Chartist Investment Strategy
The Chartist takes a purely technical view towards the market. We base our decision-making process on the price action of individual stocks in conjunction with our proprietary indicators as well as many other widely followed technical indicators. The technical indicators tell us if the market is in a bullish phase (uptrend) or a bearish phase (downtrend). Once we have determined that stocks have entered a bullish phase, we use relative strength to arrive at stock selection. To the uninitiated, a stock’s relative strength is determined by comparing its performance to the market as a whole. In every bull market a select group of stronger than market stocks (high relative strength) will invariably emerge as the leaders and outperform the averages by a wide margin. At the Chartist we attempt to position ourselves in these high relative strength stocks early enough in the bullish cycle to realize substantial gains. During bull markets, the majority of stocks appreciate in value. However, the high relative strength stock will appreciate to a much greater degree than the average. This is a group of stocks we want to be in because they offer the potential for the greatest gains. It is this group that we concentrate on.
Our approach is to buy high and sell higher. The buy low approach certainly seems logical enough, but what many investors overlook is the fact that a stock is low or depressed for a reason and can remain that way for a long period of time. In fact, such stocks often continue to drop in price, becoming even more depressed. In contrast, a strong stock has already demonstrated its ability to score big gains. There is no guarantee that the stock will continue to make big moves, but the odds are in favor of it doing just that. A stocks ability to make substantial headway versus the rest of the market is one of the telltale signs of its potential to be among the big winners of a bullish cycle. It is imperative that you are invested in such stocks very early in the cycle.
Unfortunately, most investors are afraid to move boldly into the market in the early stages of a bullish cycle. Their apprehension is understandable because they have just come through a bear market and are not all sure that a new bull market is actually underway. Taking one’s hard earned money and placing it at risk in the stock market, at this point, is the last thing that investors, who have just been mauled by a bear market want to do. This is most unfortunate because the odds are actually heavily weighted in their favor if only they would seize the opportunity.
It is not enough to be in the right stocks. You must also be in them at the right time. This is why we attempt to keep a good portion of our capital on the sidelines in the safety of Treasury bills or money market funds during bear markets. A lengthy bear market can easily wipe out all of the gains accumulated during the previous bull market.