The Value and Momentum TraderDynamic Stock Selection Models to Beat the Market
Wiley Trading, Band 442 1. Aufl.
A winning approach to stock trading based on proprietary statistical research in Excel In The Value and Momentum Trader, Grant Henning presents a comprehensive approach to stock trading, which centers around Excel-based research methods he has developed. In this book, Henning presents the trading tools he has used to become a successful trader, and discusses some of the greatest challenges facing active market participants. This reliable resource presents both winning trading systems and all the skills necessary to perform as a trader as market conditions change. It also demonstrates how you can turn the successes and failures of any trading system into an interactive feedback loop to discover one's true trading skills. Provides a solid understanding of the author's statistical trading system Explores how to execute optimal trades under different market conditions Outlines a very affordable Excel-based stock analysis method that is easy to implement Dr. Henning has proven to be a trusted author with other academic publications in the areas of measurement and statistics. The Value and Momentum Trader is an essential guide to trading today's dynamic markets.
List of Tables and Figures xv Foreword xvii Preface xix Acknowledgments xxi CHAPTER 1 A Philosophy of Trading 1 Analogies 1 Pragmatism 3 Goal-Oriented Behavior 5 Timing 6 Stocks versus Commodities, Options, Mutual Funds, and Bonds 7 Short Trading 9 Use of Margin 10 Trading and Gambling 11 Bold Passion 12 Summary 13 CHAPTER 2 Tools of the Trade 15 Online Access 15 A Reliable Brokerage Account 16 Information 17 Formal Study 18 Analysis Software 20 Protected Workspace 21 Mathematical Trading Systems 21 Market Timing Indicators 22 Summary 22 CHAPTER 3 Constructing Mathematical Models for Stock Selection 25 Technical Approaches to Stock Selection 25 Fundamental Approaches to Stock Selection 26 Hybrid Approaches to Stock Selection 27 The Nature of the Stock Selection Challenge 27 Common Mistakes in System Design for Decision Making 28 Early Beginning Approaches 30 Advantages and Disadvantages of Mathematization 32 Summary 33 CHAPTER 4 Stock Selection: A Technical-Momentum System 35 Qualifying Variables 35 Sample Recommendation Summary Table 39 Questions and Answers 40 Summary 44 CHAPTER 5 Stock Selection: A Fundamental-Value System 45 Qualifying Variables 45 Fundamental Variables 47 Questions and Answers 55 Summary 57 CHAPTER 6 Stock Selection: A Technical-Fundamental Hybrid Approach 59 Qualifying Variables 59 Point-and-Figure Analysis 64 Technical Ratings 64 Other Technical Indicators 65 Price-to-Earnings (PE) Ratio 66 Book Value 67 Earnings Growth 67 EPS/PE Divergence 68 Cash Flow and Free Cash Flow 69 Other Fundamental Indicators 70 Questions and Answers 71 Summary 74 CHAPTER 7 Buying Stocks 75 Preparing the Slate of Candidates 75 Gathering Intel 76 Demanding Supply 77 Cost Averaging 77 Limit and Market Orders 78 Avoiding Purchases with Unsettled Funds 82 Summary 82 CHAPTER 8 Selling Stocks 85 Setting Targets 86 Setting Partial Targets 86 Using Stop-Loss Orders 87 Culling Out Losers 88 Rank Indicators 88 Holding Limits 89 Breaking the 50-Day Moving Average 90 Identifying Market Downturns 90 Summary 91 CHAPTER 9 Portfolio Management 93 Diversifying Over Stocks 93 Diversifying Over Sectors 95 Record Keeping 95 Proportionality over Portfolios 96 Proportionality over Individual Stocks 97 Turnover Ratio 97 Timing the Market 98 Summary 98 CHAPTER 10 Market Timing 99 Mythological Indicators 100 Quasi-Mythological Indicators 101 Reliable Indicators 102 Summary 108 CHAPTER 11 A Performance Record 109 Performance Caveats 109 Hindsight is 20/20 112 Summary 113 CHAPTER 12 A Typical Trading Day 115 Before the Bell 115 The First Half Hour 117 Midday Monitoring 118 After the Closing 119 Weekends 120 Summary 121 CHAPTER 13 Threats to Success 123 Actions of the Federal Reserve Board Open Markets Committee 123 Analyst Downgrades 129 "Pump-and-Dump" Ploys 130 Message Board Panning 131 Market Maker Meddling 131 Negative News Events 132 Large Position Dumping 133 Overhead: Taxes, Commissions, Margin Interest, Spreads 134 Summary 135 CHAPTER 14 A Summary of Trading Principles 137 Never Follow a Tip without Due Diligence 137 Don't Get Grounded on Low Volume 138 Never Buy at the High for the Day 138 Never Sell at the Low for the Day 138 Remember Why You Bought 139 Don't Get Too Attached to Any Stock 139 Maintain Diversification 140 Don't Overtrade 140 Don't Hesitate to Reacquire a Winner 141 Don't Get Your Guidance from Message Boards 141 Maintain Your Own Trading Identity 142 Read Widely 142 Back Off Periodically 143 Seldom if Ever Buy with Unsettled Funds 143 Look to Sell with the Same Level of Zeal That You Look to Buy 143 Maintain a Trading Journal or Diary 144 Gather Information on Your Holdings Daily 144 Learn from Your Mistakes 145 Don't Damage the Environment for Others 145 Don't Let Yourself Become Discouraged 146 Learn to Time General Market Trends 146 Don't Begrudge the Paying of Dues 147 Set Realistic, Measurable Goals for Trading Gains 147 Don't Take Advice from Investment Professionals 147 Avoid Buying a Stock Immediately After It Has Made a Huge Price Run Up 148 Avoid Selling a Stock Immediately After It Has Had a Huge Loss 148 Maintain Your Discipline 149 Don't Hesitate to Sell Good Stocks When Macro Market Indicators Signal a Downturn 149 Focus More on Avoiding Great Losses than on Making Great Gains 149 Continually Be Watching for Success Predictors 150 Summary 150 CHAPTER 15 Morality in the Marketplace 151 Integrity Defined 152 The Gravity of the Effects of Declining Integrity 153 Conditions that Can Promote the Erosion of Integrity 155 Possible Solutions to the Problems that Promote the Erosion of Integrity 161 Summary 168 CHAPTER 16 Random Walk or Rational Wager 171 Predictability and