Trading Plan & Planning Your Trade

Here is a breakdown of planning a trading strategy from Landon Whaley.

For those of you new to our research, let’s look at the inner workings of our process. First, producing consistent success requires two core components: Idea generation and market timing.

What’s the Big Idea?

We spend a ton of time talking about our Gravitational Framework. This framework is the reason we consistently see developments in markets well before most other market participants. The framework generates the ideas by telling us which markets to be long, which ones to short, and which ones to avoid. Idea generation is critical in investing (as in life) because everything in this world begins with an idea. However, as any entrepreneur will tell you, an idea is only as good as your ability to execute it … enter The Mongoose.

The Mongoose

If you’ve been reading our research for a while, you know that we don’t sound like other financial market research firms. We use non-mainstream names for aspects of our process, we don’t do it to be cute or different; we choose our labels purposefully to achieve two objectives.  First, we need to differentiate what we are talking about from what you’ve heard elsewhere because just about every aspect of what we do and the tools we use is proprietary and unique to us. Second, we want to summarize each aspect of our process to help familiarize you with how we evaluate markets and how we turn that evaluation into asset management calls.

We’ve named the market timing part of our investment process “The Mongoose” because the market behaves like a cobra, and to consistently and repeatedly be successful, we must trade like its opposition: a mongoose.

The mongoose provokes the cobra to attack, then rapidly dodges and follows up with another distracting motion. It tirelessly darts and nips, entirely focused on its opponent. Finally, precisely when the cobra is fully extended and about to strike, the mongoose clinches the attack with a deadly bite.

We let the market make its repeated strikes, moving from price to price. When it’s at last over-extended and at a point of exhaustion (up or down) like the cobra, we position ourselves opportunistically for the market to reverse course, thus clinching the attack, like the mongoose.

Wildlife aside, we generate our specific Mongoose-like market timing signals using algorithms based on chaos theory and fractal geometry. In contrast, most investors, professional or otherwise, attempt to evaluate the quantitative aspects of markets using tools built on the belief that markets are linear and rational.

But in fact, financial markets behave more like the weather; they are a nonlinear and turbulent system, which means traditional quantitative methods and indicators are not only ineffective but also misleading. Chaos Theory and fractal geometry-based algorithms provide better insights into the underlying market structure that can’t be seen on a price chart.

The Mongoose has an excellent track record of identifying these turning points in markets, which is the reason we’ve booked profits on 80.4% of all closed trade ideas.

However, The Mongoose is just one part of the process that helps us be successful. No conversation about our process would be complete without discussing our Alpine and Abyss lines.

Alpine and Abyss Say What?

Our proprietary ALPINE and ABYSS lines are not “support” and “resistance.” Instead, they are the price areas (above and below the most recent closing price) where the price is likely to stall, experience an acceleration in its current trajectory, or possibly reverse its present course. As with The Mongoose, we calculate these critical prices utilizing fractal geometry and Chaos Theory, which means these Alpine and Abyss lines take into account the nonlinear reality of financial markets.

An Alpine area above the current price is where it’s highly likely that any upside price momentum will stall and possibly pullback. However, if the market (or stock) closes decisively above that area, price is likely to accelerate higher.

On the flip side, an Abyss area below the current price is where it’s highly likely that any downside price momentum will stall and possibly bounce higher. Here again, if the market manages to close decisively below that area, price is expected to accelerate lower from there.

The importance of the Alpine and Abyss lines cannot be overstated, because they help us identify price levels where the price is likely to behave predictably, and no one else has them. These two facts give us a distinct advantage over other investors and combining the A-A lines with our Gravitational Framework, and the Mongoose heavily skews the odds of trading success in our favor.

The Bottom Line

No process is foolproof, and there is certainly no such thing as a holy grail. We have our share of trades that go against us, but our risk-conscious approach ensures we vigilantly manage drawdown risks.
In the investing game, your goal should be to build a process that puts you on the right side of markets often and repeatedly positions you beforethe market moves, not after.

The time-tested and proven process that I’ve developed does precisely that, and it’s grown out of the lessons learned from successes and mistakes over the last 19 years.

That said, no investing process is ever complete or finalized; it’s iterative, and it changes as both you and financial markets dynamically evolve.

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