Market/Investor : Investing Daily March 22, 2019 The ...

[Pages:4]Market/Investor: Investing Daily

March 22, 2019

The Scientific Way To Spot Buy Signals

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The Scientific Way to Spot Buy Signals

By John Persinos (bio at end) March 15, 2019

Q&A with Jim Fink

For this week's Big Interview, I picked the brain of Jim Fink. He is chief investment strategist of the trading services Options for Income and Velocity Trader. And what a brain it is. Hopelessly over-educated, Jim holds a bachelor's degree from Yale University, a master's degree from Harvard's Kennedy School of Government, a law degree from Columbia University, and an MBA from the University of Virginia's Darden School of Business. For good measure, Jim has been a member of the Illinois and D.C. bars and is a CFA charterholder.

Here is my interview with him.

John Persinos: Most investors are used to investing through common stock--but you have been taking a different approach for decades. Explain to readers, in simple terms, why?

Jim Fink: I don't trade regular stocks because of the high costs.

What I have found is that I am able to earn the same, or more, in profits by spending a fraction of the investment costs of common stocks. Think about it: a rate of return is the dollars of profit divided by the dollars at risk. If you can minimize your dollars at risk, and then make the same dollars of profit... your potential rate of return is vastly higher.

For example, if you buy a stock at $90 and it goes up $10 a share, your rate of return is 11%. T hat is 10 divided by 90 because that is the cost you had to incur to enter the position -- or said another way, $90 of cost to gain $10 of profit. But my approach allows me to enter that same stock position for maybe only $1 or $1.50.

We are essentially comparing just $1.50 of investment risk with the $90 you would have otherwise needed to buy that stock, and both have the same potential for profit.

Ask yourself, which cost would you rather risk for your investment? When you can buy into a stock position for such a vastly reduced investment cost, that multiplies your potential rate of return. Because in this case, my cost was only $1.50 to make that $10 profit.

The 11% you would get from a simple stock investment can now be multiplied to way over 600%. Because we are talking about a $10 profit, divided by a $1.50 cost -- that's 666.7%.

That's why I call my system the "Profit Multiplier."

Okay. Now, you have said before that this system is "scientific." Can you explain what you mean by that?

I call my system scientific because the stock selection criteria I use are based on fact, and not on unsubstantiated claims, assertions, or theories. My system is based on actual market data taken from how stocks have actually behaved over the past 10 years.

When you are making these "Profit Multiplier" trades using vastly reduced investment costs, you are making trades with a limited shelf life. This is a good thing because it means your investment money is not tied up long-term. But it also means that you have a narrow window of time to make this trade and collect the profit. That is why it is critical for my Profit Multiplier system to determine which stocks are likely to move in the desired direction -- and when.

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So everything in my system is based on predictable, seasonal moves.

That is why I have created my Seasonal Velocity Scanner, a proprietary tool you cannot get anywhere else. It lets me interact with the data of the last 10 years to predict with great accuracy how and when a stock might move.

You can filter through all the stocks that exist in the S&P 500 and the Russell 3000... so we are talking virtually any stock out there. I am looking for the few stocks that -- based on factual history and proven trends -- have an 80%-90% probability to make a big move during this narrow time window. So I call my system scientific because all trades are based on the actual probability that has been calculated from this historical market data.

How do you turn all of this science into a profitable investment trade?

Well, what I am looking for are clear buy signals. That way I know exactly when to buy a stock.

Let me give you an example of one of my favorite buy signals -- I call it the "Double Barrel" pattern. This buy signal is based on two technical indicators.

The first "barrel" is the Moving Average Convergence Divergence or MACD. This deals with an 8-period moving average and a 17-period moving average.

The first is called the "fast line," the second is called the "slow line," and when the fast line crosses above the slow line... that is a strong buy signal. Because it proves that momentum is building. Or, to put it another way, the shortterm performance of the stock is starting to out-perform the longer-term trend.

What we are talking about here is a significant trend change for the better.

So a positive MACD is the first "barrel" of the buy signal.

The second "barrel" of the Double Barrel buy signal is an indicator called the Stochastic Oscillator. It moves back and forth between the numbers 20 and 80. It is measuring the degree to which a stock has been near the high price of its 14period range.

If you get up to 80, that means it is trading near 80% of its high price for the time period, which is usually a bad sign and means that a stock has exhausted itself. That is why I like to wait for 20, which is when a stock has retraced down to 20% (or less) of its high price for that time period.

The Stochastic Oscillator is how I prove that there is enough room in the price for a big run.

To conclude, the Double Barrel buy signal is a powerful one because it tells you when there is a significant trend change, and that there is enough room in the price to follow through on that trend.

How can a normal investor make trades using this pattern?

Well, the good news is that I know these patterns perfectly, and I can provide you with these buy signals myself.

When you are first starting out, you don't have to do all the work... I will do the work for you. But I am also a big believer in education. Over time, you will be able to follow my lead and understand more about these trade indicators.

How often do you tell investors about these trades?

There is a new trade at least once every week. Each one is a chance to generate great returns by avoiding the high initial costs of common stock ownership.

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Editor's Note: Jim Fink just discussed how his proprietary method consistently beats Wall Street at its own game, in markets that are going up, down or sideways. Now, Jim is making this bold promise: "If I don't deliver 24 triple-digit winners over the next 12 months...I'll give up $1,950." Want to learn about Jim's next trades? Click here now for details.

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See ABOUT THE AUTHOR below.

About the Host Analyst

John Persinos is managing editor of Personal Finance, Utility Forecaster, and Radical Wealth Alliance. He also writes the Mind Over Markets daily stock market recap.

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