Riding the wave is a philosophy of using market timing to buy long on up waves, and sell short on down waves. VectorVest's examples this technique in our end-of-day program, VectorVest US. The portfolio, named VSA Model Portfolio, uses discretionary timing rather than a single timing system and is geared toward short-term aggressive trading.
THE VSA MODEL PORTFOLIO FAQ.
We have been receiving a lot of questions regarding our Model Portfolio, so I'll try to answer them in this essay.
Q. What does VSA stand for?
A. This notation goes back to 1988 when we launched our first product, The VectorVest Stock Advisory. This product was in the form of a little blue book and was delivered by mail. Although we stopped publishing the little blue book in 1998, we still use the term, The VSA Model Portfolio.
Q. How do you pick the strategies you use?
A. The answer to this question was given in detail in my essay of 12/23/05. It was also demonstrated as "The Strategy of the week" on 09/01/06 and 09/15/06 at The VectorVest University. If you're serious about finding the best strategies, you've got to read my essays of 11/22/02, 03/18/05 and 12/23/05, see the demonstrations at the VectorVest University, see how it's done on CD No. 4 of the current Seminar CD Set, or attend a live VectorVest Seminar or Review.
Q. What is your exit strategy?
A. Basically, we have been using a 5% stop loss. Yes, I know this is usually a far cry from the Stop-Price shown by VectorVest, but you must remember that "Riding-the-Wave" is a volatile, high momentum strategy, not a buy and hold. We also try to retain profits when we can and exit a winning position if it has one or two bad days. There's no sense in seeing a profit turn into a loss when a stock begins to go the wrong way.
Although we now reserve the right to exit any position at any time, I will still allow the portfolio to take a beating if the market surprises us. A good example of this happened on May 11th of this year. I did not expect the sharp sell-off that followed the market's mild reaction to The Fed's interest rate increase on May 10th so I did not sell any stocks that day. Had we prepared you better for this sell-off on May 10th, I certainly would have gone into cash on the 11th.
Q. Why do you trade low-priced stocks so much?
A. Simply because they often give the highest percentage gains. I do recognize, however, that the volatility of low-priced stocks may be disconcerting and I plan to reduce our use of these strategies.
Q. Why aren't you more specific about what you are doing or going to do?
A. For many years, I was very specific about what I was going to do and the results were disastrous. For example, if I said we were going long tomorrow with XYZ strategy and the market went down instead of up, I felt obligated to go long and the portfolio would get slaughtered. Even if the market went up as expected, I would find that the stocks I had intended to buy were already marked-up in price, sometimes as much as 30 to 50%, making it extremely difficult to make a profit. In fact, the only guys making any money in this deal were the market makers. I don't see our stocks moving ahead of time since I'm giving you a choice of five or six strategies I might use if the market suited my expectations.
Q. What do you plan to accomplish with the VSA Model Portfolio?
A. My hope is that it will help you make money in the market. I prefer that you try not to follow the model portfolio, but instead, get ahead of it. I want you to learn enough about trading to beat me to the punch. We do not enter new positions before 10:30 AM unless we see an especially strong move developing, up or down. Nothing makes me feel better than to hear someone say I picked a better strategy than you did, or I got a better price than you did, or I got out before you did or I'm beating the pants off of the VSA Model Portfolio.