subject: 3 Steps to Increase Stock Market Profits Using ‘Weight of Evidence' &‘First Moves' [print this page] 3 Steps to Increase Stock Market Profits Using Weight of Evidence' &First Moves'
Introduction to My First Moves' Stock Trading Strategy
The easiest way to learn to trade is to have someone take you, step by step, through a series of trades. You then learn their complete trading strategy, entry, stops, exits and why and how they act/react to price moves.
I have traded for over 25 years, first as a professional stock broker for 18 years and now privately from home. I trade using daily charts for short term online stock trading and use weekly charts for my longer term stock investing e.g. to manage my own self managed retirement fund (SMSF).
This article follows on from the detailed sessions held at my 2009 and 2010 stock trading Boot Camp seminars, in which I showed how to take advantage of recovery stocks during their "First Moves".
A rising trend signal on a weekly chart often offers a great trading opportunity. I call this my First Move' strategy. I target falling Industry Groups that have just reversed the falling trend criteria and the companies within that Industry Group that meet my fundamental criteria.
This strategy worked well in 2003, 2006 and 2009. With a number of Industry Groupsin falling trends, and many more looking to follow them down, we will feature this strategy in our Investing & Online Trading' stock market newsletter over the coming weeks and in the future when topical.
3 Parts of a Stock Trading System
Irrespective of whether I am looking for First Moves' or any other online stock trading or investing opportunities, before I enter any trade, I list out these 3 main parts of my trading system:
1.Set Up Conditions i.e. how I will identify & choose WHICH stocks to Buy
2 Entry Conditions i.e. how I will time WHEN I will Buy and, most importantly,
3 Exit Conditions i.e. how I will time WHEN I will SELL
Very importantly, note that I do this " BEFORE I enter any trade".
Why? Because my trading is mechanical. I put a lot of thought into creating and testing my system first.
That way, in the middle of a trade I don't need to think about what I am doing, I simply react to price movements and follow my tested rules.
3 Steps To Identify First Moves'
My Set Up conditions to find "First Moves' are to wait until the following 3 criteria are all in place:
The overall Market Index is in a Rising Trend
The Industry Group Index has reversed from a falling trend to a rising trend
The individualstock(s) within that Industry Group have confirmed a reversal to a rising trend
I have a series of tested and written down rules to define each of these conditions. Note that all 3 conditions MUST be in place before I choose which stock to trade.
I have other documented rules which I have thoroughly tested over the past 25 years to time precisely when I Enter the trade - and when I Exit.
Over those years I have developed the discipline so that I never jump the gun'. Rather, I patiently wait until all the planets are in line' before I enter any trade. This is part of what I call my Weight-of-Evidence' approach.
It helps increase my probability of success (measured by the NUMBER of Wins vs No. of Losses); my Profit-Loss Ratios (the SIZE of the Profits vs size of Losses); and hence increases my overall profitability.
First Move' Example
Each week in our mentoring-style Investing & Online Trading' Stock Market Newsletter I show many case studies to teach our Members how to choose WHICH stocks & shares to buy, precisely WHEN to buy and, importantly when to SELL.
For example, after the recent 2007-2009 Bear Market, at my May 2009 weekend stock trading workshop:
I presented a table of 8 stocks from the Software & Services Industry Group that met my fundamental criteria at that time.
Of these, we identified 2 stocks we were targeting - when/if we identified a rising trend.
My 3 falling trend criteria on the All Ords Index were reversed on June 12th, 2009
The Software & Services Industry Group Index was in a confirmed rising trend on June 12th, 2009
One of the two companies generated an entry signal the following week.
The First Move' in this case the first targeted stock from the Software & Services Industry Group Index - was confirmed to be in a rising trend, as defined by my criteria, one month later on June 12th, 2009.
By simply:
a) Checking its progress just once a week (on the weekend) using weekly charts and
b) Exiting when the signal was given by my weekly JB Volatility Trailing Stop
this First Move' trade provided a 31.7% profit in less than a year.
First Move' Recap
This article is based on an extracts from our newsletter in which we show the power of using my Weight of Evidence' approach to help put the odds of success in your favour and to increase your overall profitability.
To recap, in this First Move' stock trading strategy we:
Monitor falling overall Market Index and Industry Groups
Identify those which have just reversed my falling trend criteria
Then identify the companies within that Industry Group that meet my fundamental criteria and
Wait for a confirmed entry signal and by so doing,
Prepare ourselves to take advantage of recovery stocks during their
