prancingbull.com

Trading stocks can be tricky business. Just when you think that now is the time to get into a stock it goes down, and as soon as you decide to sell it goes up. I think we’ve all been there. The problem with trying to “time” the market yourself is that there can be a lot of human emotion involved. If a stock is just off its 52 week high, it can be easy to hang on to it thinking that it will rise back up to where it was. As the stock continues to drop, the investor continues to hold thinking again that it will go back up.

One of the best ways to try to time the market is by developing a strategy of when to get in and when to get out and sticking with it. A carefully devised plan is useless if you don’t stick to it. The website TradingSolutions.com
thinks that it may have come up with a system that can predict peaks and valleys in a stock’s trading pattern. In fact, they their system can predict price movement in forex, futures, mutual funds, and options. They say that by using neural networks, which is a way to analyze trading patterns in stock price data, they can predict the best times to be in and out of a stock. The company says that “a more effective way of using neural networks is to model what the best possible trading strategy would have been in the past and apply that strategy to your current trading.” Seems simple enough right? The user can even choose between over 250 different functions and technical indicators in order to sift through historical data, which will then be used to project the future.

The nice feature of their program is that you see how trading on a certain function or technical indicator would have performed over a certain period of time. By using this, you can see whether or not a certain stock trades in predictable patterns. On their website they give a great example of how trading based on their program can produce phenomenal results. One case study they use is trading Wells Fargo from 1/31/2007 - 1/31/2008. Throughout the one year period, the TradingSolutions system showed great results. If an investor had used the buy and hold strategy over this time period, they would have had a return of -5.10%. Using the TradingSolutions system, the return would have been +132.68%. This is probably a fairly extreme example, but it shows what their system can do.

Take a look at the following charts to see how these trades were executed.

The first chart shows all of the trading suggestions over the one year period. The second chart shows how the stock performed over the course of the year. The red chart shows the buy and hold strategy. The green chart shows the TradingSolutions strategy.

One thing to keep in mind though is that using this system requires that the stock be actively monitored and actively traded. In the Wells Fargo case study, the stock would have been traded 32 times over the course of the year, which averages out to about one trade every seven days. Assuming $10 a trade, that is $320 in commissions for the stock for the year. If you have a decent amount of money invested into the security, then it won’t matter too much, especially if you are getting a +132.68 return.

The system promises to be a miracle worker, but it doesn’t come cheap $995 will get you the most basic version that updates its’ buy/sell advice at the end of the day. For another $1000 you can see the buy/sell advice in real time. Don’t hang your heads just yet though, because TradingSolutions offers a free 30 day trial of their software. Feel free to check it out and see what kind of software some of the “big boys” may be using, and in the meantime it may give you a few decent trade suggestions in the process. Here is a link to the free download.