Making money in a downtrend - J is WILDI chose J as my public idea for the day for a lot of reasons
-it’s my best idea of the day (it’s #11 on my composite score list)
-covering a span of over 1800 trades (real and backtested), it has an AVERAGE gain of 2.9%.
-the 1 “losing” trade in all 1800+ was a signal from yesterday which I will boldly predict will become profitable too.
-it has a per day held average gain of over 3x that of the S&P500 over those 1800+ trades
-it’s right at support and has some more support further down both from previous highs and an unbroken uptrend line going back over 18 months
-it has a track record of rebounding nicely after earnings “disappointments”
-it’s trading in the middle of its 6 month range
But I also chose it to illustrate a point about the way I trade, and it’s one that is very relevant and about to become more relevant, I think. When the market starts to show weakness, people get scared of trading long. And I get that - it’s a valid concern. It’s easier to make money in an uptrend - that’s why so many people who have traded NVDA over the last 2 years think they are amazing traders. Rising tides lift ALL boats, even leaky ones. But making money in ANY environment is the difference maker.
J is down a little over 11% in the last 3 months or so. It is in the middle of a legitimate Wall Street definition of a correction. I am not picking the bottom here, or even trying to. That’s the point. I don’t care if this is the bottom. It’d be great if it was, but it doesn’t matter. Now I’m not saying my algo is the greatest thing ever (though it might be for me), but the WAY I use it is significant and it illustrates something ANYONE can do when a stock or markets are trending lower.
During this correction, my algo has signaled 14 LONG trades, including today. 12 have been closed profitably and one was the long signal yesterday (#14 was today). Full disclosure: I didn’t actually trade that signal yesterday, but I am today. The average gain on the 13 prior to today (including yesterday's "loser"), DURING A CORRECTION, is +0.9%.
Not only does it win, but it wins consistently even when stocks are trading lower. The key is as much how/when I exit as it is the algo and its entry signals. As soon as a lot is end of day profitable, it is gone. I don’t care how much I’ve made, it’s gone. And that is a secret to making money long during a downtrend. It helps a lot that my entry signals are good ones, but the key is GET OUT WITH A PROFIT.
Don’t let the market take its money back. It’s the same thing casinos try to do when you win and they have the edge - keep you playing so they can get their money back. I trade the same way in uptrends too. That leaves some money on the table then, but I take it back on the way down when I’m making money instead of losing it - and you can too. The method I use works in almost every situation, on almost any stock. But its shining moment is when things are going downhill. Not just because it makes money, but because I don’t worry about timing and downtrends much any more.
Some slides can get annoying under the right circumstances, but I don’t worry. This technique has worked in every major market downtrend in the last 50 years. Except for stocks that go to zero, it works on stocks in corrections or bear markets, though at a certain point even it will lose money (I’ll be posting an idea involving NVDA in that regard sometime relatively soon).
But relatively small losses are easily regained, especially if the win rate is high (which it obviously is here). The key is avoiding the BIG losses and this technique does that very well.
So I went long at the close at 132.19. Per my usual strategy, I'll add to my position at the close on any day it still rates as a “buy” and I will use FPC (first profitable close) to exit any lot on the day it closes at any profit.
As always - this is intended as "edutainment" and my perspective on what I am or would be doing, not a recommendation for you to buy or sell. Act accordingly and invest at your own risk. DYOR and only make investments that make good financial sense for you in your current situation.
