The method, that I am going to show You leads to incredible results. However still You have to pick up the stocks very carefully and with exact plan. I call my method Reverse Fibonacci method.
There are several issues that everybody who wants to invest in stock market has to face to. If You use services of professional fund, you seemingly can miss these obstacles. Unhappily, this is false. Whenever You want to invest any portion of Your assets to stock market, there is no way out, You have to understand it at least at some level. First of all, You must clearly understand, that there is no way to predict exactly what kind of price moves will happen and in what order. It would be big mistake to be angry with Your fund manager that some selected concrete stock or for example all over the stocks involved are suddenly falling in value. The question is not what is going on in everyday detail, but if the strategy used is vivid and leads to desired results. In other words, there has to be defined clever strategy. In case of funds, this is obviously done by prospectus. At least You would be interested in this document and all available information on how Your investment will be controlled.
If You take all responsibility on Your own arms and manage Your investment Yourself, still You have to create clever well defined plan what You want to achieve in what time and what is desired profitability of this scenario. Furthermore, You have to respect Your own scenario and carry out simple steps under these rules. That is the beginning of any successful strategy.
There are plenty possible strategies. In few words, we can say, that nearly every person might have his rather specific personal strategy. There is no way to decide which of these strategies are more or less profitable. Furthermore, some strategies are more profitable under some specific market conditions. As soon as these specific market conditions do not take effect, the strategy might not be functional or at least might offer smaller profitability, than expected.
I am testing not one strategy but several strategies for many years. As my experience shows, all these strategies are at some circumstances very successful. Just You have to wait to the right moment and allow the strategy to win. Yes, exactly! Not You are winning or losing, but the strategy, You have chosen does this miracle instead of You. Your task is very simple – not to cause damages not taking into the consideration own previous decisions.
I will come back to theme what were strategies, that I have already tried for long-enough time so as to show some more ideas. Let us do it in yet another article.
In the meantime of many years the most profitable of all methods that I have used seems method, that I name Reverse Fibonacci method. The idea behind is as usually very simple. We are not discussing the stocks selection process, but only the question when to buy and when to sell. These are crucial questions with no exact and correct answer.
There are many stock traders buying only when the stock has proven enough bullish trend. Personally I do not believe to this approach. On one side there is no way to decide what is the local minimum of stock price. Nor You might not be able to guarantee(if You are not using options as an insurance) that bearish trend will stop at some price and turn to bullish again.
Even you have no guarantee, that the stock will grow to some desired value. What we have is set of various indices. These are really good to approximate probability if, under what conditions and in what timing the stock price will slide to desired value.
What You have to think about is also the size of the investment. As the fund grows, it takes even longer to carry out buying or selling the stocks.
For all these reasons I have developed my method how(and when) to buy and how(and when) to sell the stocks. It is rather difficult to pick up exact moment, when the stock price is at local minimum. At the same time as the amount of stocks that You want to buy grows, it takes longer time and price behind is not stable all the time. Thus I select for concrete stock such an entry point, that represents good enough approximation of local minimum and start buying with limit order.
The first portion that I want to buy will usually not exceed more than 2% of value of the fund as a whole. At the same time I set the threshold. If the price of stock drops down under this threshold(for example let threshold is 50%, than if price drops under 50% of former value of first buy), then I extend the position to 3% of current actual value of the fund. Let us remind, that these numbers might be very different, it does not depend on price of this concrete stock only but also on overall fund stocks evaluations at then current moment.
We have chosen threshold that is valid all over the buying season, so if the price drops down again under this threshold from previous price-stop level under this threshold, I will buy such a portion of stock so as to achieve 5% of then current value of fund invested to this concrete stock.
Similarly next steps are to 8%, 13%, 21% etc, exactly under Fibonacci sequence but with reverse moments set to buying.
There is also easy way to decide the moments when to sell as well and these techniques we will discuss in next part of this article.
(to be continued)
Stanislav Drastich 