Our trading philosophy is based on swing trading and summarized by the following rules:
- All trades are long-term swing trades that seek to be aligned with identified cyclical trends.
- Potential losses are limited by practicing disciplined risk management.
Cyclical Trend Identification
Successful trading requires a time frame that provides well-defined behavior, and, thus, reliable predictive qualities. As outlined in the article Relativity, Quantum Mechanics, and the Stock Market, we do not believe that day trading is a suitable candidate for a trading system due to the inherent randomness of price fluctuations on such a small time scale. Although they require time and patience to analyze and trade, long-term cyclical trends readily lend themselves to accurate statistical modeling, so those are the price movements that our analysis seeks to identify and profitably trade. To that end, we have created a rule-based software program that analyzes market data and identifies highly probable inflection points in the cyclical trend, generating a Cyclical Trend Score (CTS) that enables us to open trades when the trend changes.
Disciplined Risk Management
We believe that the key to long-term trading success is managing losses. Due to the inherent complexities of the stock market, no system is capable of identifying profitable trades with absolute certainty, so losing trades are inevitable. Therefore, every time we open a trade, the first thing we do is identify a stop loss level that represents the maximum percentage loss we are willing to accept. If a trade moves against us and the stop loss level is achieved, we close the trade, without exception.