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how to generate market crushing returns

how to generate market crushing returns

It goes without saying that 2017 was exceptionally good to stock market participants.  It’s hard (or stupid!) to complain when the total return of the S&P 500 was over 20%!

Even better, you can turbocharge your gains during a raging bull market by applying the 821x trading system.  I’ve personally had my best year ever, capturing an over 50% gain in my IRA in 2017!  That’s more than double the already spectacular performance of the market as a whole.

how to generate market crushing returns - 52% gain in 2017!

crushing it!

Our Model Portfolio put in a stellar performance as well, boosted in part by our best 821x Model Trade to date; a 127% gain on BZUN! You can see all of our top trades using our new interactive Performance Dashboard:

So how did this happen and what can we do to put ourselves in a position to be crushing it again next year?

how to generate market crushing returns

The most important factor is to consistently apply the core principles of a strong trading system:

  • find stocks with good looking long-term charts and shorter-term buy signals
  • set the position size correctly
  • let winners run and cut losers quickly

In addition to all this, I implemented NEW rules this year to help ensure I slow down and trade less.

Trying to stay 100% invested 100% of time is a recipe for disaster.  Believe me, I’ve learned this the hard way.

Instead, build rules into your trading system that limit the times you put your hard-earned money at risk by initiating new positions.  Below are the rules I personally put in place in 2017 and will continue to apply going forward.

#1 new trading tactic for the new year

ONLY look for something to buy in one of the two scenarios below.

  1. It is the weekend AND the 5 and 50 day moving averages of the S&P 500 are both rising AND the closing price is above the moving averages.
  2. The closing price of the S&P 500 is above the 5 day moving average AND the 5 day moving average of the S&P 500 is rising today AND one or both of these conditions was not true on the prior day of trading AND the 50 day moving average is rising. (this can be any day of the week)

I know these rules can appear to be complicated at first glance, but actually it’s pretty simple. The first rule limits new stock purchases to weekends IF the market is rising in both the short and long term. The second rule allows for midweek purchases ONLY when a short-term pullback appears to be resuming an uptrend.

If you have an android device, you can use the default settings in the Market Reading App (free or pro version) to make evaluating these rules even easier:

  1. It is the weekend and the S&P 500 info box is green.
  2. The S&P 500 info box was lime yesterday and is green today. (this can be any day of the week)
how to generate market crushing returns - market reading app

green means both moving averages are rising and you can see two buyable pullbacks as well

I am considering adding a notification feature to the app next year to automate this process even further… I’ll keep you posted.

In the meantime, if you are not happy with the returns you are pulling in, you may want to consider putting your own guidelines in place to restrict trading activity or just “steal” mine.  This will become even more important when the bull market inevitably comes to an end!

DIY Investor Market Reading App

unveiling our new app!

On Friday, oil was up 1.54% and the biotech sector was down nearly 1%.  Like the ticker symbols scrolling across the bottom of the screen on CNBC, these data points are pretty much useless.  I would argue that a single day’s action taken in isolation, provides no value at all.  In order to be useful, data needs context, which in this case is the trend.   We make money by investing in assets that are trending, and by doing our best to identify when a trend is possibly beginning or coming to an end.

However, in fairness to CNBC et al., is it even possible to succinctly communicate this much information visually?  This is the challenge that inspired me to create Market Reading.

Moving averages smooth out the “noise” of daily price movements, revealing trends.  Market Reading provides customizable moving averages, representing short and long term trends.  When both moving averages are rising, the asset’s information box is colored green.  When both are declining, the box is red.  When the short term moving average is going against the long term moving average, these colors get moderated to lime and fuchsia accordingly.

Market Reading is available now at the Google Play store in both a free and pro version.  The pro version provides the added capability to drill into sectors and stay on top of global market trends.

Watch the video below for more information and a demo of the app.  If you have any suggestions or questions I didn’t cover, don’t hesitate to reach out.

Although built to “scratch my own itch” so to speak, it is my hope that you find this tool useful too!

DIY Investor Market Reading Android App

Market Reading Free version

DIY Investor Market Reading Pro Android App

Market Reading Pro version

 

feelinghigh

how do you feel at new highs?

The S&P 500 closed at a new all-time high yesterday.  Upon hearing that, the average investor’s first instinct is to think that the market is topping out.  Stocks are too expensive.  Valuations are dangerously stretched.  The higher they fly, the harder they fall.   We are overdue for a crash etc., etc..

