| KEEP IT SIMPLE STUPID | | | | In the real world of stock market trading and trading |
| You have probably heard of KISS, "keep it simple | | | | on margin you could probably trade all four of these |
| stupid". When it comes to stock trading no advice | | | | markets at the same time with about $10,000 in your |
| could be better. In fact I am of the opinion that | | | | trading account. Furthermore it is unlikely you would |
| simple stock trading is the only way you can | | | | ever get a margin call on a trading system that is out |
| consistently make money in the stock market. | | | | of the trade on the open of the third day. By the |
| If you get the chance you should read my longer | | | | time the margin clerk calls you are out of the trade. |
| article, Increase Your Stock Market Profits | | | | This is the net profits from each market: ADCT |
| Dramatically with Systematic Trading. In that article I | | | | $2,376, ADSK $2,401, AMD $4,308, ABGX $7,299. |
| tell about a brilliant engineer who believed he could | | | | If I put the numbers for all four markets together |
| write a trading formula that could accurately predict | | | | this is what they look like: |
| all market movement. He anticipated that the formula | | | | Gross profit = $35,604 |
| would run about 50 pages in length. | | | | Gross loss = $19,219 |
| The engineer was not successful. The problem is that | | | | NET PROFIT = $16,385 |
| markets are not perfect and in fact most short term | | | | NET PROFIT AFTER TAKING OUT $50 PER TRADE |
| stock movement is random. The most sophisticated | | | | FOR TRANSACTION COSTS = $10,835 |
| formulas cannot predict random price behavior. It is | | | | Number Trades = 111 |
| garbage in and garbage out. | | | | Number win = 72 |
| So to deal with markets that are predominantly | | | | Number loss = 39 |
| random you need to use formulas that are very | | | | Percent profit = 65 % |
| simple with limited parameters. | | | | Average Trade (win loss) = $148 |
| EXAMPLE OF SIMPLE STOCK TRADING SYSTEM | | | | MAX intraday drawdown = -$2,848 |
| Let me give you an example of a stock market | | | | KISS CAN MAKE YOU RICH |
| trading system with few parameters. At the close of | | | | So the bottom line is you are making conservatively |
| a market day you take the LOW of the day and | | | | $10,835 and that translates into over 100% annual |
| subtract it from the HIGH of the day. Next you take | | | | return on your investment of $10,000. |
| half of that value and add it to the CLOSE. So let us | | | | If you compound $10,000 for five years you get |
| say that on Monday WUZOO makes a high of 20, a | | | | $1,208,221 |
| low of 10 and closes at 14. Then we will subtract 10 | | | | If you can commit yourself to sitting in front of |
| from 20 to get 10 and take half of that to get 5. | | | | computers for five years you can become rich by |
| Then we will add 5 to 14 to get 19. | | | | using simple trading systems like this. |
| The number 19, (.5(H-L)) +C, is the market price to | | | | I am not just playing around with numbers and idle |
| buy on Tuesday. If the buy price is hit on Tuesday | | | | trading ideas either. I have already done this. I wrote |
| you hold the position until the open on Thursday and | | | | the book "How I Quit my Job and Turned $6,000 |
| then you sell it. That's it. There is nothing more to | | | | into a Half Million Trading" and I published my broker |
| this simple system with the most limited number of | | | | statements to prove I had really done this. |
| parameters. | | | | I made over 100% for six consecutive years. The |
| Then I tested this simple system. I randomly selected | | | | reason that I did not total over one million dollars was |
| four markets from the top of my list of traded | | | | that I had to take money out of the account to live |
| markets that are arranged alphabetically. The four | | | | on. |
| markets I selected were ADCT, ADSK, AMD, and | | | | I refuse to believe that I am the only person in the |
| ABGX. | | | | world that can consistently follow any one of these |
| I tested each market using this simple trading system | | | | simple stock trading systems and I have integrated |
| for one year. I used a formula that commits $10,000 | | | | software and market data to make it easy for |
| to each trade, hence you buy 2000 shares of a | | | | others to trade this way also. |
| stock trading at $5.00 and you buy 200 shares of a | | | | The point of this article is that stock trading is not |
| stock trading at $50.00 etc. I tested ADCT, ADSK, | | | | complicated and a smart trader will simply tune out all |
| and AMD from mid January 2009 to mid January | | | | the bogus stock experts and keep it simple (KISS). |
| 2010. As a check against correlated markets I tested | | | | Believe me Simple Stock Trading can make you rich! |
| ABGX from mid August 2000 to mid August 2001. | | | | |