 |
|
|
|||
 
|
SlopeTrade Strategy Simply put SlopeTrade™ is a stock trading strategy that is based on following market prices rather than trying to predict them. SlopeTrade also follows a strict risk management discipline. It is based on a "let your profits ride (to a point)" and "ride hard your losses (no exceptions here)" strategy. When you follow the market you are one of the herd. When you follow the herd you want to be one of the first to get in when things are going up and one of the first to get out when things are going down. Most will admit that's pretty hard to do because it relies a lot on luck. The SlopeTrade objective is to be second in and second out. How does SlopeTrade accomplish this? It does this by creating a SlopeLine and comparing it to a PriceLine (a line joining the closing prices for the stock). When the PriceLine intersects the SlopeLine it triggers a TradePoint. The SlopeLine is not a trend line, rather it is derived from the simple moving average price line. The trick is knowing the number of days to use in the simple moving average calculation. It can be different for each stock and can vary over time depending on the price movement of the security. SlopeTrade also considers (to a minor extent) the fundamental reasons for market movement in any given week (the "story"). It is a good indication of a strong trend when the fundamentals support the price action. Using technical analysis alone usually fails at some point if the fundamentals are not considered. Similarly only considering "the story" (the "fundamentals") without looking at the charts is just pure folly. Sounds simple doesn't it? However, successful trading in the stock market is a lot like golf. Looks simple yet very few have mastered the skill. Why? It has to do with the human emotions fear and greed (some call it hope rather than greed). Greed (or hope) prevents many investors from getting rid of their losers (they hope the losers will go up again) and fear prevents many investors from buying and keeping winners (they fear the winners will start to go down the minute they buy them or that they will start to go down after rising a bit). To be successful at stock trading you have to fear that losing stocks will go down even more (which they often do) and sell them and hope that rising stocks will continue to rise (which they often do) and hold on to them until they peak and start to drop. Successful golfers put in many, many years learning and playing the game and it is no different for successful stock traders and investors. SlopeTrade accelerates that learning and improves your ability to play the stock market game. Make no mistake about it, the stock market is a game complete with winners and losers. It's the most popular casino in the world. When you buy a stock you are taking on a gamble and placing a bet. However, unlike a casino where you would probably only play with a small amount of money, in the stock market you are probably prepared to put in your life savings! All of us think "we know how to play this game". And if we don't want to personally take the gamble we usually let somebody else do it for us. In the end the chance for loss is high and the probability for profit is poor because the emotions fear and greed (or hope) are working against us. Look at the North American indexes over the past 10 years and then look at your portfolio value over that time. If you've done well chances are you are already practising SlopeTrade in some form. If you haven't perhaps it's time you started. Almost all stocks need to be traded at some time! The reason for poor portfolio performance based on a market index is usually because most of us don't know when to get in and more importantly when to get out of the market. So why not just follow the market! Get in when the getting is good and get out when it is not so good. You need to know the securities one can use to "play the game" and you need to know the indicators that tell you when to get in the market and when to get out. This is where the SlopeTrade strategy comes into play. SlopeTrade takes the emotion out of trading and replaces it with an objective strategy. The SlopeTrade Investment Strategy Guide shows you how the SlopeTrade Strategy is used in actual trading or in other words when to get in and out of the market. But one thing SlopeTrade won't provide you with is the discipline you need to follow the strategy. That is up to you to provide. Just remember to usually do the opposite of what your emotions tell you - sell when you hope that a loser stock will go up and buy when you fear that a rising stock will go down! Make sure you check the charts before making a trade (to confirm whether the PriceLine is above or below the SlopeLine) and don't wait too long to do it!!! Remember a stock cannot continue to go up unless the price is above the SlopeLine and it will continue to go down as long as the price is below the SlopeLine. Buy those stocks with prices above the SlopeLine and sell those stocks with prices below the SlopeLine. In a nutshell that is what SlopeTrading is all about. The ETF (exchange traded fund) the SlopeTrade Bull/Bear Portfolio uses must replicate either the TSX 60 index, the S&P 500 index or the NASDAQ 100 index. The security must have both a "bull" and a "bear" version so that money can be made when the market goes up and when it goes down. The SlopeTrade Bull Portfolio only trades the bull version of the security. Such ETF's are sponsored by Horizons Beta Pro in Canada and ProShares in the U.S. and a few others (check the Web for other funds). There's lots of information on the Web concerning ETF's issued by either of these two companies. SlopeTrade has no affiliation with either Horizons Beta Pro or ProShares, nor does SlopeTrade give specific investor advice on those funds. They are merely mentioned as examples of the ETF's that could be used in the SlopeTrade strategy. The main reasons SlopeTrade uses these securities are focus, simplicity, liquidity, diversification and profit potential in up and down markets without having to go short. Not having to go short means that your risk is limited to the price you paid for the "bear" security. Theoretically, when you short a stock in the normal fashion your risk can be unlimited if the price of the stock keeps rising and you don't close out your position. Keep in mind the SlopeTrade Portfolios will hold only one of these securities at any one time and at times may not hold any securities at all and be entirely in cash. These "bull" and "bear" ETF's are usually leveraged products which essentially means that they go up more than the market index and they go down more than the market index (usually by a factor of 2). Leveraged ETF's are useful for traders in two ways. First of all, they can actually reduce risk while providing the same profit potential as an unleveraged ETF. For example rather than buy $10,000 of the unleveraged ETF you can buy $5000 of the leveraged ETF version and keep the remainder in cash while still enjoying the same profit potential. In this instance your maximum risk of loss in the leveraged product is $5,000 while your maximum risk of loss in the unleveraged product is $10,000. The second benefit is that when the trend or "Slope" is strong investing the full $10,000 in a leveraged ETF will give you better returns than investing $10,000 in an unleveraged product. It is important to remember that leveraged ETF's should only be employed in an active trading strategy, not in a buy and hold investing strategy. If you hold a leveraged ETF while it is on the wrong side of the SlopeLine your losses can mount up pretty quickly and much more than in the unleveraged ETF. It is also important to note that you should never use margin to purchase leveraged ETF's. The leveraged funds already use margin money and if you also use margin you could lose more than your invested capital. It is just too risky if you get the SlopeTrade wrong (remember to get out quickly if you do get it wrong to preserve your capital otherwise it can get eaten up quickly). SlopeTrade™ is a stock trading strategy that relies on following the market and uses a strict discipline of when to buy and when to sell. Sometimes frequent trades are called for (could be a few trades a week in a choppy market) yet there may be times when a trade could last for weeks or even months. The risk of loss is present with every trade and nothing is guaranteed, however, so far the gains in the hypothetical SlopeTrade Portfolios have outweighed the losses (please note past performance does not assure future returns). The goals of
the SlopeTrade Portfolios are: The SlopeTrade
ST Bull/Bear Portfolio ROI Objective is: The SlopeTrade
MT Bull Portfolio ROI Objective is:
|
||||
