The Tactical Trading System
The Tactical Trading System:
- Helps traders make better trading decisions by
providing timely, quality information.
- Is a breakout system. We screen out low quality patterns with
poor expectations, so you don't waste your time and money on
- Is very dynamic; today's price
movement affects tomorrows potential.
- Scans thousands of charts daily to bring you the stocks that are in a position
to make a low risk breakout move. We call these Long or
Short Trading Ideas. We provide specific entry, target, and
stop prices for each Trading Idea well in advance, so you
always have time to evaluate the situation yourself.
Tactical Trading is NOT:
- Anyone's personal stock picking service.
- A bias or opinion.
- A general viewpoint on anything.
- Trying to find the next YHOO, MSFT, or $2 stock that goes to
- Some magical combination of Stochastic,
MACD, On Balance Volume, RSI or any other conventional
- Trading penny stocks. All trade
entries are above $8.
There are many trading styles, methods and systems.
By style, we are referring to trading strategies and
tactics, or what a trader or investor is looking for in any
given trade. "Buy and hold" is by far the most common
strategy employed. Many of us have bought a stock or a
mutual fund and are still holding it. Maybe you are making
money, and maybe if you're not up you're telling yourself
you just haven't held it long enough. Active traders buy
and hold, but they only hold for a few hours in the case of
day traders -- which I don't recommend. Most active traders
have a holding period of a few days to a few months. The
reason is simple: This is where the best opportunity lies.
What is the most important aspect of your trading?
Great generals know their odds of winning a battle before
the first shot is fired. If the General has prepared
properly he will have in essence won the battle before it
has begun. Know what to expect before you make a trade.
If you are just buying Yahoo because someone said it was a
great new company, then you'll have no idea of the potential
outcome. If you buy the stock and set a stop 10% below the
entry price, then you know one thing; you can lose 10% of
your money. If you set a target price 20% above your buy
price and you also set the stop price, then you know you will
either make 20% or lose 10%, whichever comes first.
Let's say you build a system and test it thoroughly. At some
point you know the expected win/loss ratio, what the average
win is, and what the average loss is. At that point you know
what to expect from your system. The Tactical Trading System
has been thoroughly tested on historical stock data,
including over 7,000 issues going back 10 to 20 years.
We know what our system will do.
Now what if you flip a coin? If it is heads you lose $1.
Will you flip the coin? What happens if it is tails? Will
you win, or lose as well? In the YHOO example above we
really don't know what's going to happen. Kind of makes you
think, doesn't it?
Some traders don't like setting a profit target. They feel
that by setting a profit target they will prevent themselves
from making really big money. They are stuck on the thought:
"What if it goes higher; what about the money I won't get? I
want to ride it to the moon!" To those planning on going to
the moon, good luck! The truth is that most stocks don't go
to the moon. Most stocks move about 35%, low to high, on a
really exceptional move.
Here is the compromise: Use a trailing stop. That means that
after the stock advances, move the stop up just below
support, so if the stock does turn down you are assured a
profit after a good move. This is better than nothing, but
you assure that you will never sell at the top, and
you are also subject to whipsaws. For the record; all
protective stop strategies have this problem.
After extensive research, I have found that certain target
levels are appropriate in almost all situations. The idea
is to capture as much of a move as possible as quickly as
possible. Yes, we will sell some stocks that will go on to
be 10-baggers, but we will probably trade the stock again
along the way.
By setting targets and knowing how often they will be
reached, it enables you to answer the other side of the
question. By setting targets you know what will happen if
your coin comes up tails.
If you know you will lose $1 for heads and you will make
$1.20 for tails, then it is worth the effort to flip the
coin. You know that over time you will flip the same number
of heads as tails, and for every two flips you should make
$0.20. It would be nice to make $1,000 on a tail and only
lose $1 for a head, but it is very, very hard to find that
coin. Using our strategy, the gains add up over time.
You must know what to expect from your trading style or
strategy to know if it is worth using. Anyone that is not
willing to divulge their long-term results, or is unaware of
their expected value on each trade is simply unprofessional -
- or incompetent -- in our opinion. (There are some stock
pickers that are quite good, but they cannot answer this
question. If they have a long and consistent record they
could calculate the answers. I think they should find out
and report it to those paying for their services.)
In an extensive back testing run, the Tactical Trading
System yielded the following results:
- Traded 7,367 stocks...
- Made 52,089 trades in 3,456
- 53.32% of the trades made money...
average gain was 6.35%...
- The average loss was -4.95%
The system made money more often than it lost, and the gains
are bigger than our losses.
This is the formula for success!
In our minds, the above numbers are not very impressive, but
keep in mind that this includes all stocks. We know some
are better than others in our system, but we included
everything. I doubt there are many systems that have been
tested on all the data available for all current issues.
We scan thousands of charts daily and present the best
trading candidates. We know what to expect going into each
trade and that gives us the edge.
Why we outperform the others
We know the answers to the tough questions. We have
structured each element of our system to complement the
other. One of our goals is to be in stocks that are moving.
We are not interested in holding a stock that is not moving.
If a stock is not moving then, it is a risk. You never know
when something bad could happen.
BMCS is a great example of being in and out at the right
time. In November 1999, we went long BMCS and made a quick
20% gain. Then in late December we went long again and took
a healthy 10% gain. We have a time exit that will kick us
out of a trade if the price move stalls. BMCS stalled, and we
exited the trade at $79 on 12/29/99. On 01/07/2000, just nine
days later -- only five trading days -- BMCS traded below $45.
Our "in and out and don't hang around" strategy yielded a
compound return of 32%, and we held the stock for a grand
total of 22 days. From the period we first entered to the
time we exited, the stock moved 37% from low to high. We
captured a significant portion of the move, and avoided the
near 50% drop in the process.
We enter stocks that are on the move, and if they stop
moving, or if they reverse, we get out of the stock. If the
stock jumps quickly, we take the quick gain.
Buy and hold
A buy and hold strategy can be very profitable, but the time
horizon must be extremely long -- greater than 10 years --
and the selection process must be very thorough. Errors in
the selection process may result in holding a stock for 10
years only to find that you have made no money at all, or
that you lost money. Then there are the opportunities that
you missed along the way.
The "10-Bagger" strategy
The term 10-Bagger comes from Peter
Lynch's book, One Up On Wall Street. The idea is that you
buy 10 stocks; if five of them do nothing, three go up 20%, one
goes up 50%, and one goes up 1,000% or tenfold, then your
portfolio will do very well. Of course one must spend a lot
of time trying to find this elusive 10-Bagger. Lately this
has been easier, but in general, it is hard to pick one of
the 100 or so stocks out of 9000 that will advance that much
in your time frame.
Day trading is buying and selling the same day. It does not
work. It does not work because the risk/reward profile of
intraday moves is not advantageous. Simply put, the number
of profitable opportunities is small relative to the number
of unprofitable opportunities. Some folks manage a hot
streak when the market gets overexcited, but very few
survive in the long run as day traders. I don't recommend
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