The Prime Time to Sell One Stock to Buy Another

By TradeSmith Research Team

If you’re familiar with 1980s-era movies like “Wall Street” or “Trading Places,” you’ve seen the old “open outcry” trading system that was Wall Street’s version of a mosh pit. In “Trading Places,” the Dan Aykroyd character (Louis Winthorpe III) actually described the commodities trading pits as “the bastion of pure capitalism left on earth.”

I was part of that world; I spent nearly 15 years on Wall Street “trading desks” – which were akin to a raucous skybox overlooking all that action.

Like everything else, time has brought change.

Time … and technology.

Trading desks – the investment-banking departments where stocks, bonds and other assets are bought and sold – aren’t really “desks” these days. Like the open outcry trading pits, trading desks have done digital – with screens and screens and screens of always-shifting numbers. (Traders’ facial expressions change along with those numbers – from smiles to frowns to scowls, and back again.)

One thing hasn’t changed: Trading desks are still the “pipelines” through which Big Money flows.

And they’re still quite loud.

When I left Wall Street to develop what would eventually become my Quantum Edge system.

I work in a spacious and quiet room with chill music playing in the background. Oh, and two dozing dogs.

That may not be what you pictured, but this quieter, more-focused setup helps me think creatively and analyze data – and tune out the noise that plays out on trading desks, TV, and across the internet. It’s a lot of sound and fury that signifies nothing – especially since most of it is based on emotion.

Instead of listening to Jim Cramer’s screaming “stock schtick” on CNBC, I am right now grooving to some smooth soul of The Fabulous Three. (If you’ve never heard of them, don’t worry. I’m an esoteric music junkie in addition to being a data junkie.)

Traders have their own agenda. They make money on the sharp swings in stocks and bonds. They have a vested interest in volatility… and noise.

But their agenda isn’t our agenda. That’s why I recommend you tune out that noise and invest the Quantum Edge way.

The Whiplash Effect

The very notion that a company can be worth significantly more or less from one business day to the next – let alone one second to the next – is just plain stupid when you think about it.

Yet a lot of investors make decisions based on those moment-to-moment prices – succumbing to greed or fear as they do so, which ultimately leads to lousy results.

Say you own a dry-cleaning business that the market values at $1 million. A news story comes out tomorrow bashing the environmental impacts of dry cleaning. Investors bail. And now your business is worth $800,000 – 20% less than it was just one before even though nothing really changed.

Then another article appears the following day about the move to greener dry cleaning. Investors flock back in, and your business is all of sudden worth $1.1 million. Those who bailed the day before are licking their wounds. All the while, your business hasn’t changed at all.

Investors get caught up in the headlines, see stock prices jump around, and then questions fire up and the fears set in…

What if I buy and it goes lower?

What if this is the bottom and it’s about to go higher?

What if I sell and it bounces?

What if I hold and it keeps dropping?

If you’ve invested for any length of time at all, you know exactly what I’m talking about.

This Holding Period is “Just Right”

That’s why I rely heavily on a system to make buy and sell decisions. A system based on data and analysis, not on greed or fear. I learned long ago – through my own failures – that in-the-moment decisions are almost always wrong.

Fear and greed go at it inside your brain like an angel on one shoulder and the devil on the other.

I researched and backtested more than 30 years of data as I developed my Quantum Edge system. My primary purpose was to identify the best stocks in the market to buy – those with the highest probability of making me good money. money.

Those are stocks with the strongest fundamentals and technicals that also have Big Money flowing into them. They have the highest Quantum Scores, which my system assigns to more than 6,000 stocks every single trading day.

But… I also drilled down into another critical question: What is the optimum holding period for a stock?

The information age and easy access to trading platforms mean the days of buying and never selling are dead. Instant trading with a couple of swipes, taps, or clicks also means there’s a higher likelihood you’ll pull the buy or sell trigger too early.

One thing is clear: You can’t make big money on a stock without holding it long enough to make a big move– even if it wobbles along the way based on those emotional daily headlines.

The chances of making 30%, 50%, even 100% in a brief period of time are practically zero. And the kinds of stocks that do move that much that quickly are probably off-the-charts risky.

To make big profits with manageable risk, you need to buy great businesses at good prices… and then hold them for the optimal stretch.

My extensive analysis and backtesting showed the most effective time to own the highest-ranking stocks to be roughly six to nine months. That was the sweet spot to capture the biggest share price gains and then start banking some or all of those profits.

If you can do that again and again and again, you stairstep your way to wealth by continually stacking gains and moving on to the next moneymaking opportunity.

Of course, this only works if you win more than you lose. Otherwise, you’re just spinning your wheels.

The keys are:

  • Win a lot more than you lose. With my Quantum Edge system, I reliably expect about 70% of my stocks to make money.
  • Make a lot more money in your winners than you lose in your rare misses.

That six- to nine-month optimal “profit period” helps do that. It’s not too short, and not too long. Goldilocks would be proud.

That’s a general rule, of course. Sometimes you may need to be a bit more patient. Other times, stocks will move faster, and you can take profits sooner.

Talk soon,

Jason Bodner
Editor, Jason Bodner’s Power Trends

P.S. Technologies like blazing computing power, sophisticated algorithms, and artificial intelligence allow us to accomplish phenomenal results with a fraction of the effort, in a fraction of the time.

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