However, we here at DIY Investor know better.  Perma-bear fearmongering is as unhelpful as unchecked bullish exuberance is dangerous.  Emotions and feelings aside, here are the facts: after making it’s FIRST new intraday high in over a year on July 11th, the S&P 500 made 8 additional new highs and there is no reason to think that there aren’t several more on the way.  Only ONE of these new highs will be a long-term top.  MOST of them are just stepping stones to higher and higher prices.  That’s why, counterintuitively, new highs are bullish.

the powerful uptrend that started in 2009 is still intact

high as a kite with no sign of coming down…

If this rally continues, fears of a failed breakout will give way to a fear of missing out.  IF this happens, the market can enter a mania phase where the uptrend gains EVEN MORE momentum.  IF the last remnants of fear give way to unbridled greed, the market can explode into full-on bubble territory, which would mean we would see MUCH higher prices than we are seeing now.  When this hypothetical bubble inevitably bursts, it will end badly for those that are unprepared.  However, those of us with a plan will do very well and be able to lock in the lion’s share of our increased wealth.

Before you accuse me of smoking something, let me just say that I fully understand that this is a far-fetched potential scenario.  Nevertheless, I do believe it is one worth keeping in the back of our minds as we break out of a year consolidation to new highs.

P. S., I only provide the actual buy and sell instructions for our 821x model trade here on the blog and through email to subscribers.  Be sure to follow me on Twitter @marketchameleon for updates in between.  On Tuesday, we received an 821x sell signal on NTG, our model trade. However, I recommended via Twitter that we not close the position unless it closed below $18.10.  The stock pivoted and proceeded to put in an 821x buy signal on Thursday so far averting an unnecessary shakeout!

 

Facing-a-Fear (2)

no need to fear a big drop

“News” that George Soros is shorting stocks grabbed headlines once again this week.  I don’t see why this is getting people so worked up.  Soros has supposedly been making big bearish bets since the beginning of the year.  He’s been warning of a repeat of the 2008 financial crisis and apparently has a 2.1 million share put option against the S&P 500.

I have no clue if George Soros is right.  However, I do know that “news” like this does nothing to help us make money.  We make money when we position our trades in the direction of the 8 and 21 day moving averages.  Right now these moving averages are rising, so we are bullish and long stocks.  In fact, this week the S&P 500 poked through the highs of last November, essentially negating the macro pattern of lower highs and lower lows that has controlled the big picture over the last year.

The only argument bears can make now is that this was a failed breakout which will lead to a fast drop lower.

failed move leads to a fast move?

failed move leads to a fast move lower?

I will grant that this is a possible scenario.  However, the weight of the evidence we have right now still points to higher prices.

If Mr. Soros and the bears turn out to be right, we will have plenty of time to change our stance and position our portfolios accordingly.  We would lock in profits and raise cash as our holdings give us 821x sell signals one by one.  We could look to move some money into other asset classes such as bonds and/or gold.  Finally, we may take bearish bets against stocks alongside Soros by purchasing inverse ETFs,

We will have sufficient early warning.

We have a plan of action.

There is no reason to fear.

the pursuit of freedom

the pursuit of freedom

Freedom is a beautiful thing.  Live and let live.  No person or institution using force to impose it’s will on another human being.

It’s a wonderful goal that we should all aspire to in our lives and in our dealings with others.  Unfortunately though, for most, personal freedom remains a starry-eyed fantasy, an elusive “if only”.  That’s unfortunate, because most of the shackles that enslave us are of our own making: self-limiting beliefs, a refusal to venture out of our “comfort zone”, and allowing fear of failure or fear of rejection by others control our actions.

the-2precent-mindset-whoischick

Futhermore, self-imposed financial shackles like suffocating debt and an uncomfortably high lifestyle burn-rate mean we often go to work each day not because we want to, but because we have to.

The first and most important step we must take to end this cycle of self-sabotage and achieve personal freedom is to free our minds.  We can never truly be free as long as we are seeking approval and validation from others.  This is much easier said than done because this requires undoing much of the “training” we have received since childhood.  This is a big topic that deserves several blog posts but I’m going leave it there for now.

Once you get that right, I believe the second most effective measure you can take to achieve greater personal freedom is to build wealth.  Financial freedom enables you to pursue your happiness, whether that means spending more time with family and friends or traveling the world and experiencing different cultures.

Financial freedom also empowers you to exercise your most fundamental and consequential voting right; the right to vote with your feet.

The pursuit of freedom is ultimately what this blog is about.  If this is important to you, identify those activities that materially increase your freedom and spend your limited time and energy there.  Let me give you a head start: politics and religion don’t make the cut.  In fact, most of what is generally accepted by society as important won’t make the cut.  The truth is, “society” doesn’t give a damn about your freedom and would actually just prefer a good citizen who falls in line and can easily be controlled.

Remove your self-imposed shackles.  Free your mind and then invest time and energy increasing your wealth, and by extension, your freedom.  I guarantee it will change your life.  It has certainly changed mine.