The Traders Journal

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The Secret of Making an Investment Methodology Produce Consistent Profits

“I have heard many men talk intelligently, even brilliantly, about something – only to see them proven powerless when it comes to acting on what they believe.  Investors must act in time.”  -- Bernard Baruch

There is a fine line between embracing your methodology, trading it, trusting it, understanding all its nuances, strengths and weaknesses versus never truly trusting your methodology. Suspecting that your methodology is flawed and therefore constantly tinkering with it and needing to reinvent it will not lead to success.

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Charts I'm Stalking: Action Practice #12

In previous blogs, I’ve sermonized that Asset Allocation is the highest leveraged activity that investors can undertake.  We produced an entire two-disc DVD on how to execute what we call our “Methodology Allocation” process which maximizes the benefits of a CORE & EXPLORE approach and then optimizes it by laying on top a “Best-of-the-Breed” technique.  

I bring this up because the previous Action Practice #11 blog is ideal to use as an example.  In our book, we present the correlations of 59 different asset classes.  We invite investors to pick perhaps ten of these classes which are spread across the entire correlation spectrum so that you achieve diversification with a lower beta.  In other words, when one asset class goes down, another is likely to go up.

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After 17 years, A Financial Journalist Discloses His "Top Investing Lesson"

After seventeen years writing an investment column for USA Today, Matt Krantz is joining a money management firm and leaving us with the top lesson he’s learned in all those years.  

Coincidentally and nearly simultaneously, I ran into two former students at a local Starbucks who had attended my class a few years ago.  They reminded me of three stocks we had in our class portfolio back then — Amazon, VISA and Mastercard.  I was pleased for them since I personally invested in all three equities and was rewarded with exceptional returns.  Then they sheepishly confessed that they had not actually invested in any of these three stocks.  (But note how well they could recall them from class!)

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Charts I'm Stalking Action Practice #11

In Action Practice #10, we applied the Tensile Trading methodology to the buy side of the six charts.  This week, we apply the same price relative approach to the sell side and show that it works just as effectively there.  We even recycle the CDE buy chart and now annotate the same chart with appropriate sell signals.

The point is that investors can use the power of the Tensile Trading methodology to both profitably get into a high probability position as well as get out of a position with fading probabilities.  Please remember that there is no universal right or wrong placement of the vertical selling line.  We each require a unique personal set of selling clues before being able to pull the trigger.  What you should aspire to achieve is consistency in applying your sell discipline.

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How Investing, Brain Training and Longevity Fit Together

Yes, the fountain of youth really does exist, and academic research is increasingly proving it to be found amidst your investment portfolio.  A growing body of scholarly research shows that, in many ways, life can get better as we get older, and being an active investor can contribute in significant ways.  If this sounds familiar to some of you, it is because in fact this was how I began my blog about “Maintaining Mental Longevity” published on December 12, 2014.  Check it out so you don’t fall prey to silly myths on aging.

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Charts I'm Stalking: Action Practice #10

Profits and Consistency — these should both go hand-in-hand and be goals for every successful investor.  Profits are the result of a methodology that you can apply with clarity and understanding.  Consistency is the result of being able to replicate your winning methodology in a recurring manner.

Action Practice #9 challenged you to draw a vertical line on six charts at a point you felt the probabilities most favored a profitable trade.  Since we all require differing degrees of evidence before we are able to pull the buy trigger, the vertical buy line will no doubt vary significantly from one investor to the next.   An aggressive trader may not wait for all four price relative graphs to show confirmation.  Perhaps three is enough.  The same with money flow.  A conservative investor may require alignment of all five.

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Tensile Trading ChartPack Update (Q4.2016) 150 Potent Enhancements plus Fidelity's Fresh Quarterly Buys and Sells

Holistic is most commonly heard in reference to skilled medical practitioners who treat the whole person, considering not only the physical symptoms of patients but mental, emotional and social factors as well.  Holistic is also the perfect adjective to describe skilled investors.  They appreciate the fact that the numerous parts of the stock market are intimately interconnected, and they are fully aware that investors must comprehend these dependencies to understand and profit from the whole.  

The ChartPack is precisely this — a holistic investment tool.  I personally use it daily in all my investing activities and have done so for over 15 years.  Since I first made it available to my students in 2011 and to StockCharts.com subscribers in 2013, the ChartPack user community has grown exponentially and contributed hundreds of improvements to the package we all now use.  

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How You Know You Are Part of Our Investor Club

Groucho Marx first said it and Woody Allen repeated the famous line “I’d never join a club that would allow a person like me to become a member.”  As an independent trader, I’m part of an informal loose-knit group of investors who do what I do, tend to think like I think and possess many of the same traders’ “ticks” as I possess.  We are a circle of friends who don’t commingle funds but who touch base regularly, encourage one another emotionally and share investment ideas.  Being a trader can be a solitary discipline and one must consciously make an effort not to become reclusive.  For me, my trading buddies and my educational outreach provide me the antidote.

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Charts I'm Stalking: Action Practice #9

The Seasonality Action Practice blog from December 16, 2016 is about the two most impactful decisions you can make as an investor.  Academics have produced stacks of papers confirming that your asset allocation decisions have immense consequences that flow directly to your bottom line.  I maintain it’s the second most important investment decision you can make.  

The most important decision is making a commitment to actively and regularly rebalancing your asset classes.  That’s where seasonality comes in by putting the probability winds at your back as you buy and sell to realign your positions with your target allocations.  The discipline decision is the most important because while seasonality has a degree of predicable probability, human behavior is predictably irrational.  

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New Year's Resolutions for Investors

Babylonians did it.  Ancient Romans did it.  Medieval knights pledged the “peacock vow” each New Year as their promise of chivalry.  Reflecting upon the previous year’s efforts and seeking ways for self-improvement in the coming year has been a common ritual for millenniums because our human nature drives us to be better next year than we were this year.  

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