One of the key features of the Yellow Brick Road (YBR) strategy, described in my essay of 10/03/08, is that the portfolio is allowed to extinguish itself, i.e., not replace stocks as they are stopped-out of the portfolio. The purpose of this technique was to lock in profits and mitigate the draw-downs which occur at the end of each campaign. Unfortunately, this neat trick may take you out of the game too soon.

For example, the most recent YBR campaign, discussed in my essay dated 07/31/09, lasted only five days. Although it produced a net gain of 19.8%, I didn't like it. I would have very much preferred to have stayed fully invested, but I followed the guidelines we had set forth. Since then, I have been thinking of ways to solve this and other problems mentioned in my essay of 07/31/09. I believe I have found the answer by becoming a Green Light Buyer.

You may recall from last week's essay, I said that a Green Light Buyer is someone who buys a top VST-Vector stock every time they see a green light in the Price column of the Color Guard. This definition explains the idea of the technique, but is too restrictive. Why not define a Green Light Buyer as someone who plans to buy stocks, any stocks, whenever they see a green light in the Price column of the Color Guard? In this way, they would be buying stocks as the market goes up and they could still enjoy the full power of VectorVest. For example, I ran a back-test in which I bought 10 stocks from the Jail Break Strategy on March 17th and used a 100% Gain and 20% Loss to exit positions. As of yesterday, the portfolio was up 308.74%.

Had I utilized the Green Light Buyer technique from the time I went into cash on July 29th in the YBR portfolio, the gain could now be 69% instead of 45%. OK, so I like being in the game, but not sitting around waiting for the next C/Dn signal. So I'm going to go long again in the YBR portfolio the next time I see a green light in the Price column. I'm not necessarily going to buy top VST-Vector stocks, nor will I feel obligated to buy 10 stocks at a time. I need a little more freedom to do what I want to do when I want to do it. If I'm ever going to get to Emerald City, I've got to be On the Road Again.

Two weeks ago I wrote an essay called, "One Day at a Time." The point was that you don't have to predict the stock market to make good money in it. In fact, having a preconceived notion of what stock prices are going to do could be very harmful to your wealth.

Then I began to wonder what would happen if I bought the top stock, ranked by VST, every time a Green light appeared in the Price column of the Color Guard. VectorVest preaches that we should buy rising stocks in rising markets. So I should make money. I ran some tests.

The first test I ran started on March 17, 2009, when a Green light first appeared in the Price column of the Color Guard from the March 9th bottom. I bought $1,000 worth of Buckle Inc., BKE, the top VST stock as shown in Stock Viewer, at the Open on the 18th. I decided that I would sell it on an 'S' Rec or if it went up 100%. Another Green light appeared in the Price column of the Color Guard on the 18th, so I bought $1,000 worth of Aeropostale, ARO, at the Open, on the 19th. I repeated this process of looking for a Green light in the Price column of the Color Guard and buying the top VST stock, until yesterday.

During this time, I made 44 purchases of $1,000 each and closed 19 positions with four winners and 15 losers. The average winning trade made $706 and the average losing trade lost $195. The current portfolio holds 25 positions with 17 winners and 8 losers. The portfolio is worth $31,165 from an investment of $28,013, for a net gain of $3,071, or 11.25%.

While this performance is not overwhelming, one must remember that the money was invested over a period of time, not all at once. This means that there was far less risk during the early stages of building the portfolio. In another test in which I bought 10 stocks on the March 17, 2009 Green light, I used a 50% gain or 20% loss to exit positions and replenished positions only upon receiving a Green light produced a gain of 49.74%. Other tests going back to March 21, 2003 also showed that buying top VST stocks when a Green light appears in the Price column of the Color Guard is a viable strategy.

The thing I like the most about this technique is that it's so easy to do. Simply look at the Color Guard. See a Green light in the Price column and buy a top VST stock you don't already own. Try it. You may wish to Become A Green Light Buyer.

Let's suppose you own a stock that was trading at $23.80 per share and someone offered you $2.60 a share to buy it at $25.00 within the next month. Would you take the offer?

Off the top of my head, it sounds like a pretty good deal to me. But there are several things I would have to consider before accepting it. First, I'd have to decide whether the stock's price would be more likely to go up or down during the offer period. If I thought it would go above $27.60 per share and stay there, I'd reject the offer and keep the stock. If I thought it was likely to go down and stay below $21.20 for a long time, I'd reject the offer and sell the stock. If, however, I thought that the stock's price would stay between $21.20 and $27.60, I'd take the offer. It would be a nice way to generate some cash while the stock's price didn't do very much. So how would I go about making these assessments?

First, I would look at VectorVest's Market Timing Graph to see what the market was doing. Right now it appears that the rally is stalling, so I would conclude that the chances of my stock soaring higher have lessened a bit. Next, I would check the stock's Relative Timing, RT, indicator. If RT were above 1.00, the stock's price would be in an uptrend. If RT were below 1.00, the stock's price would be in a downtrend. This information would definitely affect my analysis.

Then I would use VectorVest's Option Pricing Model to see if the offer of $2.60 per share were fair. I could also see whether it would even be worth considering the offer. Finally, I could get an idea of the probability of my stock closing above $25.00 a share a month from now. If I wanted to see the probability of this stock's price staying between $21.20 and $27.60 per share, I would use VectorVest's Options Analyzer.

To be honest, nobody has actually offered to pay me $2.60 a share to buy my $23.80 stock at $25.00 within the next month. But I know I can cause this to happen by selling September 25th Calls against it @ $2.60 per share. I would then have a "Covered Call" position and it would yield a juicy 157.71% annualized rate of return if the stock closed at or above $25.00 per share at expiration.

If you're interested in finding trades such as this, you would definitely want to use VectorVest's Options Rate of Return tool. It's a marvelous tool and, unfortunately, we don't talk about it often enough. Frankly, we don't talk often enough about any of the VectorVest Option Tools.

The $64 thousand question at this week's Forex and Options Expo in Las Vegas was "What's this market going to do?" My answer was always the same, "I really don't know. That's why we're trend followers."

One of the biggest mistakes investors make is to fix a preconceived notion in their head of what the market's going to do. This notion subconsciously interferes with their trading because it causes them to see what's in their head and not what is actually going on. If the market continues to not do what they thought it would, they rationalize the market's behavior and continue to believe it eventually will do what they thought. Many a fortune has been lost in this way.

So how does VectorVest deal with the unknown? First of all, we don't try to predict the market, but we deal with what's happening right now. For example, we analyze the market's direction with our Market Timing System and we report the results of our analysis via the Color Guard. If the Color Guard was bullish and stock prices were trending higher, we would plan to buy stocks long. If the Color Guard was bearish and stock prices were trending lower, we would not plan to buy any stocks other than Contra ETFs. We might plan to sell some stocks short, however, depending upon the severity of the downtrend.

I said "We would plan to buy stocks long or we might plan to sell some stocks short," because we wouldn't actually buy or sell any stocks until we saw what the market was actually doing at the moment we intended to make the trade. In other words, we want to make certain that prices are going in the right direction when we make our trades. Moreover, I never buy a stock that is going down in price and never sell a stock that is going up. I call this "Keeping the wind at my back."

By using the Color Guard as my guide and making certain the market is going in the direction I want, I don't have to worry about what it's going to do two or three months from now...I'm prepared to accept it, as it arrives, One Day at a Time.