On the Value of SpikeTrade - by Mark L

[this email came from a Member in London]

Dear Kerry and Alex,

Just like to say how much i'm enjoying SpikeTrade from the UK, I find your daily/weekly updates help to confirm my market bias, while also enlightening and useful. I very much enjoy "How I Got My Gold", the Video Vault and especially seeing how other traders pick, execute and manage their trades, the self analysis is something I tend to do a fair bit of!

I'm coming to the end of my first tumultuous year of trading in July, I have a diary and spreadsheet of over 200 trades to prove it and also to hit myself over the head with! My most successful strategy is based around MACD histogram divergence gleaned from "Come Into My Trading Room", my trading account currently shows a 70% profit, I've made some great trades and I've also made some of the worst ones possible, fortunately my profit to loss ratio is 2.4...at the moment.

To sum up so far, I've been on an individual journey of enormous proportions struggling to control my impulsive human basic instincts while at the same time battling with volitile and constantly changing market conditions...trading is, in my humble opinion, the ultimate challenge.

Kind regards from the East End of London

Mark

My lessons from the previous bear market guide me today - by Stephen M

Steve is one of the top-performing SpikeTrade Members. Last month he won so many performance bonuses that his renewal was free - with a positive balance carried over into the present month. When this Member speaks, it makes sense to pay attention - Alex E.

I learned three important lessons during the last recession & bear market.

First, I held a long position through the deepest decline and even added to it because all indicators were screaming oversold. I remember the agony as I watched it stay oversold for what seemed like an eternity. The magnitude of the push down had enough inertia to take it to depths I never thought possible.

The Second lesson I learned was during the bottoming period. People kept expecting corrections and pull backs. But here again, it was occurring during tax season, there was a lot of retirement contribution $ waiting to jump in, there was a mile long line of shorts waiting desperately to cover and last but not least, there was the Plunge Protection team busy manipulating. Lower prices seemed to be rejected when the sentiment indicators were saying they should fall lower. So for what it's worth, there is a lot of power behind this move not to mention manipulation once again by many of the same people who were present during the last go around.

The third lesson was with regards to how to jump on this train in this volatile start-stop market. It seems like those who bought pull backs to value were often worse performers and often continued to drop on low volume from a lack of buyers. On the other hand, those who bought breakouts above resistance seemed to attract the greatest buy volume from the explosive squeeze conditions. In addition, it was extremely hard to get filled at value and the markets waved goodbye as they briskly stair stepped up.

So perhaps “The Greater Fool Theory” should be redefined for this particular season in that the greater fool is one who buys below resistance vs above. I believe that – though it is contrary to value trading – it is the most consistent way to perform better in this stage of the market. I also think that this is the very reason why the sloppy amateurs do so well in this kind of market - due to their inclination to chase a stock that is breaking out and running from a short squeeze. It could also be the reason why the pros get chopped to death despite their A+ entries.

IMO, those looking for another washout could be disappointed from the shorts who need to cover and the sideline IRA $ that needs in. The Consequence?... Lower price rejection.

Outperforming Mr Buffett - by Kerry

At the beginning of each quarter we allocate to each Spiker $1,000, which has to be traded according to several rules:

· You must bet the entire account on that one trade per week.
· You may trade only US stocks or sector ETF’s representing a basket of US stocks.
· The stocks must have above 100,000 average daily volume.
· You must open and close the trade within one week. You must do it each and every week, missing no more than four weeks per quarter.
· If you end up at the bottom of the group at end of quarter you may be asked to sit the next quarter on the warming bench and may be asked to leave the group.

Trading is difficult enough, but each Spiker must abide by these rules, making their task even harder. They aim not only beat the market but outperform their peers in a friendly competition.

When you trade, you probably bet a portion of your account and carry multiple trades in order to reduce risk. You can change your mind and make your pick in the middle of the week.

Would you bet an entire account on one trade within a one-week window? I sure hope not. We ask Spikers to step up to the plate each and every week and make one bet that will work or not within a fixed time-frame. They cannot change their pick or the direction of the trade after submitting their pick by Sunday afternoon. They may only change their entry, stop, and target levels. They have an option to scratch the trade and wait to make their next pick until the following week.

We are sometimes asked about Spiker performance. One must look beyond simple percentage gains, as Spikers perform under constraints and rules listed above.

Spikers get only shot per week, and they perform amazingly well. Anyone can get a single lucky strike, but what about Spikers who perform week after week, and after 52 weeks deliver performance that outshines the SP500 and almost all mutual funds.

Look at these Spikers who delivered such performance over the past 52 weeks – during the most difficult trading environment of a lifetime:

Henry A 104.78%
Dave F 52.48%
Jeff P 46.35%
Pat L 37.46%
Grant C 35.80%
Ross P 31.69%

These six Spikers have demonstrated a phenomenal level of performance in this environment, under these difficult rules.

16 out of the current 18 Spikers outperformed the SP-500 over the past 52 weeks. 10 of them had positive results.

Meanwhile, at the top level, our top 6 Spikers have outperformed almost everyone in the financial industry, including the Oracle of Omaha himself , Mr. Warren Buffett.

Thanks!

Kerry

Thanks and a Comment on YRCW

A new SpikeTrade member from Holland has asked us to forward his email to Max L, a long-term member. We gladly forward such message - but this one seemed interesting for the entire group, and so we asked Willem for a permission to post it here, which he allowed us to do:

I am a new member who is motivated and stunned by the ideas and smartness of this group.

