Twenty-Five Old Friends

This strategy requires that you rotate the stocks when the sector is

no longer in favor. Over time, you will find 25 stocks that you know

very well and can trade with confidence. You will come to regard

these 25 stocks as old friends. If other strategies do not seem to

work, you can always rely on your old friends. Take them out for a

trade or two.

Old friends are stocks that you have come to know very well

over the course of several years of trading. Because of your experience

with the stocks, you know their chart movements, support and

resistance, overbought/oversold areas, and have a feel for where

the price will move. Be careful: Limiting yourself to a few stocks will

result in missing profitable moves in others. Do not marry a stock.

You know that a trader has married a stock when you hear him or

her say, "I love the company." For this strategy to work, you must

select five of the major stocks in five sectors that are currently in

favor. Most of the time, only three sectors will be obviously in play.

The stocks you want will have institutional following, which will

result in enough volatility for you to trade them successfully. This strategy is obviously not a strategy in which you trade for small

fractions of a point. You will be trading stocks in half- or full-point

increments. You can day trade, microtrend trade, or aggressively

invest using this strategy.

Let's review the steps in this trading strategy:

1. Identify the five leading and lagging sectors.

2. Find the top five stocks in the sectors.

3. Follow those stocks and get to know them well.

4. Trade the stocks that exhibit the most momentum. I suggest

you use the following technical indicators to measure

momentum and strength: price rate of change, Relative

Strength Index (RSI) and ADX to measure trend strength.

5. When the sector and momentum fall out of favor, look for

opportunities to sell short.

6. Look for new sectors that show bullish strength.

This strategy requires that you rotate the stocks when the sector is

no longer in favor. Over time, you will find 25 stocks that you know

very well and can trade with confidence. You will come to regard

these 25 stocks as old friends. If other strategies do not seem to

work, you can always rely on your old friends. Take them out for a

trade or two.

Old friends are stocks that you have come to know very well

over the course of several years of trading. Because of your experience

with the stocks, you know their chart movements, support and

resistance, overbought/oversold areas, and have a feel for where

the price will move. Be careful: Limiting yourself to a few stocks will

result in missing profitable moves in others. Do not marry a stock.

You know that a trader has married a stock when you hear him or

her say, "I love the company." For this strategy to work, you must

select five of the major stocks in five sectors that are currently in

favor. Most of the time, only three sectors will be obviously in play.

The stocks you want will have institutional following, which will

result in enough volatility for you to trade them successfully. This strategy is obviously not a strategy in which you trade for small

fractions of a point. You will be trading stocks in half- or full-point

increments. You can day trade, microtrend trade, or aggressively

invest using this strategy.

Let's review the steps in this trading strategy:

1. Identify the five leading and lagging sectors.

2. Find the top five stocks in the sectors.

3. Follow those stocks and get to know them well.

4. Trade the stocks that exhibit the most momentum. I suggest

you use the following technical indicators to measure

momentum and strength: price rate of change, Relative

Strength Index (RSI) and ADX to measure trend strength.

5. When the sector and momentum fall out of favor, look for

opportunities to sell short.

6. Look for new sectors that show bullish strength.