• The five key elements of my investment strategy

    1. Select leading stocks that move in the direction of the market and the sector the stock is in.

    This is what I call the Pyramid selection method:

    General Market: It is better to trade in the general direction of the market itself. The focus is on whether investment funds are increasing or decreasing their equities position.

    Sector Direction: For obvious reasons of diversification, once investment funds have picked a sector, they spread their investments among multiple stocks in the same sector. Therefore, it pays to measure the direction of a sector and mostly its relative strength compared with other sectors.

    Type of Stocks: It is best to select stocks that display a strong price relative strength.

    2. Select the best trade settings through the Breakout Calculator

    Evaluating the potential of a trade is difficult, be it for position trading, for short-term trading, for day trading or even for longer term investing. The Pyramid Stock Market Investment Guide comes with the Breakout Calculator, which is a Microsoft Windows based Excel application software. The Breakout Calculator helps you evaluate the potential of a trade before you execute it.

    Experienced traders know that all the stock trading parameters are interconnected: the entry price, the target exit, the holding period and the stop level are all interdependent. The Breakout Calculator offers a clear view on how the interaction between these parameters works.

    The Breakout Calculator will also help you to select high probability trades.
    You only need to specify a stock name, the trade direction - Long or Short - and the back period that you want to analyze.

    Based on these elements, the Breakout Calculator will find the trade settings that will take the best of what the stock movement has offered in the past.
    The Breakout Calculator calculates
    - the risk/return ratio
    - the expected average return and
    - the strategy efficiency of your trade settings

    Finally, you will be able to manually adjust the different parameters to evaluate how they affect the potential returns.

    You can download here the step by step guide that comes with the Breakout Calculator:


    Here are the flow charts that will help you with each trade type:

    Flow Charts.pdf

    3. Evaluate the sensitivity of the trade results to a price variation

    Once the ideal settings have been found, it is important to measure the sensitivity of these settings to a price change.

    The sensitivity analysis is a functionality that come with the Breakout Calculator Plus.
    This is also a free tool, but I only send it to traders who help me propagate info about this Pyramid method and the free tools.

    Below is for example a sensitivity analysis Table that shows the price entry range for a long position.

    4. Enter the trade in the direction of the price movement

    When you want to buy a pullback, it is always better to wait until the price crosses below your entry price target. You then buy only when the price reverts back up to your entry target. This way, you keep the price movement in your direction.

    5. Add to your winning trades

    When you have a winning trade in a trend, before you sell a position it is best to evaluate the potential for further gains if you hold that position longer. If the potential is positive (Positive R/R ratio) then it means that you should not sell, but to the contrary, you should add to your position.