Probability 173 The Limits of Predictability 174 Following the Numbers or Following the Gurus 176 The Accuracy and Use of Mathematical Models 180 Predictable Market Phenomena 181 Summary 185 CHAPTER 17 On the Nature of Risk 187 The Risks of Risk Management Applied to Market Phenomena 190 Risk and Variance 191 Risk and Compassion 191 Risk and Trust 193 Risk and Wealth 195 Summary 195 CHAPTER 18 Trading in the Information Age 197 The Economy of Abundance 197 A Perspective on Abundance 199 Taking Advantage of Information-Access Opportunities 201 Summary 202 CHAPTER 19 Using a Trading System with an Excel Spreadsheet 203 Step 1: Loading the Excel Spreadsheet into Your Computer 203 Step 2: Recognizing Information on the Spreadsheet 205 Step 3: Updating Your Spreadsheet 210 Step 4: Running the Analysis 212 Step 5: Interpreting the Results 214 Step 6: Maintaining the Spreadsheet 214 Cautionary Reminders 215 Summary 215 CHAPTER 20 Afterthoughts 217 Timing 217 Opportunities 218 Market Trends 219 Lessons from History 220 Conclusion 224 Bibliography 225 About the Author 229 Index 235
Grant Henning holds a PhD in educational psychology from UCLA, where he specialized in measurement statistics and applied linguistics. He has subsequently served as professor at UCLA, Pennsylvania State University, and several universities in Egypt, Iran, and China. For a number of years, Henning was engaged as senior research scientist at Educational Testing Service, where he conducted evaluative research on university entrance examinations. Henning has authored more than fifty articles, books, and commissioned reports, and has traveled to more than fifty countries over a thirty-year period. In June of 2000, he retired from university service to trade full-time.
Stock market trading, says Grant Henning, can be both highly rewarding and extremely dangerous to your financial health. It is clear that not every person should get involved in stock trading, and no one should rush into it without thorough preparation. In a dynamic stock market, winning stock trading systems must undergo continual refinement?and adapt to changing market conditions. From the various investment approaches, including momentum, value, growth, and fundamental and technical analysis, Henning has chosen the best elements of each and fine-tuned a trading system—grounded in Excel-based research methods he has developed—that works in turbulent markets. In The Value and Momentum Trader, he reveals his statistical trading systems and shows you how best to execute winning trades with them. As an experienced statistical researcher, Henning rejects the random walk theory of stock market behavior. Instead, he sees a trading system not unlike a race car that is designed to outperform the competition. In such a race, driving the race car is equally as important as design efficiency in determining outcomes.?Over the past twenty years, Henning has developed a unique and integrated approach, that is built on two stock selection systems he developed—a growth-momentum technical system and a value-earnings fundamental system. Drawing from years of research and experience, he demonstrates how the fundamental variables can provide value information, while the technical variables offer timing information. Most importantly, Henning shows how it is possible to realize an average gain of ten percent per month through the skillful implementation of these systems. He covers all you need to know to be a successful trader, from the basics of buying and selling stock, portfolio management, and market timing to constructing mathematical models for stock selection and using a trading system with an Excel spreadsheet. The methods outlined in The Value and Momentum Trader have been tried and tested over many months and years of market warfare in both bull and bear markets. Learning to use the tools shared in this invaluable guide will help you to achieve trading success—regardless of stock market conditions.
Praise for the Value and Momentum Trader "Grant Henning's book is a potent combination of statistics, philosophy, and commentary that only a true social scientist could provide. Henning speaks of the 'bold passion' of trading, and the powerful analogies he offers between the world of trading and more familiar environs is a perspective that I think will help any trader. This book provides the tools that subject trading ideas to the rigor of statistical analysis as opposed to the open-ended (and therefore more hazardous) subjective interpretations one often sees. Just as important, the book points you exactly where on the Web you can find the resources you need to put these ideas into action." —Tim Knight, founder of SlopeOfHope.com and author of Chart Your Way to Profits A winning approach to stock trading using proprietarystatistical research in Excel In The Value and Momentum Trader, Grant Henning presents a comprehensive approach to stock trading centered around the Excel-based research methods he has developed. Henning shares the trading tools he has used to become a successful trader and reveals his winning trading systems along with all the skills necessary to perform as a successful trader in changing market conditions. He discusses some of the greatest challenges facing active market participants and demonstrates how you can turn the successes and failures of any trading system into an interactive feedback loop to discover one's true trading skills. This book provides a solid understanding of the author's statistical trading system, explores how to execute optimal trades under different market conditions, and outlines an affordable, easy-to-implement Excel-based stock analysis method. For anyone who is interested in successful investing, regardless of their background and expertise in the stock market, The Value and Momentum Trader is an essential guide to trading today's dynamic markets. Includes website with Excel Trading System