The Simple Trend-Following Strategy That Offers Hope for Frustrated Buy-and-Hold Investors
- Discover why the simplest methods work the best when trading stocks and options…
- The trading technique that makes you money even when you’re wrong 50% of the time!
- Why it’s possible to make a living trading stocks, options and forex online…
Many investors are frustrated. Although the U.S. stock market has recently hit record highs, many ordinary investors have not seen big gains in their portfolios.
Bonds and bond funds, traditionally a hedge against market collapse, have performed poorly over the past few years.
As for the stock market, its performance has improved recently – the S&P 500 has posted an average annual return of 8.86% over the past three years – but the longer-term performance is disappointing. Over the past 15 years, the S&P 500 has only managed about 4.83% average return a year.
It’s hardly surprising, then, that many investors are looking to more aggressive trading strategies to boost their portfolio’s overall performance. Many are taking a portion of their portfolio and actively trading, using different trading strategies that promise better returns.
One of the best and simplest strategies is a simple trend-following approach that uses a trading indicator known as the Moving Average Convergence/Divergence (MACD). Developed in the 1970s by Gerald Appe, the MACD indicator or “oscillator” reveals changes in the strength, direction, momentum, and duration of a trend in an investment’s price.
Put simply, it tracks two moving averages – the 12-day and 26-day – and generates buy and sell signals whenever the two lines cross.
The beauty of simple trend-following strategies like those that use the MACD indicator is that you don’t have to be right very often to make money. In fact, you can be wrong 50% of the time and still make quite a bit of money.
Here’s why. One strategy using the MACD earns around $150 on every $100 invested when the trade works out 50% of the time. The other 50% of the time, the strategy loses all or some of its $100 initial investment.
On 10 trades, then, investors have 5 winners that make them $750 (5 x $150) and 5 losers that lose them $500 (5 x $100). Their net gain is $200 ($750 – $500) – or a 20% return in a short amount of time, usually just a month or two.
In addition, it has never been easier for average investors to use trading systems like this to manage their own portfolios and run circles around their old portfolio managers.
Here are 3 reasons why:
First, commissions for trading stocks are cheaper than ever! Years ago you had to pay $10 – $20 to place a trade. These days it costs as little as $0.50 to trade 100 shares. Therefore commissions are no longer a major cost factor, making it MUCH easy for you to adjust positions as needed.
Second, placing an order has never been easier! In the past, you had to call your broker to place an order. And all the “free advice” he gave you about your order, e.g. “I wouldn’t sell that now”. Fortunately, those days are over. Now you can place an order with the click of a button – almost ANY time you want – and without the great advice of your broker.
Third, analyzing a stock to discover important trends now only takes a few seconds. New technology makes it easier than ever to analyze a stock to determine whether you should buy, hold or sell. You no longer have to sift through the Wall Street Journal or watch the talking heads on TV to find the next “hot stock tip”. Investors can now simply use their computer and software to make informed decisions.
Third-generation software programs aimed at ordinary investors – and tied to the latest data from the Internet – take a lot of the grunt work out of trading.
These new software packages are like the six-shooters of the Old West, the “great equilizers” in the markets. Now, ordinary investors with just a little training can quickly identify strongly trending stocks and ETFs – and make easy, quick trades.
Just by being right 50% of the time, these new traders can often produce more profits in a few weeks than their old “buy and hold” portfolios produced over several years.