Optimists Make MORE Money

Let me start with a question.

Your vehicle has been working without any sign of trouble for any year. Do you expect it to keep running smoothly…or would you worry about a breakdown?

Most people most likely wouldn’t give it a second believed. Chances are the car will keep working for a lot longer. Something could go amiss tomorrow. But odds are it’s not going to.

Many things in life are the same. There’s a natural tendency for events to follow a steady course.

Sure, the cycle will change — life has its ups and downs. But a change in fortune can take a while.

The stock market is no different. It can remain bullish or even bearish for lengthy periods. Also can individual stocks. The company’s share price can rise for years.

Think about this. Suppose a regular has been on the rise. It’s just hit a three year high. What’s more, the share price is up at least 300%. Would you consider buying this particular stock?

People typically view this in one of two methods. Some will look at the past as well as project it forward. Other people will think the shock has run too far as well as believe it’s about to fall.

Which do you thinking is the better option for making money?

I’ll answer this in a moment. But first have a read of this. It’s an email I obtained last week.

‘I have been reading the Quant Trader for two weeks now. To be honest, it is not what I thought. So far each of the buy indicators I have received have been in a record high on the day of the signal.

‘From reading the lead up to purchasing, I was of the opinion the actual Quant Trading computer was picking up trading type stocks in a low, not at a record high.

‘I have paid a lot of money for what I feel is high risk buying at record highs. I am more comfortable buying at a more speculative level then this danger level.‘

Member, Tony

Let me start by stating this. Quant Trader identifies stocks from various stages of a pattern. Some will be at all-time highs while some will be just beginning the recovery process.

Quant Trader is also a medium phrase strategy. It’s not aiming for increases over one or two days. The aim is to capture trends that last many months.

That said, this is a great question. I think the reasoning would make sense to many people. It seems prudent to avoid stocks after a big run.

But there’s a problem. Doing this filters out many of the best performers.

Here’s the one thing. A stock trading at a multi-year high is clearly a strong stock. But strength isn’t a good indicator of approaching weak point.

Sure, all bull markets finish. A well performing stock might break down tomorrow — but it probably will not. The path of least resistance is up.

Let’s go back to my earlier question. Who’s more suitable for making money? The person that can project forward, or the one who thinks the market has run too far?

Well, it’s the former. This type of mindset makes it easier to ‘jump aboard’.

You see, the odds favour a trend continuing. And some continue for a very long time. Actually, trends often run beyond almost anyone thinks possible.

Now allow me to ask this question again.

Suppose a regular has been on the rise. It’s just strike a three year high. What’s more, the share price is up at least 300%. Would you consider buying this particular stock?

Think about this for a moment. What’s your natural tendency?

I suspect many people would think they have missed it. Some might even be thinking about shorting opportunities.

Rather than speculating what might happen, I’ve done some back-testing. It’s always good to pull a few statistics into a discussion.

What Used to do was modify Quant Trader‘s algorithms. I set two new criteria for a buy signal:

1. A stock must be at a three year high (or greater)
2. It must be at least 300% above its 3 year low

So what do you think happens?

It’s actually quite interesting. Have a look at the graph below.

This shows the hypothetical profit from the strategy. The date range is 1 January Two thousand to 24 April 2015. This assumes putting $1,000 on every buy signal.

Buying stocks at a multi-year high is a effective strategy. You’ll also notice the strategy’s earnings are near an all-time-high — something that can’t be said for the All Ordinaries.

So don’t be concerned about buying at a multi-year high — the trend is on your side. You’ll find it often pays to be positive when others are nervous.

Next 7 days I’ll show you what happens when you only buy stocks buying and selling at a three year reduced. I think you’ll find the results fascinating.

Until then,

Jason, McIntosh,

Editor, Quant Trader

Editor’s note: Quant Trader’s algorithms have detected a number of new opportunities. They are all trending higher, and have the potential to run a long way. You’ll be acquainted with a few of the companies. But many tend to be less well known. These are often the ones with the greatest upside. Find out more here.