How to Make Money in Falling and Rising Financial Markets

 


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My fundamental system has been developed over the last 15 years or so. It has been consistently profitable for me, averaging 11.01% annual return over the period 1995-2006

The system was developed using principles established in Jim Slater's book The Zulu Principle, which is now out of print. The follow-up Beyond the Zulu Principle is available from Amazon via the links from the web-site below. You don't need the book to operate my system, but it does contain a lot of background information, and is an interesting read.

My fundamental system uses the following criteria to select a company to invest in.

  1. The company traded on the London Stock Exchange
  2. PEG is between 0.3 and 1.0 (PEG is Price/Earnings/Growth rate)
  3. P/E is between 5 and 20 (P/E is price/earnings ratio)
  4. Cash flow/share is greater than 1.0 (this is intended to weed out creative accounting)
  5. Net gearing is less than 50% (I don't like companies with too much debt)
  6. ROCE is greater than 10 (ROCE is Return on Capital Employed)
  7. Operating Margin > 10%
  8. Market capitalisation greater than £20M
  9. Yield > 1%
  10. EPS > 0 for each of the last 5 years
  11. Projected EPS for the next year > 0
  12. Share price more now than one month ago, and one year ago.

Full details of this system can be found on my web-site Financial Trading and Trend Following

My second system is my trend following system

Trend following is a specific branch of technical analysis. It uses information about a commodities price to predict if the price of the commodity is going to rise or fall. In this context, a commodity could be any of the following:-

  1. Currencies - Pound, Yen, Euro, Dollar (these are in any combination against each other)
  2. Metals - Gold, Silver
  3. Financials - S & P 500, FTSE 100, Nikkei, Hang-Seng

The system could hardly be simpler. A selection is made using the following rules:-

  1. Go long (buy), the next day as soon as the 50-day simple moving average moves above the 100-day simple moving average.
  2. Close long, and go short (sell), the next day as soon as the 50-day moving average moves below the 100-day moving average.
  3. Set a stop-loss of 7% for indexes, 0.005 for currencies

Again full details can be found on my web-site as listed above.

This article can be freely published on a website as long as its not modified in any way, and the hyperlink must be made active

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