What is Four Sigma Trading?
This is a stock picking system developed over
several years (the data here goes back to 1995). It essentially finds
stocks that are making a statistical breakout over the recent trading
period. The stocks it picks are making abnormal moves to the upside which
is probably getting the attention of a lot of people and gaining momentum.
The statistical method is something similar to a Bollinger Band, but
we've found it to be more accurate. The system only uses data at the
end of the day, so this is not a day-trading system.
Check out our new Industries Sigma Area?
We've averaged the current sigma values for all of the industry groups.
Click on the group and find all of the stocks that make up the group
and their individual sigmas. This is a great tool to find hidden gems
in the market. Find out more here >>
What do the Numbers in the Yellow Box Mean?
To the right, you will see the current system results snapshot which
shows the current returns as of the last data upload for this current
Two interesting numbers are the "Current Market Sigma"
which is the average of all of the stocks' sigmas in the market and "Current
VIX Sigma" which is the sigma of the current VIX reading. We watch
these numbers because if the average sigma of the market is down and
the VIX is up, then the market is very unfavorable for a long stock
position (but may be favorable for a short position).
We also list the Top Ten Sigmas, which is a list
of stock making strong moves to the upside, and the Bottom Ten Sigmas,
which is a list of stocks making strong moves to the downside.
So How Does It Work?
Computers search the entire stock market each evening for a specific
trading pattern that we've found has a good chance of a short term
rise in price. Once a stock is signaled, the system will open a trade
if it continues to trade higher the next day. The system ignores stocks
that make large gap up moves to the upside on the signal day since
we've found they typically lose momentum faster or are the result of
buyouts or other factors that can keep the stock from moving up.
How to Get Out?
Once the position is open, we hold
it for 50 days and then sell it. Why 50 days? We found that this is about
enough time for the stock to make its short-term move so we can cash
out and move on to something else. We're always looking for a more efficient
way to profitably get out of a stock, so if you have any ideas, please
let us know on our contact page.
What are the results?
Each year is different, but since we've been keeping track, the system
has averaged about 19% (pretax) every 50 days since 1995, but that included
some very good years from 1995 to 1999 when the stock market itself averaged
25% each year. Since the year 2000, when the market began having a rough
time averaging just about a 3% gain each year and we've averaged about
10% every 50 days with one losing year. That's not to say there isn't
volatility. The sytem is picking stocks that gain a lot of attention
from the market and can have some swings that not every investor can
stomach. We think investing a small portion of a portfolio in this strategy
can give you the edge you need to beat the market.
What Does the System Cost?
Only $39 gets you an annual subscription and stock picks
emailed to you each time the system signals a trade as well as full
access to all of the System's trading history. Questions and ideas
are always welcome on our contact
The Fine Print... Everything provided at foursigmatrading.com
is provided for educational purposes only. We may hold positions in the
stocks or industries discussed here. As always, you should seek the advice
of a financial advisor before investing. This information is NOT a recommendation
or solicitation to buy or sell any securities. Please read our legal disclosure, terms and conditions here.
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