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Saturday, March 14, 2009

How I Made 120% In The Stock Market In 6 Weeks - Working A Day Job!

Hi - let me introduce myself. My name is Alex Chambers. I'm a UK medical doctor who has an interest in the stock market. I use a system first invented by a dancer called Nicolas Darvas in the 1950's. He made $2,000,000 working part-time - whilst travelling round the world on a dancing tour.

Why am I telling you this? Because his methods still work today. And they are deceptively simple to use. I used them to snag a lovely 120% gain on TZOO (NASDAQ) in 6 weeks in 2004 - using weekly data only and working my day job.

Nicolas Darvas was one half of a dancing team in the 1950’s called Julia and Darvas. Dancing was his day (or night) job. His dance team was one of the highest paid dancing acts in the world and Nicolas Darvas was successful in almost everything he did - this includes playing championship table tennis and creating crossword puzzles.

However, the stock market was his true love and it is this that really fascinates me about the guy. He was self-taught in the market but managed against all odds to accumulate a fortune, working part-time, of just over $2,000,000 in 18 months. Nicolas Darvas started from a stake of about $25,000 and made his fortune whilst travelling round the world on various dancing commitments.

Darvas detailed his exploits and how he created his system in his classic 1963 text, "How I Made $2,000,000 in the Stock Market". It’s a great read and I highly recommended it. Many investors regard the text as a classic. In it he provides an honest and open look at his experience from his naive start to his eventual success. He lays out, in great detail, exactly what he did and how foolish some of his actions were. Then he explains how he came to find success by focusing on the price and volume action of stocks.

A key message of his strategy is as quoted as follows:

"...My only sound reason for buying a stock is that it is rising in price. If that is happening, no other reason is required. If that is not happening, no other reason is worth considering..."

Sounds simple eh? The only other investor I know of before Darvas who used such a strategy was the legendary Jesse Livermore.

Also, remember that there was no internet in the 1950s and Darvas had to rely on outdated information in the form of a newspaper and daily telegrams on selected stocks to acquire information for his trading system. His broker mailed a copy of Barrons newspaper each week which contained weekly prices of stocks together with volumes for the week.

Darvas used a top down approach to investing - he only watched stocks from futuristic industries. In the 50's these were credit card industries and the jet age. Darvas realised that the expectation of earnings was one of the greatest lures to raise stock prices higher, and together with the futuristic industry screen, these were the only fundamental factors used in his Darvas Trading System. Today all you have to do is log onto Yahoo.com, go to Finance, and all this information is free.

Once he had satisfied his requirements for fundamentals, he tracked technical data in the stock. He liked stocks that were:

1) At or near their all-time high

2) Bouncing up and down in their "Darvas Boxes" (trading ranges - see below)

3) Had "Boxes" stacked on-top of each other like a pyramid

4) Showing an increase in volume with advancing prices

5) Priced greater than $10

He used "Darvas Boxes" as a way of entering and exiting stock positions. These are in essence a definition of a high and low trading range. A buy signal was created if the price just pushed through the top of a Darvas Box and the price reached a new all-time high. He used stop losses at the low of the trading ranges to protect the downside, and raised the stop loss as new higher boxes were formed. I believe Darvas was the first to use stop loss orders in such a way, and many financial institutions today still use Darvas Boxes as trading ranges, albeit on a smaller time scale.

That's essentially it. The story is utterly remarkable and has placed Darvas in the legends of investing history. If you're interested in more details and about how I use his system, please check out my website. All information is free.

To your stock market success also, Alex Chambers

Copyright 2006 http://darvas-investing.chambers-media.com

By : Alex Chambers
Alex Chambers is a UK medical doctor who likes to buy & sell profitable shares. He also likes to go out dancing and lie around in bed, as well as enjoy the company of ladies. http://darvas-investing.chambers-media.com

Tuesday, March 3, 2009

Is Investing In The Stock Market Like Going To Las Vegas?

Some people say that there is no difference between investing in the stock market and gambling in Las Vegas. This is a happy fiction for casino owners, but unfortunate for casino gamblers. It means you might be tempted to "invest" in blackjack or poker, instead of stock or bond mutual funds. In this article, we compare the similarities and differences between casino gambling and stock market investing. Make up your own mind if they are the same kind of investment.

