Wednesday, December 22, 2004

How to Value a Source

Are you asking whether subscriptions to services that help us trade stocks are cost effective?

This question applies to any stock advisory service and for that matter, any tool, be it charting, data, software, blackbox systems or even hardware and broadband tools. The answer is that it depends, and you need to evaluate the services on an individual basis to decide.

Tradable pops for me need to generate on average intra-day return of 2-3%. For simplicity sake, let's say that $10,000 worth of stock is purchased on any one signal. That would mean the system has to have an on average profit expectation of $250 a pop. These expectations are not prayers, they are based on extensive back-testing as well as real time trading experience with the source of the signal.

For example, in order to evaluate whether $150/month is justified for any one service, look at the average profit expectation for each signal generated from this source, including losing signals, times the number of signals triggered each month. For example, if there are 10 signals per month averaging $250 per signal, then the gross profits from this source amount to $2,500 per month. The cost of the source is $150 per month. Viewed in this context, do the results generated from this source justify it's cost?

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