The lazy mans way to riches by Darren Winters
Who ever said trading was difficult? The purpose of this article is to show how, using some simple criteria, you could invest over the long term without having to watch your stocks day-in, day-out. This is written for those readers who have no interest in short term trading and are happy with making profits over a period of years as opposed to months.
I have chosen two variances of the same strategy on two different stocks; one has been around since the early 20th century, the other floated 5 years ago. Because of this, I have run the tests back to the year 2000, but from looking at my screens, the strategy would have worked whenever you had started it.
I noticed this buying and selling strategy when looking at XM Satellite Radio for the January edition of the newsletter. The simplicity of it involves buying or selling a stock when its bar moves above or below its 200 day moving average. I had to be strict with the testing and so had to wait until the bar was not touching the average before buying or selling. I chose to enter the trade at the end of the trigger day, so that I was getting one of the worst prices available. That makes this exercise more realistic in terms of its success rate— you would have been more profitable in reality than I was in this exercise.

STRATEGY 1
This strategy was applied to General Motors stock. I started with the entry signal which was when the bar clears the 200 dma. However, It was my exit strategy that was adapted to ensure greater success. The reason for this is that all stocks behave differently in relation to their respective 200dma. Some stocks will bounce off it violently whereas others will break though, only to then fall back below again. GM is in this category of stocks. If I had applied a straight forward ‘buy when the bar clears the 200dma and sell when it breaks back below,’ I would have been whipsawed frequently and barely made a profit.
So what I did was to tighten my exit strategy in order to lock in profits. This was achieved by using a Time Segmented Volume (TSV) indicator with an 18 period setting. Accompanying this was a 10 period moving average—both of these were set to ‘simple’.
The TSV will often get you out of a stock before it has turned against you in earnest. So, on the occasions when a stock was moving up through the 200dma, once I had entered the trade, I would watch the TSV for my exit. As soon as the TSV crossed below the 50% horizontal line in its window on my charting software, I would sell. Generally, this would ensure I would exit a trade with a profit.
Once I had closed out of a position, I would have to wait until the bar crossed through the moving average before making my next trade—this could sometimes mean I was out of the market for several month at a time before the next trade was set up.
So, the criteria for this trading was that if the bar was moving up through the 200dma, I would buy once it had cleared it (see diagram). Then I would sell when the TSV moved below its 50% mid line. The opposite is true when selling short; I would sell when the bar cleared below the 200dma and then close the position if the TSV moved above its 50% line. I also had a stop loss in place which was set at 5% so that was the maximum I could lose on any trade.
This strategy turned £10,000 into £25,197 from April 2000 to September 2004 which is when the last trade was closed. So over four and a half years, it gave a 150% return and there were only 12 trades in that period—an average of just 3 trades each year!
STRATEGY 2
If you thought the first strategy was straight forward, this one is even easier. This was applied to XM Satellite Radio (XMSR). Instead of using TSV for the exit signal, we simply used the 200dma. For example, after the bar had closed above the 200dma as in the diagram, I would wait until it closed back below it to close the trade. The difference with this strategy is that I would always be fully invested because as soon as the stock had closed back below the 200dma, I would close the original position and then immediately sell short.
I still had a stop loss of 5% on every trade but other than that, would obey the rules set out in the diagram on this page; whether the stock was moving up through the 200dma or crossing down below it. The result for this stock was that £10,000 turned into £109,810. That gave a total current return of 1088% between October 2000 and present. This stock produced 9 clear trades over the period. See my note to the right of this column
Regards Darren Winters
I have chosen two variances of the same strategy on two different stocks; one has been around since the early 20th century, the other floated 5 years ago. Because of this, I have run the tests back to the year 2000, but from looking at my screens, the strategy would have worked whenever you had started it.
I noticed this buying and selling strategy when looking at XM Satellite Radio for the January edition of the newsletter. The simplicity of it involves buying or selling a stock when its bar moves above or below its 200 day moving average. I had to be strict with the testing and so had to wait until the bar was not touching the average before buying or selling. I chose to enter the trade at the end of the trigger day, so that I was getting one of the worst prices available. That makes this exercise more realistic in terms of its success rate— you would have been more profitable in reality than I was in this exercise.

STRATEGY 1
This strategy was applied to General Motors stock. I started with the entry signal which was when the bar clears the 200 dma. However, It was my exit strategy that was adapted to ensure greater success. The reason for this is that all stocks behave differently in relation to their respective 200dma. Some stocks will bounce off it violently whereas others will break though, only to then fall back below again. GM is in this category of stocks. If I had applied a straight forward ‘buy when the bar clears the 200dma and sell when it breaks back below,’ I would have been whipsawed frequently and barely made a profit.
So what I did was to tighten my exit strategy in order to lock in profits. This was achieved by using a Time Segmented Volume (TSV) indicator with an 18 period setting. Accompanying this was a 10 period moving average—both of these were set to ‘simple’.
The TSV will often get you out of a stock before it has turned against you in earnest. So, on the occasions when a stock was moving up through the 200dma, once I had entered the trade, I would watch the TSV for my exit. As soon as the TSV crossed below the 50% horizontal line in its window on my charting software, I would sell. Generally, this would ensure I would exit a trade with a profit.
Once I had closed out of a position, I would have to wait until the bar crossed through the moving average before making my next trade—this could sometimes mean I was out of the market for several month at a time before the next trade was set up.
So, the criteria for this trading was that if the bar was moving up through the 200dma, I would buy once it had cleared it (see diagram). Then I would sell when the TSV moved below its 50% mid line. The opposite is true when selling short; I would sell when the bar cleared below the 200dma and then close the position if the TSV moved above its 50% line. I also had a stop loss in place which was set at 5% so that was the maximum I could lose on any trade.
This strategy turned £10,000 into £25,197 from April 2000 to September 2004 which is when the last trade was closed. So over four and a half years, it gave a 150% return and there were only 12 trades in that period—an average of just 3 trades each year!
STRATEGY 2
If you thought the first strategy was straight forward, this one is even easier. This was applied to XM Satellite Radio (XMSR). Instead of using TSV for the exit signal, we simply used the 200dma. For example, after the bar had closed above the 200dma as in the diagram, I would wait until it closed back below it to close the trade. The difference with this strategy is that I would always be fully invested because as soon as the stock had closed back below the 200dma, I would close the original position and then immediately sell short.
I still had a stop loss of 5% on every trade but other than that, would obey the rules set out in the diagram on this page; whether the stock was moving up through the 200dma or crossing down below it. The result for this stock was that £10,000 turned into £109,810. That gave a total current return of 1088% between October 2000 and present. This stock produced 9 clear trades over the period. See my note to the right of this column
Regards Darren Winters
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