How My Trading System Answers the Questions For Building A Trading system

Now, I will discuss how my system answers the "Questions to Build a Trading System".

My complete system, along with information on possible variations, effects of commissions, and beneficial tax strategies, are detailed in my book, Stock Trading Riches, which is available on Amazon.com.

You can read more about my book (including testimonials) here.

As I mentioned, these questions need to be answered in order to develop a complete system around constant value investing:

1. Lump Sum or Periodic Investment - My system is designed for periodic investment - I try to buy 1 stock per month. I can always skip a month, or make a large lump sum contribution.

2. cash - I don't keep any percentage of the monthly contribution in cash. As cash builds up through sales, I cap it at 30% of the portfolio value, and then start using the cash to add new positions.

3. Running Out of Cash - If January is coming around, and it looks like I will be short cash for rebalancing, I will save my contributions from the months just before and after to rebalance stocks. If there was a 1920's-type crash, I could always sell some of my positions to rebalance the stocks that I felt most confident about.

4. Investment Choices - I use the newspaper, Forbes magazine, Yahoo, and MSN to find growth stocks that I think will prosper in the future.

5. Control Value(s) - I have one control value, which I apply separately to each stock. My basic rules do not systematically increase or decrease the control value. I might manually change it if my financial picture changed drastically.

6. growth - The control value never changes, so the amount in each individual stock will not grow. But the portfolio will grow, through contributions and a cap on the cash percentage. So, I will have an ever increasing number of stocks.

7. risk - My system assumes risk is controlled because the portfolio is diversified. Also, between rebalancings, any stock can be replaced by another, as long the same dollar amount is bought.

8. Rebalance Frequency - A potential rebalance on each stock is done yearly, in January. However, a rebalancing only occurs if the stock has gone up or down by at least 10%.