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Increase Your Stock Market Profits Dramatically with Systematic Trading and Beat the Pants off the Wall Street Morons

DIRTY LITTLE SECRETS

I am going to let you in on a dirty little secret.  Of all the forces in the economy that have caused people to lose money in the stock market, none have been greater than the advice of financial experts and brokers.  Brokers and most financial advisers could care less about your financial well being and if you follow the advice of these people it is highly unlikely that you will do anything more than contribute to their salaries and retirement.  We may be hurting but believe me Wall Street is still very fat and still a little stupid.

These Wall Street fat cats are the same people that have put much of the world’s economy in the toilet in the last couple of years.  But of course there were a lot of people willing to listen to the advice of these Wall Street morons also.

But that is all history now.  The good news is that the economy and the market are going to recover and this is a great time for stock market investment.  It is time for the little guy to take revenge.

DO IT YOURSELF

If you want to make money in the stock market you need to do it yourself.  So how do you do it yourself?  Do you need to study companies and economics or God help us all, technical analysis?  Emphatically I say no.  All you need to make it in this market is a simple systematic approach to trading and the discipline and willingness to follow your ideas.

I have been trading systems for nearly 20 years and starting with practically nothing I have made a pile.  I do not know the names of the companies I trade and the only thing I care about concerning brokers is that I pay them the bare minimum for transaction costs.  The subject of technical analysis puts me to sleep.

AN INSTRUCTION BOOK FOR BUILDING AN ATOM BOMB

What brokers, market advisers and a lot of other well meaning people want you to believe is that market behavior is extremely complicated and that the description of any truly profitable system that purports to predict market behavior AND that makes money would, in theory, be equivalent to an instruction book for building an atom bomb.

I know a lot of people that have attempted to become winning traders who have mirrored this kind of thinking in their search for profitable trading systems.  Let me tell you a true story:

I knew a brilliant engineer whose creative engineering ideas had made him very wealthy.  But just being wealthy and being a great engineer did not satisfy him.  This brilliant engineer wanted to write the definitive mathematical formula to predict all market behavior.  He was understandably confident of his math skills and he expected to be able to do this with a formula that might run 50 pages or more.

The man actually interviewed me as a potential employee and associate.  What I remember most about my interview was our discussion of the necessity of securing his home from attacks.  Once the world realized that we had the formula to predict all market behavior we would have to secure his property with walls, electrified barbed wire and armed guards.  We would, after all, be holding secrets that would allow us to take over the financial world and as such our secrets were of greater interest to hostile elements than national military secrets.  We would in effect become a financial nuclear power.

This man was not crazy; he was brilliant.  But I did not go to work for him and I nevertheless might have dismissed him and this incident had I not met other brilliant people who seemed caught up with the same idea.  And that idea, the idea that it was possible to find the Holy Grail that could predict all market behavior, also included the necessity of fortifying the trader’s home against outside attacks and intrusions.

THE MOST IMPORTANT RULE ABOUT MARKET BEHAVIOR

So in order to give you a taste of what I, a successful trader, think about market secrets, I am going to publish in this article and in the printed word you are presently reading, my very accurate formula for predicting market behavior.

This description, however, will be best understood with a demonstration.  You will first need to find a large yard or perhaps a park with soft green grass.  Take a tennis ball to the park along with a pen and note book.  First look 360 degrees around where you are standing and then write in the note book where the ball will land when you throw it.  Now close your eyes and start twirling around and around until you feel you are about to fall.  Then just before you collapse to the ground throw the ball hard as you fall.

1. Now open your eyes and note where the ball has landed and compare this with the prediction that you wrote in the notebook.   Now you have just discovered the most important rule of market behavior.  All market movement is predominantly random.  Only a small part of market movement is non random and hence only slightly predictable.

So my brilliant engineer friend is not going to be able unlock the secret of market movement with PHD level mathematics.  In fact fourth grade math will do just fine.

When you see an advertisement for a trading system that says it is 90 % accurate, you can file it with your trash and garbage because no such thing exists with appropriate testing.  You cannot get 90% accuracy out of data that is predominantly random.

KEEP YOUR SYSTEM SIMPLE AND YOU CAN BE RICH

When dealing with market data that is predominantly random the only way to get to the part that is slightly predictable is to stick with the simplest ideas with the fewest parameters.

Let me give you an example of a stock market trading system with few parameters.  At the close of a market day you take the LOW of the day and subtract it from the HIGH of the day.  Next you take half of that value and add it to the CLOSE.  So let us say that on Monday WUZOO makes a high of 20, a low of 10 and closes at 14.  Then we will subtract 10 from 20 to get 10 and take half of that to get 5.  Then we will add 5 to 14 to get 19.

The number 19, (.5(H-L)) +C, is the market price to buy on Tuesday.  If the buy price is hit on Tuesday you hold the position until the open on Thursday and then you sell it.  That’s it.  There is nothing more to this simple system with the most limited number of parameters.

