Getting on the trend
Entering smooth trends in hindsight is easy. The key to success in reality is to be able to get on board of choppy trends and to cope with reversals without taking repeatedly large risks.
This trading system for swing investors trades larger growth and other strongly moving stocks that are dominating the media headlines. It tries to select stocks with the best long term expectations and carves out moves ranging from swing trades to longer investment periods. With an elaborated entry system it is matching real market behavior, and it has a refined selection process for the stocks that are traded.
Still, this system is simple and direct. The main technical decision tool for entry and exit points is the daily bar chart in conjunction with robust buy setups. There is no sophisticated technical analysis necessary, which is prone to find patterns that aren't really there. On the fundamental side only the most basic data is used.
Since the system tries to exploit strong trends and because of its simplicity, it is similar to the one of Nicolas Darvas. The entry system is better aligned with the more difficult to trade price fluctuations of computerized markets and is also useful for swing trading out of trends. Thus, it could be considered the successor of Darvas' system.
Trend trading with Nicolas Darvas' system is problematic as it is really a breakout system that tries to enter breakouts in a longer running trend. Using his method means waiting that a trend settles down and forms a base, the famous Darvas box, and then goes ahead breaking out of the box.
There are basically two problems with this approach. For one, it is impossible to get on a trend that runs straight up. You keep on waiting and waiting for an entry and finally when it comes, the trend is exhausted. If the trend pulls back and then swings back up so that there is only a swinging pattern and not the breakout pattern, this method fails also.
Secondly every breakout pattern is an invitation for stronger players to manipulate the market. Those traders are able to hold a price in a range for a while. They then build their position at the bottom of that range and drive the price through the upper boundary, igniting a rally fueled by traders looking for the breakout formation.
Clearly those who drive the price from the bottom into the breakout range have the best entry and the lowest risk. If the trend fails to go on, they may still make a gain at the expense of all the latecomers.
Jesse Livermore's strategy was more trend anticipating than waiting for and getting on board of a trend. While such a system may catch a trend early on, it of course often fails and the first up-move, which Jesse liked to find, goes on calming down into just a little swinging wave that temporarily arose from the ocean of random.
If you are after trend trading, Livermore's system is not for you. It is more geared towards an investor who makes fundamental considerations about the market and the economy, but doesn't want to behave anticyclically and buy into deeply falling prices. The Livermore method is about hitting the first sun ray when times seem favorably.