Process Over Performance: Indefinitely Pull 39% Profits From the Stock Market

I was interviewed about Cycle 9 Alert the other day.

The interviewer was asking me all about the origin story of my Cycle 9 trend-and-momentum strategy: when I developed it, how I came up with the idea, what it actually does, how I use it on a daily and weekly basis to deliver actionable trade recommendations.

One thing that dawned on me as I was walking this person through the evolution of Cycle 9 is that I’ve changed very little about the strategy and service in the nearly eight years I’ve been running it.

I programmed the code for the Cycle 9 Alert trading strategy in 2012. From Day 1, I designed it to leverage the two styles of momentum: trend-following (also called “times-series momentum”) and relative-strength momentum (also called “cross-sectional momentum”).

As I explained to this interviewer, the “trend” component is largely a safety feature. When you buy a stock that’s already trending higher — aka “positive trend” or “uptrend” — your odds of the stock moving higher are better than if you buy a stock that’s in a “negative trend” or “downtrend.”

Meanwhile, the “relative momentum” component is generally a profits-enhancing feature. By buying into stocks that are trending higher at a faster rate than others, you position yourself to beat the market.

Again, I incorporated this “dual momentum” framework into the Cycle 9 Alert strategy back in 2012 … and I haven’t changed it since.

Likewise, I discovered in 2012 that the “sweet spot” holding period for these types of momentum trades is two to three months. That’s partly based on how long my momentum signal persists and partly based on the type of options trading we do and the balance it requires between “short-term” and “long-term” factors that both work for and against us.

Simply put, I resolved in 2012 to put Cycle 9 readers into two- to three-month trades and to this day, that’s what I continue to do.

Why is my consistency important?

Repeatability

As I explained to my 10X Profits readers recently, the repeatability of past performance is a big factor in choosing which investment strategy to follow.

If you meet a hedge fund manager who tells you she beat the market in 2018 and 2019 because she has the “magic touch,” how can you, as a potential investor in her fund, have any confidence she’ll be able to repeat those superior results in 2021, 2022 and beyond?

The short answer is, you can’t.

That’s why following a well-defined investment process, or “system,” is so important.

Successful investors know to focus first on process. And they have faith that if the process is sound and followed with discipline, that superior performance will organically follow.

I didn’t come up with this “process over performance” mantra. It’s widely accepted wisdom that’s applied by true winners in investing, business and life.

I just really appreciate how much this concept applies to our long-run success in Cycle 9 Alert over the past eight years.

The thing is … you should never judge me or yourself based on the performance of one trade. Even the outcome of two or three or five trades can be misleading and highly dependent on luck. In fact, statisticians generally agree you need 30 data points before any real conclusions can be drawn.

And this is where repeatability comes back into the discussion…

If you’re the type of investor who follows with discipline a well-defined process or trading strategy, you can be confident that you can in fact repeat that process indefinitely into the future. This is step one.

And if after following that process for a sufficient length of time (or number of trades), you see that it has produced satisfactory performance … you can further be confident that you can “repeat” that performance indefinitely into the future. This is step two.

Bringing this all back to what we do here in Cycle 9 Alert…

200 Trades, +39% Average

We’ve followed the same well-defined process ever since 2012. In that time, we’ve closed out over 200 individual trades — far more than the 30 needed to calculate statistically valid results.

Across all 200 of those trades — including both the winners and the losers — the average result has been a 39% profit earned over an average of 71 days.

Think about that…

We didn’t average a 39% per-trade profit over the last 10 or 12 trades … we averaged that profit over the last 200 trades! And we did that by following the same process … the same one I originally created back in 2012.

The market environment has shifted countless times since then. And we’ve had our fair share of ups and downs.

But my short-term focus is always on following our process. I know the outcome of the next one or two trades can’t tell me whether my process is good or bad. I simply trust that as long as I follow the same process, our superior performance will persist in the long run.

It has already persisted for the past 200 trades. Since I don’t intend to deviate from our well-defined process for our next 200 trades, I’m confident that our past performance is indeed repeatable.

Short-term traders are often criticized for not playing the “long game.”

But when a short-term trader follows the same process for 200 trades over eight years because he knows that’s how you play the “long game” … well, I hope you can see why I’m as confident as anyone about being able to pull profits from the markets … indefinitely.

To good profits,

Adam O’Dell
Chief Investment Strategist, Money & Markets

• Using his unique blend of technical and quantitative analysis, Adam’s sole focus is to find and bring you investment opportunities that return the maximum profit with minimum risk.

Editor’s note: Chief Investment Strategist Adam O’Dell’s Cycle 9 Alert joins his Green Zone Fortunes service right here on MoneyandMarkets.com in our “Premium Content” section. Check out any of the links and sign up today!