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Strategies & Market Trends : Ted Warren's Investolator
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To: bleachbit who wrote (1690)4/11/2025 5:34:17 PM
From: Harvey Specter  Read Replies (3) of 1789
 
In the book Ted Warren never says don't average down (in some cases he says you should actually average down) - the common advice most other trading "gurus" give out is to not average down (and personally I don't like averaging down either). Also, Ted Warren in the book actually says an investolator should never sell at a loss (don't use stops). In my opinion you can either use stops or not use stops with Ted's system but if you do use stops you should use loose stops that are based on support levels and/or long-term moving averages (like the 20-month MA) rather than an arbitrary percentage (ex: don't sell something just because it dropped 10% below where you bought it). If the stock breaks below the nearest monthly support below the breakout point or the 20-month MA (whichever gives you a smaller loss) cut the position if you're using stops.

I did the math and hypothetically if you averaged a 200% or more gain on your winners (what Ted says in his book that you should average on long-term base breakouts) and let's assume you don't use stops - worst case scenario you average a 100% loss on your losers, you'll breakeven if you're right a third of the time. If you're right more than a third of the time you're profitable, and if you're right 50% of the time or more you'll make a lot of money.

Hypothetically if you averaged a 200% or more gain on your winners (again what Ted says in his book that you should average on long-term base breakouts) and let's assume you use loose stops and you average a 25% loss on your losers (not because you're cutting at that arbitrary percentage but rather it just worked out that way), you'll breakeven if you're right 11% of the time. If you're right more than a 11% of the time you're profitable, and again if you're right 50% of the time or more you'll make a lot of money.

I focus primarily on long-term base breakouts like the ones in the examples and will only buy breaks above a gradual downtrend line if there's already a long-term base formed and I'm either buying within the long-term base or a breakout out of a long-term triangle base. When I first started I didn't use stops but now I use the loose stops that I described because 1) I can be right less often and still make money and 2) I don't want dogs weighing down my portfolio. After I sold some laggards into the rally on Wednesday, my portfolio has been ripping since then (even on the pullback on Thursday). Heck I might even turn green for the year next week if my portfolio keeps up this performance - it's already outperforming the indices because it's down a lot less than them YTD.
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