What Are the Odds That You’ll Survive the Next Price Shock?

Don’t you wonder, when you invest in the stock market, “What are the odds that I’ll be successful?” and “What are the odds that I’ll be wiped out by some price shock?” Actually, it sounds better when it’s in a positive way, but it’s just the other side of the old “risk of ruin.” If there is a 25% chance of reaching the maximum you are willing to risk, then there is a 75% chance of achieving your … [Read more...]

Living Off Profits

Our daughter trades, but she needs to make enough to live on. That bothers me because withdrawals constantly drain the account and makes it impossible to compound the returns, the key to accumulating wealth. I’m sure she’s not the only trader with that problem. The question that I ask is, “how much can you withdraw and still keep trading?” Let’s take a simple example, using the SPDR SPY from … [Read more...]

History Matters, A Primer for Controlling Systematic Risk

I am always impressed by the detailed analysis of the TV financial commentators about yesterday’s market action. But then I remind myself that it was yesterday, not today or tomorrow. I read a lot of articles on forecasting, admittedly a difficult task. But there are some forecasts that are better than others. Recently, an attempt to forecast the lows in a popular stock was based on comparing … [Read more...]

Low Volatility — High Returns?

It doesn’t seem possible and defies most financial theory. We’ve always learned that higher returns require higher risk. How is it possible to get more from less? But during the past few months there have been two articles that have gotten publicity, Moreira and Muir, Volatility Managed Portfolios (Yale, 2016), and Bilello, The volatility cycle (Proactive Advisor Magazine, May 18, 2016). Price … [Read more...]

Matching the Markets to the Strategy

At the risk of being too “geeky,” not all markets will be profitable with all systems. Part of being successful trading is to know which strategies to apply to which markets. We can never be perfect because economics and supply/demand can change, but most markets can be put into a category that favors one trading method over another. For example, if you’re a macrotrend trader, holding positions … [Read more...]

Dogging the DOW, Debunking Myths

Besides showing a new trading strategy, we'll look at why these statements aren't true: Large companies cannot grow at the same rate due to their own weight Dogs of the Dow are a good investment because company performance rotates Arbitraging using only DOW stocks is a fool’s errand Analysts seemed to have looked at the Dow Industrials (DOW) in every way imaginable, trying to eke out … [Read more...]

High Momentum or Mean Reversion?

A long, long time ago, back in the 1990s, we had a method called “High-Momentum Trading.” It was a short-term strategy that took advantage of overbought and oversold conditions – not by fading them (selling overbought and buying oversold values), but by buying overbought and selling oversold situations. It does seem contrary to the concept of being overbought or oversold, but it’s all about … [Read more...]

Will Prices Give Us A Christmas Gift?

Is there a Christmas rally in the stock market? Is there liquidation at the end of the year? So far, our election predictions have been correct, that the day after the election will determine the direction of prices for the next three weeks. We’re now past that. What can we expect for the rest of the year? If we look at the history of December performance from 1950, shown in Chart 1, we see … [Read more...]

Entering at the Right Time of Day Can Double Your Long-Term Profits

We’ve all heard a lot about averaging down, scaling in, waiting for a pullback, and other clever methods for entering a position. Most active investors, those who follow a medium to long-term trend, wouldn’t think that whether you enter on open following a signal, or the close, or even the next day, would make much difference in the long run. But it does. Buy or Sell First? When I’m entering or … [Read more...]

Uncovering the Best Tradeable Bond Fund

From the view of alternative investments, bonds have had the best returns for the past 40 years. Well almost. There are periods, some recent, where bond prices have gone down anticipating higher rates that never came. When we think of buying a bond funds, any of a large number of ETFs, the elephant in the room is the risk of interest rates turning higher. It will happen – someday – and we need to … [Read more...]

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