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Q. What is the difference between a Recommendation and an Open Active Position?
A. Technically they are one and the same. When stocks reach our Entry Criteria, the stock is added to the Open Active Position Table, which essentially is a list of the best performing stocks relative to our methodology. Stocks that are discussed in detail are viewed as the better trading candidates with potentially greater upside than stocks that are not discussed in detail.
Q. What do you expect a stock to do once it reaches the Patterson Relative Strength entry criteria?
A. I have a chart for this one. Because stocks typically have to pull back to allow their 3-month PRS ranking to fall, it is common for new stocks to be down over the past two week prior to reaching our entry criteria. On average, it is common for a stock reaching our entry criteria to hold about even or work lower for up to two weeks before responding. While it sounds kind of silly to recommend a stock that is working lower, there are advantages from the subscribers stand point.
I call this site tame trading for a reason, and the main one is that with our approach, you don't have to jump on a stock at exactly this price on this day at this time, the very instant it reaches it. We are looking for gains over time measured in weeks and months rather than hours or days. Time shifting entry points one to five days after our entry criteria are reached has very little impact over the long run. Of course, on any single stock it may have a noticeable impact, but I am more concerned with the overall systemic performance rather than the happenings of a single stock.
Q. There are a lot of Recommendations, what should I buy?
A. In a perfect world we would be able to buy them all. Unfortunately, the world isn't quite perfect. The best advice I can give here is to watch the changes to the Model Portfolios. The original conservative Portfolio is smaller and therefore fewer changes are made. These are viewed as some of the best stocks from the Open Active Position table. In addition, we are very quick to remove under performing issues from this portfolio.
The next best place to look for stocks to buy now is by going through the recommend lists that are updated weekly and monthly. These are small groups of stocks that are on the move and viewed as being at an attractive entry point.
Q. Stop Prices, where are they?
A. We do not use a fixed stop price. I have wrestled with the idea of stop prices my entire investment career. Should I use a mental stop price, enter a Good Till Canceled stop order, a stop limit order, and now a Market If Touched order. Over the years there have been as many times when having entered a stop order would have saved me a bundle as there are times when the entered order cost me a bundle (when a stock moves sharply and then comes right back as if nothing ever happened.)
Our exit methodology is relatively simple. When a stock is no longer performing on a relative basis, it is removed from the Open Active Position table. Relative prices are based on closing prices, so if a stock moves sharply one day and comes right back, or even if the move lasts for two days, if it is a really strong stock, it will not register an exit signal. If a stock breaks down and fails to recover quickly, it will likely register an exit signal and the position will be closed. Bottom line, if a stock is acting poorly, or if it breaks down, it is very likely to be removed from the Open Active Position Table.
If you insist on entering a stop price, on average, stocks that are ultimately closed for a gain, on average, reach a closing low about 7.5% below their entry price. So if you must enter a stop loss order, I recommend using a 10% stop loss. However, our system does not actually use a 10% stop.
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