BELIEVE IT, SIMPLE MAKES MONEY

I have been doing this kind of market research since 1984 and I am going to tell you that without programming and testing this simple system I know this simple system will work.  But for the skeptics I will offer some data and test results.  Nevertheless I am limiting the amount of data I present here in order to keep this article easier to understand.  But if I wanted to prove my theory in a Court of Law I would use more data.

I randomly selected four markets from the top of my list of traded markets that are arranged alphabetically.  The four markets I selected were ADCT, ADSK, AMD, and ABGX.

I tested each market using this simple trading system for one year.  I used a formula that commits $10,000 to each trade, hence you buy 2000 shares of a stock trading at $5.00 and you buy 200 shares of a stock trading at $50.00 etc.  I tested ADCT, ADSK, and AMD from mid January 2009 to mid January 2010.  As a check against correlated markets I tested ABGX from mid August 2000 to mid August 2001.

In the real world of stock market trading and trading on margin you could probably trade all four of these markets at the same time with about $10,000 in cash.  Furthermore it is unlikely you would ever get a margin call on a trading system that is out of the trade on the open of the third day.  By the time the margin clerk calls you are out of the trade.

This is the net profits from each market:  ADCT $2,376, ADSK $2,401, AMD $4,308, ABGX $7,299.

If I put the numbers for all four markets together this is what they look like:

NET PROFIT = $16,385

Gross profit = $35,604

Gross loss = $19,219

Number Trades = 111

Number win = 72

Number loss = 39

% profit = 65%

Average Trade (win loss) = $148

MAX intra-day drawdown = -$2,848

This is pretty decent performance for trading random price behavior.  You can repeat this test in all kinds of markets and use data as far back as you want to go and you will get similar results.  It is not the Holy Grail but it does a good job of taming the randomness of the market place while protecting your precious trading equity.

A good trader can take this kind of performance and get 100 % annual return on his or her investment.  And if you can get 100% annual returns you can be rich.

This kind of system will always work because it is simple and has limited parameters.  Don’t give this system to a really smart person because they will screw it up!

I have done this kind of trading in real time for close to two decades, but I have not yet had to put walls around my house or put up electrified fencing.  I will let you in on a dirty little market secret.  THERE ARE NO TRADING SECRETS IN THE MARKET PLACE.  What I publish here will make no difference in market behavior.  I put my stuff on a web site; it makes no difference regarding my system performance.

You can see that this is hardly rocket science.  In fact I could come up with four more of these systems that are just as good in any given evening.  If I worked on it I could develop about 100 systems like this in a month.  I know a couple of the most successful fund managers that do exactly this.  If you have $100,000,000 fund to trade you need a lot of trading signals and this approach is perfect.

PERFECT FOR THE SMALL INVESTOR

But this approach works well for the small investor as well.

I like to take advantage of the short term nature of this kind of system and trade a lot of markets with it.  I am currently trading 96 markets with a similar system and I do not put more than a thousand dollars into any given trade at a time.  $20,000 covers the margin requirement for 96 markets, but I think you could still cover 12 markets with only $3,000.  But trading 96 markets gives me a lot of protection against drawdown.  If you are trading that many markets something good seems to always happen even on bad days.

WHY YOU NEED TO TRADE SYSTEMATICALLY

And that by the way is why I would not consider anything but a mechanical trading system for trading stocks.  I can’t study 96 companies and I cannot watch 96 markets.  But I can program these simple systems and let a computer keep track of everything and beep me when I need to buy or sell.  I sit in front of computers everyday in my pajamas, drink coffee and clean up.  Well most of the time I clean up.  Lol.

You as a small investor need not be intimidated by the market place.  If you develop a simple short term approach to trading and trade it systematically and methodically and with discipline. you can beat the pants off the majority of traders, professional and otherwise.  Be your own boss and do it yourself.  The market place is full of morons and usually the morons make huge salaries and dress and talk smarter than we do.  My advice to you, the small investor, is to go after them with solid, simple trading systems.  And trust me; there is a lot of money to be made in these markets.  Power to small traders everywhere!

http://einsteinstocktraders.com
Fifteen years ago, Robert Buran wrote, “How I Quit My Job and Turned $6,000 Into a Half Million Trading”. Bob set the system vendor industry back on its heels by publishing all his broker statements to prove the validity of his methods. Bob went on to trade European money in the U.S. stock market and pushed nearly two billion dollars in trades through the stock market in less than two years with annual yields close to 100 %. Although he is quite familiar with trading millions of dollars his interest remains with what he describes as the greater challenge of trading a few thousand dollars into a small fortune and his current work is geared to the small investor. Bob posts all his real time trades twice daily on his website, http://www.einsteinstocktraders.com along with news and market commentary. Bob is a TradeStation programmer and his current interest is working with intra-day data and multiple market data streams to develop “hit and run” short term trading strategies that combine high yields and low risk. Bob insists that the current U.S. economy and its stock markets present an ideal environment for his methods and he presently refuses to short any U.S. stock market. Einstein Stock Traders.com http://einsteinstocktraders.com is a unique real time stock trading site geared to the small investor and short term trader interested in high investment yields and limited risks. Real time trades and some market commentary by “Trader Bob” is posted twice daily every market day

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