KISS FORMULA
by THE ALCHEMIST, AL THOMAS    7-25-05

There are formulas for just about everything, but it has been shown that the simpler the formula or method of doing a particular task the better it works. It has evolved down to KISS – Keep It Simple Stupid.  This also applies to trading in the stock market. There are literally hundreds of formulas, both technical and fundamental that are easily available to investors. Each trader has his own method he uses. Every professional trader on the floor of the stock exchange has his own variation on some major proven formula. The more skilled he becomes with it the more he feels it is the best one.

Sometimes it takes years for a trader to settle on one method or group of methods that he uses to signal buys and sells. It took me many years to find that technical group that worked for me when I was an exchange member.

For some it evolves into long term trading and for others it can be buying and selling in a matter of minutes. The time period is not important. The method is. Even as a floor trader on the commodity exchange I had only two criteria I watched before entering into any position.

All professional traders and investors are aware of the single most important fact and that is how much I am willing to lose before I exit this new position. Every KISS formula has an exit strategy. Every professional knows in advance how much he will allow himself to lose if he is wrong. The professional does not set a limit on the winning side of a trade only on the losing side.

Ask any full time professional and he will tell you if he is right 50% of the time he considers that to be phenomenal. When I was on the floor I was only right about 40% of the time, even about 20% and wrong about 40%. BUT I made $3.00 for every dollar I lost. Small losses and big winners are the key to success. This is the key to any profitable formula – keeping the losses small.

When I see advertisements in the financial papers for methods claiming to be right 80%, 90% of the time I cringe. It just can’t be. There is no trader I ever met who was that good and I have known some exceptional traders. The major text on technical analysis is “Technical Analysis of Stock Trends” by Edwards and Magee now in the 17th printing of the Fifth Edition that lists multitudes of methods. They all work, but many are complicated. A magazine called Futures Truth analyses 200 commodity trading systems in each issue. Fundamental Theory is equally complex.

There are software programs that allow the investors to enter as many as 30 parameters. The more complex it is the less chance it has to work. And the biggest obstacle to any program is the trader himself. He cannot hesitate when a buy or sell signal is given.

Keep your formula simple and execute the signals. You can be a winner. 

Al Thomas' best selling book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter and receive his market letter for 3 months at www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.     

Copyright 2005