 THE
ALPHA TRADING SYSTEM FOR STOCKS
From Paper Profits To Real Profits
Dear Fellow Investor,
Did you recover from the
debacle of the last two years? More importantly: have you learned how
to avoid a similar disaster in the future?
We
Must Take Control of Our Savings
Is it
possible to make 10%, 20% and even higher returns in three months or
less on a consistent basis? Better yet, can we determine when our open
positions are in jeopardy? And when it is advisable to exit a stock
even if we need to pay taxes on eventual profits?
 The
market’s volatility has increased to levels that render a
selection of investment vehicles very difficult and quite hazardous. On
my site www.alphafin.com/newbooks.html
I have a chart (also included in the system manual) generated with data
from J. P. Morgan’s Fleming Asset Group. It shows in a very
clear way how difficult it is nowadays to select investment vehicles
for our savings.
The
traditional way of investing in analysts’ picks can be quite
risky. In the introduction to my system I present the
analysts’ recommendations for two very well known stocks:
Lucent Technologies Inc. (LU) and Enron Corp. (ENE). It shows how
dangerous it is to trust this type of advice. In Lucent’s
case six analysts never gave a “sell” while the
stock fell from $49.50 to $8.32. as you may find out by checking my
site at www.alphafin.com/newobjectives.html.
As for Enron, 11 of 13 analysts tracking the stock still had a
“buy” onhe week before
Enron’s fall (www.forbes.com/2001/11/29/topnews.html).
I
have just finished writing what I consider my best trading system ever.
And unlike the two previous ones, it deals exclusively with
stocks. Based on the research I conducted for my
previous systems, I managed to devise a system that will let you take
control of your stocks and perform quite well most of the times
(nothing works right all the time). The two small charts in this page
can provide you with an idea of the results possible with this approach.
 Did you
sell your Lucent stock at $51.13 in July 24, 2000? And did you get out
of Enron at $75.09 on February 3, 2001? These are two of the many
stocks that I mention in my new system. And if you would look at the
same charts with my rules, you could not have avoided exiting those
stocks around the same levels. Unless, of course, you were so obstinate
that you didn’t care to follow the signal. Well, if you are
this kind of investor, then my new system is not for you, because
apparently you don’t like to follow signals and make money.
How
to Invest/Trade for Higher Returns
Since
the publication of my first book “Better Timing, Higher
Profits” co-written with my son Paul A. Alvim, I have
advocated a very simple approach to making money with stocks. Because
the target audience for that book was investors of my age also with
limited computer skills, I had to make it simple and effective. Since
then I have published other books and two systems and have explored
further what I consider the safest approach to using stocks for
building our nest eggs: trend reversals. Please let me elaborate.
Using
trend reversals provides good timing for buying new stocks since that
is the time when the sell stops can be smallest. This does not
guarantee all trades will be winners since the trend reversal may
abort. However the tight stop placement will provide for quick exits in
order to minimize losses.
My
basic approach is to find stocks that were in an extended downtrend and
show evidence of having started a new uptrend. Then a few days, a few
weeks, sometimes a couple of months later, as the stock shows signs of
turning down or steadily losing steam, we close the position. Next we
use the cash liberated for buying into another stock with similar trend
reversal characteristics.
 The main
reason why I advocate exiting the trades showing overbought signals is
that when a stock starts falling, we don’t know how far it
will go. For instance, Lucent declined 85% in one year but our system
signal was given after a drop of about 15%. And the funds liberated
could have been invested in other stocks like ACF and PPL (shown in the
manual) that were starting a new uptrend. By the time PPL was closed,
the initial Lucent investment instead of being down 85% would be up
308% in 14 months. Better yet, after the exit signal in PPL this stock
dropped almost 50%. But with our approach, we would exit PPL only 12%
from the top but would have avoided running down its four months
correction.
Sure,
we would need to pay taxes on the profits. But do you prefer to see
paper profits evaporate and avoid the taxes paid in the profits? (in
other words, if you look back at your portfolio, check if you we would
like to have sold stocks in the last two years, even if taxes were
due). Are you happy today if you don’t have to pay taxes this
year just because you didn’t have profits?
 The
Selection Process for Stocks, Holders, QQQ and other instruments
How
do I find the stocks worthy my analysis? I utilize a couple of
rigorously developed stock screens and generate a list with the 20 best
candidates (these weekly lists will be available to investors/ traders
for a very modest fee). Then I perform the analysis with the very same
approach that is documented in the system manual and select my top two
or three stocks.
I
normally select stocks with prices from $7.00-$50.00 (I also screen for
stocks from $2.00-$7.00 because many traders like low-priced stocks)
but typically prefer very liquid stocks. In the manual I also cover
investing/trading from daily charts as well as from 30-minute bar
charts. Probably 99% of investors/traders do not realize how much they
could benefit from 30-minute bar charts even if they were used just for
protecting their investments. I also address this in the manual. The
results may surprise you.
