Combining different trading systems may lead to astonishing results. We always wanted to marry the investor with the trader and put together the advantages from both market philosophies, right? Promising as a starting point looks the modern version of value investing, which is of course growth trend investing.
The selection of growth stocks that are in a relatively bad shape right now is the base of this idea and the acknowledgment to the value oriented investor. Stocks with companies behind them that are in a longterm rise, but have failed to deliver over the last quarters or are expected by the market to do so in the near future.
These stocks had already a sizeable upwards trend but are now flattening out or diving back. But there must be hope, potential that their growth recovers.
Best is here a growth trend of revenues that is still intact, while the market just went overboard with its expectations so that the stock price had to fall back. Alternatively the whole market could during a bearish phase have dragged down our otherwise promising growth stocks.
The modern value investor just buys into this pool of trading candidates and swing trades them. Eventually this fallen angels may rise again like eagles and the swing trader mutates into a trend trader or buy and hold investor.
This mutation takes place when certain conditions are met. That could be a limit gain that a swing trade has to reach, say fifty percent. For a stock near its alltime high this limit should be smaller, for instance twenty percent. Chances are then better that the eagle is ready to start.
At that point the trading rules get switched from swing trading to a buy and hold version with a stop loss at the entry price. Swing trading becomes growth investing.
Let’s recapitulate how the three steps of this value swing trend trader system works:
Select a trading group of growth stocks that are off their high, have been market laggards, got pulled down by the market, or have paused their longterm trend in any other fashion. Growth companies often need to rest some quarters. That is part of their growth development. At times there are bargains to made, statistically of course.
Swing trade the selection. Given that there is potential, there should be also inflammable optimism that the pricing psychology of the stock one day switches back to momentum mode, meaning high or insanely high valuations. Oscillating between the disappointment and the momentum mode is also fine. We are swing trading here.
If a single swing trade is far enough in the plus zone, it gets switched to the longtrend trading buy and hold rule and possibly held until the growth stock has matured. At that point it gets replaced by other stocks better positioned in their growth life cycle.
The swing trading itself could be done with an automaton. Relying on a buy and sell signal generating software is a good idea. Put your efforts into selecting the right stocks. The ones that jitter between optimism and disappointment but have growth potential in principal. These are the ones that will produce generous swings for your autotrading endeavor.