“Trade like a Hedge Fund” – James Althucher (part III and last)

Today I'm going to go on talking about some techniques explained in the book.

Technique 13. Ten percent down – panic 101.

In this chapter he makes the statistics of a system that consist in:

-         Buying a stock that is 10 percent lower than the prior day's close, and selling it at the end of the day.

-         The same but sell the stock after holding for one month.

In the back-test presented in the book it seems a good system. So the idea of buying extreme selling can be good. As I said in other post about this book I would like to see this methods under 08-09 crisis.

Technique 14. Taking advantage of option expiration day.

There is a lot of mythology with an OED (option expiration day). He tests some ideas in the book. It's a good idea to short Nasdaq on the closing of the day before and OED, but it's better if the Nasdaq is down the day before OED.

Moreover it can be profitable to short QQQ if it gaps up the OED, and close that same day.

I would like to see a similar study with European expiration days, especially with eurostoxx.

Technique 19. What does not work?

Here he makes a summary of he thinks that not work in the trading environment, and I ad my experience or opinion about them like:

-         Gut. It has been my first king of operation until today. Poor results for now.

-         Candlestick patterns. I haven't studied it so I can't say anything about them.

-         Seasonality. I think in commodities can be very interesting. Not in stock at all.

-         Low P/E, High P/E. It was my first trading idea. What a time!!!!

-         Buying and selling options. I don't agree. Selling options can be interesting especially in volatile markets.