March 25, 2017: New comments S&P500
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Twice semi-finalist "Favorite Article" in the S&C 2015 Readers' Choice Award. Thank You!
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A great majority of private investors are trading based on fundamental analysis. They are long term investors buying stocks that are kept in portfolio for the long term. The idea behind is that in the long run the stock market is basically rising.
With this kind of investing the money must be spread among a bigger number of different stocks and sectors. This means that there must be sufficient starting capital and that it must be reserved for long term investing only.
A big disadvantage is the difficulty to define rules when to open and close a trade, because fundamental data is generally lagging considerably.
Looking for an alternative based on technical analysis techniques you can use the BBS or the "Band Break System" presented here.
Please note the formulas for BBS and indicators are proprietary but are licensed for private use with the purchase of the DVD. The "BAND INDICATORS" DVD includes the video presentation with the user manual and the source of the licensed formulas available for MetaStock®, MetaTrader4® and NinjaTrader® but can be programmed in any other platform with the available source code.
If you purchased the DVD and you want to auto-trade based on the BBS expert system to be used with NinjaTrader®, please let me know. It is ready and you can have it for free. A selection of 20 volatile stocks trading 100 pieces per trade, over a period of the last 5 years, gives a cumulative profit of 350%.
Using technical analysis I believe there are two different approaches to look for buy and sell signals.
The first method is the method I use and explained in my book “Capturing Profit with Technical Analysis”. The method explained in the book, called “LOCKIT” uses all possible technical analysis techniques to come up with reliable buy and sell signals.
This is not the easiest method, because you need a very broad knowledge of all the basic techniques and the know how to apply them successfully.
A second method is to trail the price movement of a stock, buying and selling based on the fact that a short or medium term up or downtrend is broken, signaling a trend reversal. Here you have to find the most profitable balance between fast entering a trade avoiding as much as possible false entries and staying in as long as possible to let profits run. BBS uses this kind of method.
It should be clear that this kind of trading can only be profitable if the stock makes big enough price moves. A stock making only small moves over longer periods of time will not make you money. Therefore it is very important to make a selection of stocks that make regular larger moves over longer time periods. Later on I will give you some simple method to look for the right kind of stocks to be used with BBS.
For a successful application of BBS it must be applied as outlined here concerning:
With the help of some special indicators, I will show you simple technical rules that will help you making this decision. That way you can make even more profit compared to the full automatic trading based on BBS that proves to be successful.
Please note I will not include a description of standard techniques used. For all the basic techniques, please consult my book “Capturing Profit with Technical Analysis”.
BBS is available for MetaStock® and NinjaTrader mainly tested with the default values for trading stocks on a daily chart. It is also available for MetaTrader4 and tested on the forex EUR.USD pair.