Trade Ideas Blog
It’s the Pattern, Not the Stock that Makes the Mad Money
May 12, 2008
Disclaimer: The article mentioned below mentions Trade-Ideas as an ‘industry standard’ and sprinkles a bit more praise on us but was written unsolicited by a former trader, Dave Goodboy, turned writer for TradingMarkets.com and other outlets.
Goodboy’s article addresses the most basic of scanner and screener tools available to the new trader/investor. Much of what he describes are the free tools available to help define the appropriate environment a trader has learned or researched to trade. I am only adding the following footnotes:
“What’s Free at Trade-Ideas”
- Don’t forget about the free data Trade-Ideas provides in the form of End-of-Day data and even delayed intraday data. The cream rises to the top when we compare this data to what else is out there (many companies even charge for less quality data than what we give away)
“Scanning Patterns Will Set You Free”
- Scanning for stocks will only get you so far – it often leads to chasing stocks and mounting frustration. Ever been there? Think instead about screening for patterns – the pattern -that a trader believes consistently yields a positive outcome. If its a technical pattern, then I submit there’s no better tool than Trade-Ideas for finding it in real-time as it’s happening
Which brings me to this question I answered on the public forum regarding the Equity Markets found on LinkedIn.com.
“The DoD (Dogs of the Dow) strategy evolved into something unintended in my view: a focus on the stocks. The strategy’s real benefit is to call attention to a group of stocks that would exhibit the same pattern; namely, responsible management, good dividends, and a strong upward trend pattern. The pattern and the way to trade it have become my preferred way of discussing winners and losers. For example I speak fondly of “rubber band” moves that stretch a stock several standard deviations away in price from its norm, and ride the move back to the average. How long I hold these opportunities, stop loss targets, and when during the day I’ll trade them are equally important parameters.
I’ve even developed a method of backtesting these events to determine how successful they are in the recent market. Notice I mention the event and how I trade it that’s backtested – not the basket or list of stocks. This form of backtesting focuses on the event a priori – not relying on knowing the specific stocks themselves beforehand. The DoD strategy has never been loyal to the stocks that rotated in and out – we should be the same way.”
Messages about this question (1):
RE: A better strategy than Dogs of the Dow?
The LinkedIn article and my footnotes to Goodboy’s article refer to the growing importance of the pattern when discussing trades. Everyone at the water cooler will recall fondly how Stock ‘XYZ’ paid for that vacation or was responsible for my biggest gain last month. What they really mean and what will be evident more in the future is how fondly Pattern XYZ worked in their favor.
Check out the whole category of articles written about patterns we’ve modeled from various other authors and articles we’ve come across called: Strategy-Sessions