Trying to Explain Things With a Graph

Sorry the graph is so small, but it is the best I could do (if you click on the graph, it should enlarge it so you can read it more easily). At left, you can see a graph that I printed out from my online trading site. It shows the last 12 months for Westjet (WJA) and compares the daily price to the 40-day moving average (MA). On the graph, I have marked each time the lines cross - a buy signal when the daily price goes UP through the 40 MA line and a sell signal when the daily price goes DOWN through the 40-day MA line.

In this example, 5 buy signals, 4 of which are followed by sell signals and the last of which was the last signal (meaning you should still own WJA now, if you use my method). For the five buys, the gains were +.35, +.10, +.80, -.05 (false buy signal), and +2.80 (and still holding). The total gain over the year for these five trades stands at about $4.00 per share. If you had bought and held WJA for the whole year, your gain would have been approximately $2.00 per share.

By holding WJA stock when it is going up and not holding it when it is going down, you could have doubled your return with this stock during the course of the year. The cost to you would have been following the stock on a regular basis and, of course, doing the 9 trades indicated (5 buys and 4 sells).

If you follow 50 securities like I do, and they all trade similarly to this (each one has its own pattern), then you are looking at 450 transactions per year. If you look at approximately 250 trading days per year, this works out to less than 2 transactions per day, so it is not that much work. There are many days when you don't buy or sell any stocks at all.

Again, sorry about the image quality but I hope this second explanation helps.