Searching for the Grail 3/24/13

As I sit to write this blog, I realize it is my birthday. I am swamped with birthday wishes from my many Facebook friends and I realize how many many people have touched my life, and how I have touched theirs. Yet with age comes the inevitable realization that this earthly life will all have to end one day and we would not want it any other way.

My close friends in trading remain on the hunt for the Holy Grail of trading systems. It seems I am still searching for improvements as well. I do feel that the yin yang between a cyclical trading system and a trend following one is where the best systems lie. Trading is never going to have all wins.

In my search I attended OptionsANIMAL’s class on Managing Risk with Options by Charan Singh last week. It was a great 1 hour class where he showed that they are generating 93% wins by mending broken trades using options. You have to spend between $6,000 - $14,000 to take enough classes to master it. The more you pay the better your learning as you take more classes and spend more time at mastering the methods. Kind of like getting a Bachelor’s degree versus a PhD.

After having my toe stubbed several times signing up for classes taught by others promising great results, I am not interested in this right now. Still, for someone who wants to learn options and manage their accounts with controlled risk, and is willing to dedicate serious time to learning, this is a valid option.

So why not for me? Because it is time for me to stick to my main systems and if I have confidence in them, stick to them and follow the method regardless of who is telling me what around me. I think a combination of trend following with buying on dips works fine. Not all the time and there will be losses; but if I stick to the method and not let it go, it will generate the rewards I am seeking.

To make a case in point, look at my chart on AAPL. Let us also assume that we can trade the long side as well as the short side using options or option vertical spreads to control risk. If we look at the left hand side of the blue line on the chart, we can see how the trading was choppy and difficult to make money on. Now look at the right hand side of the blue line. The chart is crystal clear, the primary (large) buy and sell signals are spot on and even the secondary (smaller) signals that tell us when to buy on a dip, in the direction of the main up trend is right on target. On the primary down signal, we can buy puts on the peaks and enter with the secondary down signals. The stock is now moving and trending, and the system pulls in huge monies.

Unfortunately, we cannot control and tell when the stock is going to leap forward like this, looking at the left of the blue line. The key is to be patient and wait for the ride. Same goes for trading systems. None of them work all the time and we need to take a diverse selection of stocks or funds to apply our systems on and wait patiently for the ride. It will come. Very few stocks go sideways and gently move forever. And if we have a good selection, then even if we get one that refuses to move, the others will pay off. Find our favorite system. Then ignore outside noise and stick to it. If you have the time and money, keep investing in learning one more technique but be aware that in all likelihood it may not be the grail you were looking for. Don’t make the mistake of jumping methods till we are convinced it is a better grail than the one we currently have..