The strategy I will discuss here has been working all summer; it has been working well since its inception on October 1, 2008 too, but past performance is no guarantee of future results.
It is August, right in the middle of summer, and I am starting to hear the same thing everywhere I look. Traders are complaining that the market has been moving sideways, they complain that there is no money to be made out there, but the market is near its 2011 high so no one is really worried either. In fact, with all the complaining, I find much more complacency than I do concern.
Therefore, I thought it would be a good idea to roll back the clock to the 2011 high, and then even further to market levels at the beginning of this millennium (almost 12 years ago), and take a look at what has been working. The answer, every time, is proactive trading strategies.
Since the end of the first quarter the S&P 500 is down by a fraction, but it did pay a 0.50% dividend and although that payout looks very small it meant everything. Interestingly, without that dividend the S&P 500 would have terrible performance numbers since 1.2.00 too. The return figures above do not include dividends, so luckily for persons holding onto the market they have had some return over the past 12 years, even though the return has been meager.
This proves that you can just stay the course, buy and hold, and you will probably be just fine over time if just fine means a 1-2% return on assets, but I do not think that is good enough. More importantly, I also believe that the risk of aggressive market decline is very high, so for everyone that just holds and takes what the market dishes out I also expect them to ride a roller coaster over the next decade as well.
Here is one strategy that has not only been working very well this summer, but one that has also been working very well since its inception. Since the market peaked at the end of the first quarter our "Swing Trading Strategy" is up 12.57%. Since its inception on 10.1.08 this strategy is up 91.55%, compared to only 19% for the S&P as well. In fact, in the month of August alone this strategy is up over 5%, so it is working well this summer too, when everyone else is complaining about sideways market action.
Our swing trading strategy is simple, I will explain how it works, but do not mistake my intention here. You do not need to follow this proactive strategy, but instead use it to recognize that there are alternatives out there. Investors do not need to spend another ten years taking it on the chin like they have the past 10 years, we all know there are problems, and this strategy is an example of a solution.
The Swing Trading Strategy uses Proshares double short NASDAQ ETF (NYSEARCA:QID) and proshares double long NASDAQ ETF (NYSEARCA:QLD) to trade pivot points in the NASDAQ. To make sure this strategy is okay for IRAs, it is never short, but instead we use the 2x short ETF when we want to short the market; our IRA clients also use RegT margin for their IRA accounts. We never trade stocks, because stocks are too complicated, but we find markets to be much easier. When coupled with almost exactly correlated ETFs this process becomes not only less cluttered, but it also becomes incredibly efficient. It is that simple.
There are alternatives to buy and hold strategies, and our Swing Trading Strategy is one of them, but it is not the only one. Recognize that alternatives do exist, but also recognize that the best time to engage in proactive strategies that integrate risk controls is when the market is at a relative high. That is where it is today. Get proactive now, consider your alternatives, and do not let the problems in our economy hurt you anymore. We all can do this but it starts with admitting that problems still exist.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: Both QID and QLD are part of a dynamic strategy that will buy or sell based on defined pivot points in the market, so new trades may be initiated in either of these at any time.