Charlie and the Holy Grail of Stock Trading

Has this ever happened to you? You stumble into some new pattern of trading stocks that’s so lucrative you’re lured into thinking you’ve actually found the holy grail of day trading:  a system so foolproof that a trained monkey high on meth could still follow this step-by-step strategy and earn nothing but big cash (for bananas, of course, and more meth) with every trade.

Only later do you discover that what you’ve unearthed is only a short-term lucky streak that had nothing to do with your superior trading prowess; it was Krustyjust one big happy accident, the gold rush equivalent of a flash in the pan.

I confess I’m no stranger to the fool’s gold of stock trading “systems” that guarantee big returns every trade. I’ve probably developed a half-dozen such “surefire” systems over my 15 years of trading and eventually got stiffed every time. As soon as  the winds of market temperament shifted, my schemes and dreams would collapse in utter and complete failure.

Hope Springs Eternal 

I bring this up today because I’ve stumbled on yet another of those “surefire” trading formulas. Am I about to share the details of this be-all-to-end-all plan? Why bother? Nobody would believe it anyway. Let’s be honest, would you believe that some Internet blogger who proclaims he’s finally found a surefire way to make millions in the stock market? Of course not.

What I can do is post the results of this masterplan-in-the-making. In my first test, I played my own plan poorly; I made something like $1,000—but I left better than $3,000 on the table by selling off too early. On my second outing, I made slightly more than $4000 (in 3 days). My third test turned up a couple thousand. But the fourth test — the one I started on July 6 when the market sentiment and Nasdaq shifted violently — will provide the acid test I’m looking for. If I’ve got more money in my pocket when this cycle is over, I’ll be pretty sure I’ve got a winner.

All of this is in addition to reams of statistical data I’ve cobbled together from a year of past results (thanks, Yahoo) using the same strategy. The system works with remarkable regularity. And it could earn unlimited amounts of cash if you’re willing to bet heavily.  $100,000 a month easy. Or more.

I know, I know. This sounds like typical pie-in-the-sky rhetoric—and it is. But like I said before, nobody is going to try this strategy anyway, so what difference does it make?

All of which brings up this question: “When is a stock trading system a “system”? Does it become a “system” when you: (1) Day trade a group of stocks in a defined pattern that generally makes money (but not every trade)? (2) When you make money EVERY trade—but only so long as the trend of the stock or the market is in your favor? (3) When you earn enough money trading to buy you and your main squeeze his-and-her Jaguar Fs? Or (4) When pigs not only fly, they trail a string of hundred dollar bills from their oinky little tails?

My intuition tells me the answer is something closer to Number #2 (although I prefer #3). When the market is genuinely moving up, all traders think they’re Einsteins making bets with Donald’s Trump’s money; we just can’t lose. But when the market is moving against us (define that any way you want), we wind up chasing stocks into that deep, dark abyss and lose so much money our teeth hurt. When that happens, trying to make money is like trying to leap across a chasm in two small jumps: skill and knowledge get you only deeper into the hole.

Well, no system is perfect, but this trading formula seems to have legs. Portions of the plan have proven foolproof (yeah, really. Guaranteed). But other steps need the test of time, and yes, shifting markets to reveal hidden glitches. In a month or two, this system will be tried and proven for what it’s worth and I’ll be in South America someplace spending my loot.

In the meantime, I leave you with these irradiating words on the subject from Alexander Pope (Essay on Man).

Hope springs eternal in the human breast;
Man never Is, but always To be blest:
The soul, uneasy and confin’d from home,
Rests and expatiates in a life to come.
 

God Bless Charlie, the Runaway Trader

(But puhleeze, bless me in this life. Blessings in the next life can wait.)

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