FAQ

Frequently Asked Questions

Q: Do you offer a free trial?
A: We offer a permanent free trial by posting the daily reversal levels for major indexes and a selection of stocks on the blog every day. So, you can see how the method would do for you and you can verify the published profit/loss (P/L %). We can't make it any more transparent than that and it allows you to watch and test as long as you want. You can always see the good, the bad and the ugly on any given trading day.
To see the daily file our subscribers get you can pick up free samples at the bottom of this page.

Q: Why have I never heard about this method?
A: I don't believe in flashy websites and aggressive marketing. If a service is good it will grow organically without doing anything special. If you subscribe and cancel after a few months I won't even bother to send you emails after you are gone. Because I don't like to be bombarded with such marketing myself. This service is offered on a "convince yourself" basis and there are no books about it. I intend to compile an ebook with the method and strategies, but that's a work in progress with no fixed timetable.

Q: Your predictions for yesterday didn't work very well. But your table always shows a lot of blue (profits). Why should I believe this?
A: The reversal levels are not a prediction, they are an approach to trading. It will always take more than a few days to see if a method is good or not. We expect our readers to question and verify, not just believe blindly. You can easily verify the "P/L %" numbers in our tables. Just take the Open price on the day after the buy (sell) signal was given and calculate the change to date. It should match the values in the table. If that is not the case, feel welcome to post a comment or contact us with your inquiry.

Q: I am a fundamental investor, how can I use your reversal levels?
A: Better timing never hurts, even for a long term buy and hold investor. For example if fundamental analysis tells us that a given company offers great value, then we can still wait until the reversal levels give a buy signal or speculative buy signal to get in. More often than not this will improve our ROI.

Q: Do you have any backtest results that can convince me of the value of this method?
A: I have never been a fan of backtesting, because it is too easy to show cherry-picked examples where a given method "would" have done very well. I think people should be doing "forward testing", and that's what this blog allows you to do. I only have two articles that discuss some back test results for S&P 500, Oil and Apple stock:
https://lunatictrader.wordpress.com/2015/12/09/what-a-trading-method-can-do-for-you-part-2/
https://lunatictrader.wordpress.com/2016/01/08/what-a-trading-method-can-do-for-you-part-3/

Q: A stock I own is already trading below its reversal level, so it will probably give a sell signal and turn to bearish mode. Do I need to wait for tomorrow's Open to sell this stock?
A: If going into the close we see that one of our stocks is almost certain to close below the reversal level then we can already sell it with a MOC (market on close) order. Sometimes this will give a slightly better exit than waiting for the next day.

Q: My favorite stock jumped more than 10% yesterday and is now given a buy signal. Is it not too late to buy?
A: It depends. If a stock jumps 10% on good news it may still be a good buy, but it is not giving us a very good entry point at that moment. In that case we can avoid the trade or wait until the price comes back down to the reversal level to pick it up. Of course, if you wait the stock may keep marching on, never giving you a cheaper entry price.
In general, whenever a buy signal appears it is good to check how far the stock is above its reversal level already. That gives us an estimate of how much risk we take in this trade, because the stock will be sold if it closes back below the reversal level. So, this is where we can use some discretion.

Q: Do I need to take all sell signals for stocks I own? What if I am sure my stock will recover soon?
A: If you intend to use the reversal levels properly, then the answer is: yes, always sell when a stock has closed below its reversal level. On average it is better to take the profit (or loss) and move on to the next chance. True, sometimes a stock will come right back after giving a sell signal, but many more times that doesn't happen and the stock just keeps sinking for some reason. Several weeks later and some 20% lower we then discover the real reason for that drop. So, this is a discipline kind of thing.
If the stock happens to come right back then it will climb back above its reversal level and give us another buy signal. We can then just buy it again. It is not a problem.
Remember, the reversal levels method aims to get in on the big trending moves. We will take small losses on the trades that do not work, and sometimes we will buy back a stock at a higher price than we sold it a few days earlier. But that's the "entrance fee" we are paying to get in on the big profitable trades that come along every year.

Q: Shouldn't we buy more when a stock we own is down? Why not reduce our average cost basis?
A: With reversal levels we do not add to losing positions. The "Add" signals you see in the tables are always at subsequently higher prices, which is a "doubling up" strategy (anti-Martingale). So, we do not double down on losers, we just sell them and wait for the next buy signal. This has the advantage that we don't end up with overly big positions in poorly performing stocks that may keep going nowhere for weeks or months.
Exception: with the speculative buy signals (spBuy and dBuy) we can decide in advance to buy in 2 or 3 tranches, because we can have several speculative buy signals before a stock finally goes into bullish Mode. E.g. a good strategy is to buy a half position on a speculative buy signal and then buy another half position on the next regular Buy signal. That gives us a full position and then we hold until Sell signal.

Q: How many winners can I expect with this method?
A: Using the regular Buy and Sell signals you can expect about 37% winning trades, and up to 40% if you avoid distressed companies. That may appear rather disappointing. But with this method the average win is much bigger than the average loss, because losses are cut and winners are allowed to run.
Our tables show what this method does for thousands of stocks. There are always plenty of stocks that show 10% or even 20% profits (see "P/L %") on their currently active trade, while losers (shown in orange) are usually small. Cutting losses quickly is a feature of nearly all good investing approaches.

Q: If my stock crashes 50% and falls below the reversal level then it will give a Sell signal at the end of the day. But, that doesn't help me today and I do not want to suffer the risk of such big losses. What can I do?
A: A large adverse move overnight can never be ruled out. A well diversified portfolio of quality stocks will offer some protection. If it helps sleep, use a disaster stop-loss, which I would put 10 or 20% below the reversal level. That will sometimes get you out of a crashing stock before the losses get even bigger. There is no such thing as investing without the risk for losses. But we can control the risks.


If you have a question that isn't answered here then feel free to post it in the comments section below.

2 comments:

  1. I checked your blog and noticed the same stock can be held until a new buy signal comes in. Then, the number of days start all over from zero. I gues if I already own the stock I should hold.
    Also, what do you consider a win in your 37-40% success rate? A buy/held until a sell signal with profit?

    ReplyDelete
    Replies
    1. When there is a Buy(Sell) signal the nr of days is set to zero and we take the next Open as the entry price for the purpose of calculating the P/L%. From then on the P/L is shown and the number of days increases every day until we get the reverse signal.
      If you already own a stock and you start using reversal levels then you can hold all stocks that are in bullish mode. If they are in bearish mode then you can decide to sell and get back in on the next Buy signal, whenever that may come. Long term positions can be held if they are in bullish trend(Tr), but that's up to you.
      37% wins is on the basis of the standard Buy and Sell signal (so negating the spBuy and other advanced signals)

      Delete