Tuesday, September 06, 2005

Secret of Success

With over 25,000 hits on this blog since inception, I am flattered and at times overwhelmed by the interest out there in successful trading. I also get a lot of private e-mail generated by these blogs, questions and comments that I do not generally make public because you (the viewer) chose not to post publicly and I respect your privacy. But there is one question that gets asked over and over again, by different folks with different approaches and interests in trading, so it seems OK if I post this question, in my own words and then try to answer it in a way that makes the most sense to me as a trader and blogger.

"What is the secret of your trading success?"

My answer may disappoint those who seek some holy grail software program, mathematical equation, secret geek guru, cycles, waves, or numerology. The answer instead is that there is no secret, not in the sense that we think of secrets. I have set out in plain view over the course of these blogs what I am doing and how I am doing it. I used one example, insider buying, to describe in exact detail how it is done and have alluded to other approaches beyond insider buying that utilize the same concept, approach and implementation. Today, I will, for the sake of science, disclosure and the sheer brilliance of it all, give you another specific example, complete with names and numbers.

I probably spent most of this past three-day weekend analyzing the past two years of the work of Louis Navellier, publisher of four newsletters, Emerging Growth, Quantum Growth, Blue Chip Growth and Global Growth. The first one, Emerging Growth, used to be called "MPT Review," named after "Modern Portfolio Theory." Navellier discarded this name at the beginning of this year, stating that his methodology is no longer a theory, that his track record has proven the validity of his "quant" approach to stock picking. He may have a point as in his 20+ years of publishing his stock picks, his cumulative return is 4,385% versus a cumulative return of the S&P 500 of 1,088%. No small achievement.

Getting back to trading, my working hypothesis is that with returns like that, there are a lot of investors, big and small, who follow Navellier's stock picks and who will collectively move his stocks. In order to test this theory, I had to go back and review each and every stock pick Navellier made in the past 24 months, putting it all in spreadsheets, sorting for price, market cap and assorted other distinguishing characteristics and then backtesting for price action immediately at and following his recommendations. This was hard, tedious work, i.e. another so called "secret" of my success. But by Monday night, I had assembled enough data to come to some very clear and convincing conclusions about how Navellier's picks behave around the publication of each new issue of his Emerging Growth newsletter.

Coincidentally (not), his September issue was published after the close on Friday. Accordingly, I knew exactly what to do today, Tuesday morning, how to play his picks for those short term pops I love so much and write about so often on this blog. It worked beautifully. Not every one of his stocks popped, as expected. Most did pop, as expected. A couple popped really big, as expected and my trouble for exchanging a holiday week-end for adding a new weapon to my arsenal of short-term trading techniques paid off handsomely, also as expected.

You call this a secret of success, Allan?

Not so glamorous, nor mysterious, nor even much of a secret. Just a bunch of hard work going after an idea about something that might work and then implementing it upon the ring of the opening bell. And if you see the similarity between this and surfing Insider-Buys for pop candidates, you can move around the board, collect $200 for passing Go and land on Boardwalk.

Before you ask, no, I am not about giving away my work product, my spreadsheets, my conclusions, nor my other short-term trading techniques. But I am giving away inspiration. It's not so much how I do it, as much as it is that I do it. It took me over twenty year's of trading to get here and as I set out in my Profile in the right margin of this page, this all came from an idea I had while driving across country two summers ago. Other ideas have come and gone in twenty years, but this one, for whatever reason the trading Gods decided, this one has stuck.

Find something that works............................AND TRADE IT!

A

8 comments:

Anonymous said...

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Come and check it out if you get time :-)

Ronny said...

Hi Allan,whether you like him or not,Jim Cramer does have a following.Do you find any evidence that his stock picks "pop" the next day or two after he recommends them?
Thanks,Ron

Allan said...

Ron, Yes, Cramer moves stocks, very short term, but he does move them, a fertile ground for trading opportunities.

A

Ronny said...

Allan,what was the optimum holding period for your reseach on the newsletter strategy?
Thanks,Ron

Allan said...

Ron,

what was the optimum holding period for your reseach on the newsletter strategy?

Varies significantly, that's why I do a lot of backtesting and trade simulation before adding a new trigger to my system trades.....but for the most part, a few hours to a few days covers 90% of my stuff. I use trails and very tight stops, if a stock doesn't rise almost immediately, something is wrong....just as if it runs too far, too fast, I sell half and put a trail on the rest. Trade management is just as important as trade initiation.

A

Ronny said...

Thanks Allan,your drawdowns must be very low.

Ali said...

Thanks Allan,

I wish I had read and digested your comment above about how you handle a stock running to far and fast before I bought HOM premarket Tuesday for 3.83. If I did, I would have been up over 10% and out fifteen minutes into the day.

Trade management is as important as trade initiation. Got it.

Thanks

ilene said...

Ali, just curious, what made you buy hom premarket on tuesday?