Disciplined QQQ Trading - Model Details

Testimonial: As a newbie to trading, I was overwhelmed by the number of stock trading strategies available for subscription. I have tried temporary subscriptions to over 10 of them now. The one that has worked best for me in the first 6 months is Disciplined QQQ Trading. The picks are easy to follow and can be executed after hours. The staff is very helpful with any questions I have had. The return has been consistently positive to this point. Highly recommended!

Charles, PA

Model Description

William F. Sharpe and Harry M. Markowitz won in 1990 a Nobel Prize for the work in the 1970’s on what is now called Modern Portfolio Theory.

Sharpe’s formula expressed mathematically is y = (Beta)x + Alpha
where y is the price of a stock and x is a market index such as the NASDAQ composite. Alternatively, y can be the daily percentage gain for a stock and x can be the daily percentage gain (or loss) of a market index. Beta and Alpha are calculated for a given stock/index pair by linear regression. Along with Alpha and Beta, R² is calculated and tells the “goodness” of the fit.

Many people have heard of Beta. Beta is the slope of the line described by the equation. This tells us how volatile a stock is relative to the chosen index. A stock with a Beta of 2 moves twice as much as the index has moved.

Alpha is the y-intercept in the equation and describes the movement of the stock which is independent of the movement of the index. The alpha values for most stocks are very low. So, for most stocks, especially large well-followed stocks, the stock price movement can be represented as a constant (Beta) times a stock index. Sharpe and Markowitz dismissed alpha as insignificant. They said for all intents and purposes it was negligible. Most stocks do have alphas near zero. However, a small number of stocks do not. Most of these are smaller lesser known stocks. What makes high alpha stocks so unique is that these stocks move up even if the market goes nowhere. Stocks with high or low long term alphas tend to remain that way.

The model has shown that strength in the individual stocks that make up the market can lead to an increase in the major averages (that only take into account larger stocks). And conversely, weakness in individual stocks can lead to a decrease in the major averages. This is especially true for the NASDAQ composite and NASDAQ 100 index. The model determines the strength or weakness of individual stocks by calculating alphas for all stocks in the stock market over three different time periods. A complex compilation then creates a strength of market number which is used to determine whether to be long QQQQ, short QQQQ, or out of the market.

Having a good model is only one component to making money. Another important component is good money management strategy. A fantastic model combined with poor money management will likely make no money or lose money. Disciplined QQQ Trading has incorporated a good money management strategy as a fundamental part of the model. Stop losses set points are included in every daily e-mail alert that is sent out. You will never be in doubt about what to do. A good model combined with good money management will make you great money.

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Disciplined QQQ Trading is a service provided by Zarsby LLC