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Modified stock STOCK SELECTION
METHOD
I studied and used a fundamental stock selection method developed by
Nicholas Darvas in the 1960's, revealed in the 70's and popularized and enhanced by a well known financial paper in the 80's. One of the things I liked most was a simple method of measuring performance which I thought appropriately made a nice fit with my own technical analysis.
The original concept which always included the most profitable stocks
with the lowest risk/reward, it left me with usually too many stocks,(sometimes 200
or more), to choose from and many times getting myself into situations where I had
to dump the stock shortly after takeoff because of the recommended stoploss. Even
as a technician I found it no easy task to search for the subjective stock chart
patterns.
If you are going to invest mechanically and get the emotion out, you have to
be absolute on your rules and fixed percentage exits, while great for higher
priced issues, were devastating on lower stocks because those kinds of fluctuations
can and do occur in a single day. The other problem I had was that following his
logic I would get into an issue reasonably later in the game after the stock had
made a substantial part of its move. Now, from prior teachings we know that this
is no problem because stocks that go much higher will always pass through the 80%
Relative Strength line on their way to doubling again or more. That too is true,
but with so many picks odds are you aren't going to be riding those horses
when you get mounted.
I had been writing my own stock analysis and trading programs for S&P,(and
just about every other market you can think of), for my own trading for almost 15
years and intuitively I knew that what Darvas was doing was sound, but it was difficult
for us "normal", (3K to 150K) investors to administer without getting churned
to death. I had worked it with optionable higher priced stocks successfully, but
that also is not a game for the usual conservative investor. You really have to know
what your are doing or you ARE going to get burned fast.
Being a reasonably intelligent guy I figured I must be able to beat 90% of
the other folks out there...and I did. Trouble is, it became like a full time job
for me and it wasn't fun anymore.
I took Othese principles, did some modification to the selection
criteria in allowing for a lower RelStr reading which got you closer to the takeoff
point and then developed a purely mechanical system which allowed me to use the newspaper or the StockTables.com website, to "fast scan once a week in ten minutes and only
come up with three to five excellent choices which automatically met the majority
of the stock selection criteria which would be 80% winners. I then developed a purely
mechanical method for exits which would allow me to have my protections in place
so I could get the risk/reward ratio up over 8 to 1 and still work with lower priced
issues which have more opportunity for doubling and and takeovers. The result was
a system I have traded for myself for four years and which is explained in excruciating
verbosity below. I wrote the verbiage, but its my young son's venture into Internet
marketing. I just provide the grist for the mill. I'll be happy to answer any specific
questions you have about the system and its performance and there are new users on
line who have gotten the system and will tell you it delivers what it promises.
By the way, we have been doing well this year. Each week we spotlight the top
5 qualifiers. Of the 15 signals in January, 12 are up, and 3 are down. Some notables
are:
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Signal Date
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1/12/98 |
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Signal Date
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1/05/98 |
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Signal Date
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1/19/98 |
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Stock
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ALK |
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Stock
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AC |
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Stock
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CBRL |
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Signal
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40.13 |
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Signal
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40.19 |
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Signal
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34.63 |
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Current
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57 13/16 |
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Current
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50.31 |
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Current
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41 3/8 |
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Duration
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5 Weeks |
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Duration
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8 Weeks |
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Duration
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6 Weeks |
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Profit/Loss
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+42.51% |
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Profit/Loss
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+25% |
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Profit/Loss
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+19.48% |
More
recently the system selected picked KDN for a gain of 11% in a two week period!
Sorry for all the reading, but there's a lot to say. Also on our website, we
also offer daily rankings on 10,000 stocks including RS, EPS, VOL%, Industry Charts,
Industry Rankings, and more!
Thanks for the Inquiry and Have fun Investing W. Henry Ford
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