What casino games have in common is that the gambler has a very small chance of winning any single hand, be it roulette, blackjack, or slot machines. For instance, there are 38 numbers on a roulette wheel, and, if you bet on a given number, the rough odds of winning a single game is, 1 in 38, or 2.6%. This means, of course, that the casino has a whopping 97.4% probability of beating you! This is great for the casinos but not so great for attracting gamblers.

Fortunately for the casinos, the likelihood of winning or losing in the short term is not that clear at all. Wins and losses in any casino game follow a random sequence of winning streaks or losing streaks, which cannot be predicted in advance. A long sequence of losses (a losing streak) can bankrupt a gambler, while a long sequence of wins (a winning streak) can generate huge gains.

When a gambler gets on a losing streak, he attributes it to bad luck. But something in human psychology needs to attribute a winning streak to superior gambling skill, instead of just good luck. In reality, they are neither skill nor luck. Winning and losing streaks are demonstrably random, unpredictable events.

To understand this, consider a simple coin toss game, where everyone knows that there is a 50% probability of getting either heads or tails with each coin toss. But many people would be surprised to find that if they tossed the coin many, many times they could get a lucky streak of say, nine heads in a row. It’s hard to believe, but it’s true, and you can try it for yourself.

Toss a coin many times and write down the outcome; you will see that 4 to 9 successive heads or successive tails will occur pretty regularly. These sequences are a graphic demonstration of "streaks". If "heads" represent a win and "tails" a loss, we can see winning streaks and losing streaks even in a simple coin-toss game.

So you can see that there is a way to beat the casino if a gambler hits a "winning streak" of 4 to 9 consecutive wins, leaves the table, cashes out and runs. But if he gets on a "losing streak" he’d better pack it in, accept the loss, and leave the table immediately before more damage can be done.

Gambling is fine for someone who wants to play with cash for the entertainment value, but it is not for the investor who wants to make some serious money.

The odds of winning in the stock market are incredibly more favorable. During a bull-market of rising prices, your odds for making money on any given day are 66.7%! Contrast that with the 2.6% probability of winning at roulette! On the other hand, during a bear-market when prices are dropping regularly, you are likely to lose money 66.7% of the time. So even during a bear-market you are losing less than you would in a casino.

And just like in casino gambling, there will also be winning and losing streaks with many consecutive days where the money comes pouring in, and many consecutive days where the money just seems to evaporate.

But if you knew ahead of time the periods when a bull or bear market is likely, then you could make adjustments in how you invest, so that you could maximize earnings or conserve money and prevent losses.

For instance, if a bull-market is likely, you would invest in stock mutual funds, and then sit back and watch the 66.7% odds of success pull the portfolio higher. Conversely, if a bear-market is likely, you would pull the money out of the stock market and into the safety of Money Market funds, then sit back and watch the market get hammered with the 66.7% odds of losing.

This system works because Market Timing Indicators (see website listed below) can be used to predict whether the environment is favorable or not for future stock market gains. This is unlike casino gambling where there are no indicators and every round is unique, so that the odds of winning are unknown,

These ideas are the very essence of long-term market timing, as practiced by the author in his FREE newsletter at www.predictableinvesting.com. By side stepping the awful 2000-2002 bear market, and reinvesting near the bottom in June 2003, the simple one fund portfolio has grown to 411% of its original value in just over 11.5 years. This system beats a buy-and-hold approach hands down and has made 81% more profit.

NOTE: This is a clarification for my math and science savvy readers. The statistics used to calculate the odds have been intentionally simplified to make the article readable for the average non-technical reader. If you want a fuller explanation please email me at Sanjoy@PredictableInvesting.com.

By : Dr. Sanjoy Ghose
Dr. Sanjoy Ghose spent his 40 year career in technology research and development of computer storage devices. He was a senior executive at several well known California Silicon Valley companies and startups. Since his retirement from high-tech, he has been publishing his FREE newsletter on investing, a subject he has studied and followed extensively for over 16 years. To find out more, please visit www.PredictableInvesting.com

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