lunches and dinners bring me to the top restaurants of Lima and the food is just delicious!
Now, let’s get back to the title of this article; what is the holy grail of stock trading?
THE HOLY GRAIL OF STOCK TRADING IS THE PERFECT EXECUTION OF AN AUTOMATED SUITE OF NON-CORRELATED SYSTEMS TRADED SIMULTANEOUSLY.
I know, this is a handful, so let me explain this step by step, because it is simpler than you think!
I have seen so many people looking for the holy grail of trading. They jump from one trading strategy to another, always looking for the perfect strategy. The super strategy that makes money each and every single day.
Well this kind of strategy does not really exist. In order to make money, you need to risk money and with risking money you will also have losing days, losing weeks and losing months. It is just part of the deal. If somebody tells you differently, do not believe it.
My definition of the holy grail contains 3 parts:
- Non correlated systems traded simultaneously
- Perfect execution
It is vitally important for you to understand that it is NOT hard to obtain the holy grail of trading. In fact it is easy to get if you understand every aspect and part of it.
Let’s start with the first part: automation
We generally can divide trading into 2 styles as far as the decision making process;
– Discretionary trading
– Automated trading
Most people have a discretionary style of trading which means that the decision to buy or sell a stock is not based on fixed rules but more on the feeling of the person about a certain stock and the feeling of the overall market. They watch the news heavily, inform themselves through reading newspapers and magazines and then, when they feel the time is right, they jump in.
This, for some people can work, but most people will lose money trading this way. You eventually end up buying at the highest point possible and straight after you bought, the stock goes down. The reason this happens is that you are highly influenced by the news messages.
The so called experts on TV tell you all kind of things what to buy and when to do so.
These people can be divided into 2 categories: 1. Journalist: They are making a living as a journalist, NOT as a trader! 2. Analysts: They are paid to analyze but I have never seen a rich analyst who makes millions of dollars trading his own money.
A far better way to trade is to have written rules of when to buy and to sell and have these rules programmed into a software. This takes the emotion and discretionary part out of the decision making progress and through back testing software you can scientifically prove if your decision making process has an edge, how big the edge is and how much money it has made, based on past performance with historical data.
If the edge is big enough, we are able to trade it, and your only task is to follow the daily trade setups that the software provides you.
The daily process is easy and can be done in less than an hour but mostly a lot faster.
- Download the latest prices of all stocks after the market close
- Scan with your software for buy and sell signals
- Enter these signals in your broker software and….voila, you’re done
There used to be a famous group of traders called the turtles who, in beginning of the eighties were trained by trading legend Richard Dennis (he turned 2.000 USD into 200 million dollar).
This group was taught a completely automated trading system based on simple entry and exit rules. After their training period when they started to trade live in 4 years they made together over 100 million dollar.
I once had dinner with one of these turtles and he confirmed me that the workload – after having done the required studying – was very low, maybe 30 minutes a day. Not bad for making 100 million dollars!
Trading an automated strategy has the following advantages:
– Not relying on instinct but on a scientifically proven concept with predefines rules te enter and exit
– It takes the emotion and stress out of your trading. Your days of anxiety of what and when to buy are gone.
– When there is money on the line, it is very hard to be objective in discretionary trading. Emotions take over and irrationality causes you to have a bad judgement.
– No necessity to follow each news message and read all newspapers opinions etc.
– No need to go through analyst reports or analyzing all kind of financial ratios.
– You can do this in less than an hour a day and you can choose your time to trade between market close and next day open as you only need to put in your orders for the next day, before the open. Nothing more!
– No need to monitor the markets the whole day. The computer does that.
– Because of this liberty you can trade this wherever you are in the world.
– You only follow price action and your software measures when to buy or sell
– You can trade different strategies at the same time, focusing on bull strategies and strategies for market declines without getting overwhelmed of information overload. The computer handles this for you!
These are just a few advantages of trading an automated system but there are a lot more. One of the main thing I like so much is that I have developed for my private mentoring clients a course in which they will learn to trade a combination of different systems that make money in different market environment that work in bull markets but also in market declines.
We all know that when you buy stocks that are rising in a bull market that making money is easy, but what happens when the market enters in a bear market? You need to have a strategy in place that capitalizes on a market decline and actually make money. Especially in Economically hard times the risk of a market decline is always there and it can vanish your profits.
You can Click This Link download my ebook Trading Mastery School 2 – How to create an automated trading system that made more than 30% per year since 1995, in which I explain in detail how to combine in a simple way 3 different trading systems that has made more than 25.000% since 1995.
Also, I provide a very exclusive mentoring program in which I teach people one on one to replicate my results and trade their way to financial freedom in less than 30 minutes a day.
I only have space for 3 more people, so Click This Link, then leave your name and email and you can apply for a strategy session with me, personally so we can define if you are a good fit to work with me.