 I do not
suggest day-trading, although the system could be used for that type of
activity. Yet just to show the potential for day-trading with my new
system, in the system manual I display a 1-minute chart of CMVT for
December 19, 2001 and the three buy signals generated that day. The
gross profit potential was about $500.00 with an investment of about
$10,000.00 or $5,000.00 on margin. All in a single day!
The target audience of the
system is the small investor like me who needs to protect his or her
funds and let them grow with controlled risk. And the only way of
protecting a paper profit is to turn it into cash when there is a
signal the stock is overbought.
In Chapter 4, covering signals
from end-of-day prices, I analyze the profitable buy signals
generated last year for the following stocks, which were all lower in
2001: Bruker Daltonics (BDAL), Broadcom (BRCM), Emulex (EMLX), Inktomi
(INKT), Intermune (ITMN), Internet Security (ISSX), Pixelworks (PXLW),
Powerwave (PWAV), Qlogic (QLGC) and RF Micro Devices (RFMD).
Their one-year losses range
from 28.2% for PXLW all the way to 70.5% for PWAV but each stock had
profitable long trades in the same period. In spite of their downtrends
in 2001, most of those stocks had from two to six long trades
opportunities. And if the system can perform well in a down market,
shouldn’t it perform even better in an up market? Of course
the system can be used also for shorting stocks, but the manual covers
long trades only.
 The Wealth
of 30-Minute Charts
In Chapter 5 I repeat the same
analysis of Chapter 4 applied to 30-minute bar charts. These are trades
that last from 2 to 7 days, on average. Most investors/traders will be
very surprised at the signals that can be generated from these intraday
charts. It is frequent to get returns of 10% or more in a single week,
although I am not implying that this is what everybody can expect.
In these charts we see very
good trends lasting 2-3 days. Then the stock moves sideways until a new
trend is established, eventually in the opposite direction. The stocks
we recommend are very liquid, trading at least an average of 1,000,000
shares a day. This provides narrow spreads and the assurance that after
we see the exit signal we can close the position with reduced slippage.
 Exiting
the Trades is the Hardest Decision
The manual analyzes in
considerable detail when to exit a position. Personally I consider that
buying a stock is a much easier decision – no matter how hard
it may be at times – than to close it. For this reason I
explain different techniques that enable us to exit at the best time.
This is not the top because our system requires several bars after the
top before giving an exit signal (unless we use my technique in Chapter
6.5.1 for trailing stops from the highs). My main contention is that it
is never wrong to take a profit. And since we can always find another
stock to re-invest the proceeds from the sale, it is wiser to move into
another stock rather than being greedy and trying to extract more from
an overbought trade. As we all know, staying too long with a position
is often the cause of our largest losses.
 Using our system may
generate frequently closed trades since most last a couple of months,
usually much less. For this reason this is a suitable approach for IRA
accounts – or other tax-free accounts - since the potential
profits will compound much faster. This will in turn increase the funds
available as trades are gradually closed.
Needless to say, there will be
losing trades along the way. But the stop loss approach that I
recommend and the fact that the winning trades usually are more
frequent and have a higher profit than the loss in the losing ones,
provides for very encouraging returns.
In all of the above I did not
refer to the cost of transactions. Nowadays you can buy online up to
5,000 shares of Nasdaq stocks for $9.95, not a lot more than a
Café Latte at the nearby Starbucks. So if you can generate
your own charts and are willing to take control of your savings, start
applying my system. You may find out that you may re-apply the same
capital on average six times a year with position investing, no matter
where the markets are going. Of course, intraday charts provide for
trading opportunities every single day.
Money Back Guarantee
I also provide a unique
money-back guarantee, unchallenged in the five years since it has been
offered: trade for 90 consecutive days and if by the end of that period
you did not make five times the cost of the system, just send the
printouts of the charts for each trade showing that you applied the
rules correctly. If you did, then I will reimburse you 100% of what you
paid for my system.
Priced 50% Lower Than my Other
Systems.
Because this system is
addressed to a vaster audience, we are cutting our normal price by 50%.
So the Alpha Trading System for Stocks will sell for only $375.00. We
are also offering a free CD with most of the charts that we present in
the manual. This provides a much better reading of each chart.
This system requires the
analysis of stock charts with software like MetaStock, TradeStation,
etc. A printer is also very useful but not indispensable. If unsure of
your present system capabilities, please email me.
I wish you profitable and enjoyable trading.
Sincerely
Luiz V. Alvim
lalvim@alphafin.com
Alpha Trading Systems,
P.O. Box 770729,
Houston, Texas 77215
2937 Meadowgrass Lane
Houston, TX 77082-1850
Telephone: (281) 759-9925, Fax: (281)
759-9925
Copyright 1994-2007, Luiz V. Alvim.
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