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The Strategy
First, let me be perfectly clear, I am NOT claiming credit for inventing what is really just a glorified swing trading technique. Swing trading is so basic and intuitive it didn’t even need inventing and is nearly as old as stock trading itself. (Buy low, sell high, and repeat over and over again.)
The big revelation isn’t the technique itself, but recognizing the tremendous advantages of using it with leveraged ETFs to consistently outperform the hottest stocks. Less effort, less risk, and more profit? Can it get any better? (Can’t wait? Jump straight to Part III: Advantages)
While swing-trading is an old and proven strategy, swing-trading the indexes wasn’t possible for the average investor until more recently. John Bogle invented the first index fund in 1975. Unfortunately, Vanguard spent countless years toiling away in obscurity and was the subject of relentless public mocking. (Who wants average returns? LOL!) Well, as it turns out, a lot of people! John got the last laugh because the real joke is on professional money managers who have been driven out of business by the “dumb” index fund revolution.
While index funds were a great first step, conventional mutual funds are not suitable for frequent trading. Lucky for us, those issues were solved in 1993 when American Stock Exchange created the first index fund ETF. Now traders could move in and out of an index fund as easily, frequently, and inexpensively as any other regular stock.
But for me, the full potential wasn’t realized until 2006 when the SEC approved ProShares first leveraged index ETF. This took a good tool and made it great! That said, quoting Spiderman’s Uncle Ben, “With great power comes great responsibility.” While leveraged ETFs can dramatically improve our profits, they also come with a huge bundle of complications that I will dive into in Part IV: Downsides. (IMPORTANT: Do not attempt any of these strategies without reading the Downside section first!!!)
While my “grand trading method” is nothing more than swing trading the indexes using leveraged and inverse ETFs, before you roll your eyes and go back to arguing politics on Twitter, the genius isn’t in the what, but the why. While this is a ridiculously simple and intuitive method to execute, the power of this strategy is anything but simple and intuitive. The next two sections, Part III: The advantages and Part IV: Comparing results, is where you will see why this method is head and shoulders above anything else out there.
Execution
The nuances of executing a successful swing-trade strategy fill entire books. The point of these brief articles is to show why this strategy is superior to almost everything else out there, especially given the time and effort required. There is no way they could teach you how to swing-trade. That takes volumes and years of experience. But if you are interested in starting on that journey, most definitely sign up for my Free Email Alerts and consider subscribing to my Premium Analysis. No matter what approach you choose, success in the stock market is always multi-year journey and the sooner you get started, the sooner you will become that successful trader you aspire to be.
While it is easy enough to say, “Buy the market when it goes up and sell when it goes down.” That’s what everyone is trying to do and unfortunately, few can do it successfully. Reality is far more difficult. In fact, trading successfully is one of the most difficult ways to make money. In other professions, the harder you work, the more successful you tend to be. In trading, the market doesn’t care how if you spent weeks researching your next trade or it came from the flip of a coin.
While the result of a single trade largely comes down to luck and the outcome could go either way, sound trading strategies start to reveal themselves after 10, 100, and 1,000 trades.
One of the first things I want to make abundantly clear is if you need to be right, trading is the wrong thing for you. Traders are wrong. And more than just wrong, they are wrong a lot. If you don’t know how to be wrong, then you will go broke quickly. As I often say, everyone has good ideas and can make money in the stock market, the biggest challenge is not giving back all of those hard-earned profits during the next trade.
The firs step to trading successfully is recognizing when to get in. That means buying when the odds are in our favor. My preference is to buy stocks at a discount. No matter how amazing a stock is, they always move up and down. The key is buying when it is down and selling when it is up. Often that means going against the crowd and buying when everyone is convinced prices are collapsing and selling when everyone believes this stock is headed for the moon.
Buy when you don’t’ want to buy and sell when you don’t want to sell.
Start small. Add to what is working. Use stops to protect us when we’re wrong.
Follow the index higher with a trailing stop.
Take partial profits and let the rest ride with a trailing stop.
Take profits when you don’t want to sell.
Don’t be afraid of whipsaws. Better than holding a loser or missing the next leg higher.
And if we’re wrong, don’t sweat it. Try again next time.
Index
Introduction
Part I: Genesis
Part II: Strategy
Part III: Advantages <— Next
Part IV: Comparing results
Part V: Downsides
Part VI: A well-designed portfolio
Part VII: Where to go next