Stock Exchange: The Future Isn't What It Used To Be

Also worth revisiting, trading Psychologist, Dr. Brett Steenbarger reminds us that the markets are constantly changing, and that sticking to your same old trading strategy may not be a good idea. According to Steenbarger :

We commonly hear the advice that traders should “stick to their plans” and that planning and remaining true to plans is the epitome of discipline and the key to success. It ain’t necessarily so. Let’s take an analogy: If I meet with a person for the first time in a counseling session, I don’t go into the session with a treatment plan. That would be crazy. Rather, I listen to what the person says, look for patterns in the issues they present, and then come up with an idea of what might be going on.

The future is never exactly the same as the past, and it “ain’t” what it used to be.”

Our trading programs have moved back to normal trading and cash levels, after having been holding higher levels of cash in challenging market conditions. And, we are sharing the performance of our proprietary trading models, as our readers have requested.

In addition to increasing and decreasing cash levels depending on market conditions, we find that blending a trend-following/momentum model (Athena) with a mean reversion/dip-buying model (Holmes) is helpful in controlling risk; it provides two strategies, effective in their own right, that are not correlated with each other or with the overall market. By combining the two, we can get more diversity, lower risk, and a smoother string of returns.

And, since many clients combine the trading models with our long-term fundamental methods, they have additional diversity of methods without the need for short-term timing.

For more information about our trading models (and their specific trading processes), click through at the bottom of this post for more information. Also, readers are invited to write to main at newarc dot com for our free, brief description of how we created the Stock Exchange models.

Note: This week’s Stock Exchange report is being moderated by Blue Harbinger , a source for independent investment ideas.

Holmes: This week, I bought shares of National Retail Properties (NNN ). What do you think about that? Blue Harbinger: It’s a shopping mall REIT, and its business will likely face growing pressure and competition from online shopping. Why did you buy NNN, Holmes?

Holmes: First of all, I am a trader, not an investor, so the long-term competitive pressures you mention are less relevant to me. My typical holding period is only around 6-weeks. And as you know I am a dip-buyer. These shares have dipped in price recently.

BH: Interesting. I do see NNN describes itself as owning high-quality retail properties, and its funds from operations and revenues have both been growing in recent years, and so has its dividend. But again, you probably don’t care about that information too much because it’s more long-term focused. Thank you though for sharing that trade, Holmes.

Road Runner: I bought some shares of Analog Devices (NASDAQ:ADI) (ADI ). It’s a chip company (semiconductors) and they’ve been around since 1965 (two years after Yogi Berra retired).

BH: Gee Road Runner, why wouldn’t you buy a more cutting edge semiconductor company like Nvidia. Have you seen the amazing video games Nvidia’s GPUs enable? They’re way more impressive than Pong.

Road Runner: I appreciate your commentary, but my trading strategy is based on momentum. More specifically, I like to buy stocks in the lower end of a rising channel, and then hold on to them for about 4-weeks.

BH: I assume you’re talking about price momentum and not necessarily earnings momentum, but Analog Devices has actually beat earning estimates fairly consistently every quarter for over 4 years. Here is a look at the Fast Graph.

RR: That’s great information, but not all that info is valuable to me because my timeframe is different. I typically hold my positions for 4 weeks, and then I’m out, so that long-term fundamental data is not all that valuable to me, but thanks anyway.

Athena: I bought shares of Inogen (INGN ) this week. What do you think about that?

BH: They make portable oxygen concentrators to deliver supplemental long-term oxygen therapy to patients suffering from chronic respiratory conditions. They’ve been growing revenues and beating earnings estimates fairly consistently in recent years. Why’d you buy?

Athena: I am a technical trader. More specifically, I am an objective momentum trader, and I typically hold my positions for around 17 weeks. I am a “queen of the mountain” strategy where I utilize attractive qualities from across multiple strategies to determine what I hold in my concentrated portfolio, and I usually continue to hold it until something betters comes along and knocks it out of the portfolio.

Felix: I have a ranking to share. This week, I ran the S&P 500 Index through my technical trading model, and my top 20 are ranked in the following list.