How to Improve Formula Plan Results! This comes out of 'Dun & Bradstreet's Your Investments 1983 edition".
The essence of all formula plans is to sell most stocks before bull markets peak and to buy most stocks before bear market bottoms. Since you are operating under a formula, you cannot use judgment in deciding whether the bull or bear market will continue. But there are some supplementary techniques which can help improve your profits:
1. Wait 30 to 60 days before buying or selling. Once the formula has given a signal, wait for confirmation of this trend. You will have to develop your own timing schedule, but a month is minimal and two months may be too long.
2. Act only at the midpoint of the zone. This is another delaying tactic. It shifts the action point up or down.
3. Use stop orders. When your formula stock-selling point is reached in a rising market, place stop orders to sell a few points below the current market level. If the uptrend continues, you will not sell your stocks too soon.
In the opposite direction, when your formula buying point is reached in a declining market, put in an order to buy at a few points above the current market. If the downtrend continues, you will not buy too soon.
4. Change ratios or zones. When you find that the formula plan is out of step with realities, you probably have been too conservative. Any change at or near the top of a bull market will not be effective. You will be almost out of stocks anyway. This is the wrong time to invest more heavily in stocks.
It is probably more effective to make a zoning change at the time when the market drops into the middle or lower ranges. You will hold more stocks, so your profits should increase as the prices rise.
Come see me at Systematic Investing group #board-966 lets talk formula plans.