Dear Max L,

Congratulations and thanks for the tip. I sat in all the way through over the target. Over 30% profit.

In this picture I confirm what you saw fit.

And add own observations. Yyour target was modest.

Interesting was also:

Weekly the reversal (head shoulder head, upside down)

Daily 2 break out signals EMA10-26 crossing, plus breaking out the envelope on the pre-last day.

Hope this is not the last you try.

Best regards,

Willem K.

Merry Christmas!

This message comes from one of our most diligent and successful SpikeTrade members in Germany. You can enlarge any picture or chart in this blog by clicking on it - AE

Dear Alex, dear Kerry,

I wish you a Merry Christmas!!!

Currently I am visiting my father in Berlin and yesterday evening we spent a nice evening together going through (on my laptop) the S&P500's monthly chart since the sixties of the previous century and connecting personal events to the chart.

My father is not a stock expert (retired gynecologist), but he was very interested in the concept of MACD-H divergences. I told him that my first step in learning such concepts was "Trading for a Living". As it happens I had a brandnew copy of "Die Formel für Ihren Börsenerfolg" and the workbook in German in my suitcase for him. (What a lucky coincidence ;-)

Talking about Alex' book and your personal background, we both emphatised with the fact that you Alex and him are both immigrants. He escaped with my mother, my brother and myself in 1981 from Poland via Morocco to Germany. We agreed yesterday that the former communist regime in Eastern Europe has given to many poeple a course of life which was not very easy to cope with at times. But there are also things one should not forget. For instance, I personally know how a happy kid I was in the '70s when we had oranges(!) at Christmas. That was a special event (to remember even 30+ years later) in a system dominated by shortages and suppression. And sometimes it helps to put things into perspective today.

Christmas time gives us a chance to reflect our ups and downs in live. Coming across your books and finding my way to you and Kerry via being a Spike Member, with your help getting to know Bob and other serious traders in Brighton is a definite "up" in my life.

To cut a long story short, I would like to thank you Alex for your books and both you Alex and you Kerry for running SpikeTrade in such an excellent way. I helps me to get a grip on the "big picture" in the markets, to impose self discipline on me and to overcome the loneliness in the markets.

Again, a truly Merry Christmas to both of you and you families. (Pls find attached a Christmas photo of what I consider THE symbol of the former iron curtain dividing the free world and communist countries.)

Thank you

Rodryk S

2002 Bottom by: Grant C

To help to focus my thinking about a bottoming process, I’ve been reviewing the last major bear market bottom—the 2002-2003 period. This is a chart of the SPY weekly prices, which shows a process that lasted about 12 months. The first market stab down resulted in a recovery rally that bounced to a declining 100 day EPA (red line) , then a swoon to test the bottom (notice the bullish divergence in MACD-H). Prices regrouped for another rally , this time recovering to a declining 200 day EMA on a strong MACD-H, then a final turn that drifts down, forming a higher low on a shallow MACD-H. Then the long-term averages start to turn up, and finally at the end of the year-long basing period, we cross up through the averages and begin a new bull market. As we all know, history doesn’t exactly repeat and we continue to live in a world that compresses time through the magic of the Internet. That said, we still should expect several months of range-bound trading. The “sell strength, buy weakness” pattern of trading will live with us for a while.

Spike Member Comment

Steve M emailed:

Hi Kerry, I picked ENER this week for my Spike trade. I currently own a core position as well as a position that I trade. Some interesting elements developed with this chart pattern this week that I think had a tendancy to be overlooked from my "Spike trade perspective" which has a tendancy to narrow focus to 1 week. This stock had a big move Monday and gapped up from a falling wedge pattern with an accompanying island reversal. Tues. presented a retracement to the down trend line and then a reversal back up from there the rest of the day and Wednesday. During the retracement I wanted to maintain a gain for the week and overtightened my stop which got hit. Fortunately I still own the stock and as I approach it from from a longer term perspective, without the pressure to perform for the weekly gain, it became more apparent that the retracement formed a cup and handle on the 30 min chart which called for another $6 gain.

Anyway, my concern is how to prevent the weekly pressure to perform from blinding me from these prommising formations that sometimes take at least a week to form. Does anyone ever use the carryover rule? I'm currious because it's interesting to look back over the last 2 week's picks to see where they are today. What, at the time, seemed like great set ups....were and given a little more swing time became much more profitable. We all might have been better off still holding our pick from last week or the week before. Just my newbie observation for what it's worth.

I've really enjoyed my experience so far with Spiketrade.com. It's been very educational trading amoungst the Pros.

Sincerely,
Steve
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Kerry Reply:
_______________________________________________________________
Steve,

Glad you are finding the service useful.
Occasionally one will carry a pick over, but many spikers feel they should offer a new pick each week. Many will trade their pick longer term in their personal accounts.
One is welcomed to carry a pick over, but for weekly accounting the Friday close is taken to tabulate the weekly result.

Regards,
Kerry

Spikers' Help Each Other

SpikeTrade members meet not only on the web - many interact with each other by email and Skype and meet in person at campers' meetings. Last week John T (on the right) drove in from Ohio to see his trading buddy Dan K (on the left) and both came to a campers' meeting in Manhattan (thanks, John, for those delicious Ohio apples!).

John presented Dan with an award for successfully scalping these volatile markets. Best wishes to both guys. See you again soon!

Alex