Most traders don’t usually share their trading methodology. Some believe that after revealing their trade secrets, they will lose their trading edge.

Some rather set up a seminar/course/training school/trade recommendation service to teach people their trading methodology to make a good buck. In this Internet era, the trader mindset has changed somewhat. Some traders showcase their money spinners and post the results of their trading systems online. Besides benefiting newbie traders like myself, they also opened up their trading system for criticism and refinement, with the help from fellow traders.

First stop, allow me to share this seemingly simple system which I got to know from the Greeksman. This trade idea is derived from the renowned Dogs of the Dow system.

When to buy

First trading day of the year. Hold till the last trading day of the year.

What to buy

From the 30 stocks that make up the Dow Jones Industrial Average, shortlist the 10 stocks with the highest dividend yield. Then select the 5 stocks with the lowest stock price from the 10 stocks.

How to buy

Invest an equal dollar amount in each of the 5 stocks. You may want to practise rebalancing if you decided to hold beyond 1 year.

Potential Profits

Notice that this is more of an investing system rather than a trading system. If you go for longer term, past performance has shown that this system provided a 20.9% average annual return since 1973!

How to play with Options?

Greeksman suggested some ways:

1. Buying a call
2. Buying a call spread or sell a put spread
3. Diagonalizing the spread

Personally, I would feel buying the stocks itself will be a safer bet for me. Unless I am as well-versed as Greekman in Options to adapt Option strategies for a longer term play.

If you find this post or this blog is helpful to you in any way...do consider buying jmot a kopi (aka coffee)!

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