This ones from the Money Manual

But I’m feeling generous as it’s the Spring Equinox and thought that I’d throw this concept and strategy out there.

If you adapt this strategy and use something different to what I do then you have to make sure you test the concept enough and make sure it works PRIOR to committing money to positions using it!

The risk as they say is then in your hands as it is with every single trading/investing position you put on.

Overview:

OK, this concept and strategy is very simple, we are going to look back over 12 months (1 trading year) to test out this theory, then from then on we will take EVERY SINGLE trade when our parameters have been met.

Now to improve the odds of success you can adapt this concept further but I’m only divulging those advanced concepts to those that buy my Money Manual (when I get around to publishing it!) which should be available soon.

The real purpose that I hope you pick up on is that you don’t have to know a thing about a market at all, no economic research, no background investigations into company accounts – all we are going to trade by is an indicator!  The aim is to take at least 10% from this market during a year but ideally much more.

In the conclusion section I disclose a technique you could use stripping constant 3%’s out of this particular market – Tip:  Other markets move more & other markets less than this market – think about the concept!

Strategy/Trading Set-up:

We are going to take every single (8) DTosc BULLISH reversal below 20% by entering long 1 penny above the previous days high price and trail a STOP on the previous bars low when the (8) DTosc reaches the 80% zone, until such a time that the market takes us out of the position.

Investment Fund:

Let’s assume that we have £50k in our trading fund and we are prepared to invest it ALL in one position when required to do so by our trading strategy/Set-up rules. – The size of the fund is not relevant for this example it could be £10k it could be £100k – obviously the returns in £’s would be different and if you’ve a very small account then buying the shares direct needs to considered against the costs of buying etc – If you can’t work out how account size affects you then you should not be trading anyway as it’s a key consideration and covered extensively in my Money Manual.

Risk Management:

We ALWAYS have a stop in place and if price actions “Gaps” over our stop at anytime we simply exit at the market and take the hit.

Our initial stop will be placed below the lowest swing low at DTosc reversal – see chart for details.

CHARTS:

(The following chart have commentary on the chart and below the chart)  All these charts are of the FTSE100 share – Vodafone Plc – We will start “trading this share in January 2011 and finish 31st December 2011.

Chart 1 above shows Vodafone Plc from Mid Sept 2010 to 31st December 2011 – on the chart the RED boxes = winning trades and the GREEN boxes = losing trades.  I have indicated the % gain you’d have made BELOW the red boxes and ABOVE for the green boxes.

Details of the Yellow boxes are described on the chart and would NOT have resulted in any trades being taken.  Yellow box 1 – was 1 pence from being a trade but our rules kept us out of that bad trade position!

I refer to “Gaps” in the text above – NO gaps happened against our positions in that example – but the important thing was that we had a plan if they did occur.

Conclusion:

OK, you can see that we have had 3 losing trades and 11 winning trades.  That is a win:loss ratio of 78.56%

In plain english 7.8 out of 10 trades are successful and 2.2 trades out of 10 fail.  I am counting the breakeven trades as winning trades too as NO money was lost

We have then controlled the damage those 3 trades out of 10 do to our account by always having a STOP in place and as you can see the winning trades plug this gap.

You can also see that our winning trades are greater in £ value than the losing trades!  = success

Now from the trades taken on Vodafone Plc let’s review them in order and the effect it had on our account:

Trade 1 (1st red box) = 1.86%     Trade 2 = 0.76%     Trade 3 = 1.18%     Trade 4 = 1.59%     Trade 5 = 2.27%

Trade 6 = -1.57% (Loss)    Trade 7 = -1.81% (loss)     Trade 8 = -1.24% (loss)    Trade 9 = 1.63%     Trade 10 = 1.97%

Trade 11 = 0%     Trade 12 = 0%     Trade 13 = 2.68%     Trade 14 = 2.29%

Total = 11.61%  on our account of £50k = £5,805 GROSS return

Now this return would have been the same as buying and holding over the same 12 month period and frankly 13 times more work for you by using this strategy – in this scenario it’s not really worth the extra hassle of buying and holding, but what if our strategy was adjusted only very slightly?

What if rather than our strategy being trail a stop when the DTosc reaches the 80%+ level, what about if we don’t do that and we just set a price target of 3% for every trade?  – Well if we had done that we would have had 10 trades @ 3% profit and 1 trade @ 0% (breakeven) and the same 3 losing trades, so rather than just making 11.61%, we have now made 30% – 4.62% (losing trades) = 25.38% from the same share but being smarter about profits!   on our £50k account = £12,690 GROSS

4 years of doing this and that £50k turns into £100k!  The more money you have the easier this becomes as the same % gain = more £’s made and allows you not to fight as hard for moves.

At this point can I just clear up one thing – I do not trade as I have described in the original set-up (Trail a stop when the DTosc reaches the +80 zone) , I trade as I’ve described in the 3% target section – I like to take profit off the table when it’s there, it’s just my style, I describe in greater detail in my Money Manual why I do it .  This post shows you that there’s multiple ways to use a trading set-up, all you have to do is design one that suits and accept it’s downfalls (as they’ll all have one).

This strategy will in flat years such as 2011 return amounts as above, but in other years that 25% will be 60%+ – Does it really matter what the main market is doing if you’re constantly stripping out 25% a year from the markets?  Over a 10-25 year period the markets will not beat that return.  Remember you only have one Investment Lifetime that you have to make the most of, leaving it to the general market is gambling unless you are aware of the cycles that drive the markets your following.

The thing I wanted to highlight to you was how easy it is to set something up and work with rules and also that by doing it yourself you can massively beat the market even in bad years!  Now if you enhance this strategy with the content on this blog then you can improve returns more.

The win:loss ratio for the DTosc is I have found between 70-80% on the markets that I trade, which is why I like it so much.  Here’s a link to the makers of the DTosc and their site – click here

It really is this simple, I don’t have to consider the news, accounts, fundamentals or anything other than 2 indicator lines on a chart – telling me when to place an order and when to consider getting out.

I hope that this helps to clear up whether trading’s hard or not – the “hard part” is stopping your mind from trying to work out an interpretation that the DTosc is giving to market action – it does not matter we simply take the trade regardless of what we think!

If the markets moved every time in a manner to suit our thoughts – we’d ALL win, ALL the time!  The markets I have discovered march to their own beat, there is NO way that you can successfully use an indicator to be right 100% of the time – it is impossible, using the method above is 70% successful, which you just have to accept and get on with life.

If this seems too much hard work for you then do not trade, this is a simple concept and obviously you’re not suited to trading.  the world of buy and hold is probably more suited to you but you can’t moan about low returns if you’re not prepared to work at it!

As for blogs – this will be the last one for a while, I really want to concentrate on getting the Money Manual ready and available and I’m also working on new Gann related strategies that could be the key for the buy and hold investor.

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