A lot of readers have asked me “what components go into your Day Trading Model“. Here’s a brief description.
This quantitative model uses a combination of fundamental data, technical data, and pattern recognition to trade stock index futures and individual stocks. This model is completely different from the Medium-Long Term Model.
This model is rather complicated. But here’s the kicker that professional traders don’t want you to know (or can’t admit themselves):
It’s not that hard to consistently make money trading.
- You don’t need an insanely complicated strategy or model to trade successfully. There is no holy grail indicator, so stop trying to find one. I like what Steve Jobs said: simplicity is the ultimate sophistication.
- A lot of traders use dozens of technical indicators. More indicators does not = more trading success.
- Simple strategies do still make money over the long run.
- You need to adhere to your successfully backtested strategy, even when the strategy starts to lose money. No strategy is going to work 100% of the time. You will not make money in the long run if you jump in and out of strategies.
- Discipline and risk management are the key to successful trading and investing.
Here’s a simple strategy for trading individual stocks.
A simple trend following + contrarian strategy
We looked at this strategy very early on in my hedge fund days. It underperforms the Medium-Long Term Model over the long run, but its’ average return is a lot less volatile.
This trading strategy is a “breakout strategy” for trading individual stocks combined with some contrarian components.
If the Medium-Long Term Model says that this is still a bull market…
- Buy and hold a stock when it closes above its 50 daily moving average.
- Only close the long position if the stock falls below its 50 daily sma, OR if the monthly CLOSE RSI (9) exceeds 80. In doing so, you are riding the trend until it ends OR until the trend becomes too stretched.
Use Bollinger Bands if the Medium-Long Term Model says that this is a bear market. Scale in as the market falls and scale out as the market rises.
To improve this strategy in a bull market, only go long stocks with the strongest earnings growth. In a bear market, only short stocks with the weakest earnings growth. Adding fundamentals (earnings) onto your trades will improve the odds of success.
I will post 5 individual stocks a day and show you whether you should buy, sell, or avoid these stocks based on the aforementioned strategy. Copy these trades at your own risk. This is not meant to be trading advice. It’s meant to show you that even simple trading strategies can work over the long run.