This Is How You Trade the ‘Market Within’

Lotteries are the hardest game around…

The lure of being set for life draws lots of people in. But the reality is much less appealing.

Take Oz Lotto for instance. You’d need seven correct numbers out of 45 to win the ‘big one’. There are roughly 45 million ways to do this. Your exact odds of winning are 45,379,620 to one.

Just think about that — over 45 million to one.

The odds of a division-two win are also astronomical. You could play every week for life and still be a long shot. Merely winning the lowly division-four is a statistical rarity.

But what if you could eliminate half the balls?

Well, your chances of success would skyrocket.

Choosing from 22 balls instead of 45 makes a huge difference. The odds of selecting seven balls correctly drop to 170,544 to one. This would give you a big advantage over everyone else.

Unfortunately, I’m not about to reveal a new system for winning lotteries. These are games of complete chance. I’m not aware of any strategy that gives you an edge.

But I believe I can give you an edge in the stock market.

Divide and conquer

Consider this: The ASX has over 2,000 listings. Some of these will go on to become next year’s top performers. The best stocks could more than double in value.

But there’ll inevitably be hundreds of non-performers. These stocks will typically do nothing more than cost you money. Buying too many of these could ruin your portfolio.

Have a look at this chart…

All Ordinaries

Source: BigCharts
[Click to enlarge]

You’ll be familiar with this graph. It shows the movement in the All Ordinaries since late 2014 (when Quant Trader began issuing live signals).

Grinding markets, like we’ve been experiencing, are tough to trade. Many stocks bounce around without going anywhere, while others fall for months on end. It’s often a difficult time to be a trader.

But this doesn’t mean you can’t make money. The key is to separate the stocks with the most potential from those with the least.

Part of Quant Trader’s service is the weekly Overflow signals. This lists every ASX stock that meets the Quant Trader entry criteria. It’s a quick way to eliminate more than half the ‘balls’, so to speak.

I had a look at the current line-up during the week. There were 304 stocks in total.

Just think about this for a moment. From more than 2,000 ASX listings, only 304 have made it through the system’s screening process.

So, how do these stocks shape up?

Well, let me tell you…

The average winner is currently up 22.2%, while the average loser is down 6.8% (59.5% of stocks are showing a gain). The top 100 trades are up on average by 36.1%.

These are the types of stocks that could swing the odds in your favour — even in a tough market. The trick is to separate them from the pack.

The ‘market within’

I talk a lot about buying into strength. The reason for this is to trade with the trend. This could increase your odds of making a profitable trade.

But that’s not all.

Strength is also an excellent screening tool. By only focusing on strong stocks, you automatically cull many of the worst performers. This can give you a big advantage.

Check out this next chart…

Overflow signals

Source: Quant Trader
[Click to enlarge]

You’re looking at the hypothetical performance of the Overflow signals. It assumes $1,000 on every trade. And, as always, there’s no allowance for costs and dividends.

This covers the same period as the previous chart. While the All Ordinaries has been tracking sideways, the gains from Quant Trader’s signals have been on the rise.

Here’s the chart for the All Ordinaries again…

All Ordinaries

Source: BigCharts
[Click to enlarge]

Have a close look at the two graphs. You’ll see that they look very different. It would be easy to think they were for completely different markets.

Why is this?

Well, in a sense, they are for different markets.

The All Ordinaries is a collection of the top 500 stocks. There is a yearly rebalance. But, otherwise, there’s no allowance for strength or weakness. You get the best stocks…as well as the worst.

Quant Trader is more selective. The only way into the portfolio is to meet the entry criteria. This reduces 2,000 ASX listings to a concentrated list of opportunities.

You could say that it’s a ‘market within the market’.

And look at the result. Quant Trader’s smaller portfolio is well above its starting point. The same can’t be said for the All Ordinaries, which is only just nudging its April 2015 high.

There’s no reason why you can’t have this sort of advantage. The key is to buy into strength. This helps avoid weak stocks — the ones that can drag your portfolio down.

Until next time,

Jason McIntosh,
For Markets & Money

Editor’s Note: Finding the best stocks is hard. Your job is that much trickier when you have over 2,000 possibilities. It can feel like trying to pick the winning lotto combination.

But there are ways around this…

Quant Trader specialises in finding shares that are on the rise. The system’s algorithms scan the entire market for opportunities. When the set-up is right, it will give you a buy signal, and calculate a unique exit stop. This could have a dramatic impact on your odds of success.

Right now, you can get instant access to Quant Trader with a 30-day money-back guarantee.

Try it. See if it makes sense to you. It could change the way you trade forever.

Jason is a professional quantitative analyst. Before he graduated in 1991 he joined Bankers Trust — a Wall Street investment bank — to be a trader. After Bankers Trust was taken over in 1999, Jason, already financially independent, co-founded a stock market advisory and funds management business called Fat Prophets. At 37 he sold his part of that business and retired. These days, he’s a private trader and system developer. In 2014 he launched the wildly successful trading service: Quant Trader.

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