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NSP Entry Techniques
As you know, each week our members will be provided with up to
the top 200 ranked stocks as determined by the NSP. So just
where does one go from there with all those seemingly available
options?
Remember that is the intent of the NSP to mechanically rank
stocks that it "believes" are ready to move upward at least in
the short-term. The NSP Power Rating numbers are arrived at
utilizing very specific, partially proprietary criteria.
Quite simply, we believe in the power of the NSP Power Ratings
even on a completely stand-alone basis. That is primarily the
purpose of the NSP 100 Index in providing a basic results
measurement tool. As you can see, the NSP 100 Index has
dramatically outperformed the benchmark S&P 500 on a rather
consistent basis. The road has been a little more difficult in
2010 however. With two months remaining in the year the NSP 100
Index is actually slightly lagging to this point.
That's where the NSP Top 10 and NSP Top 20 come into play
however. To better display the effectiveness of the NSP Power
Ratings. These two indices essentially make-up the more
upper-level components of the NSP 100 Index. As the names
suggest, the NSP Top 10 simply represents the NSP's top ten
ranked stocks to start the week while the NSP Top 20 simply
represents the NSP's top twenty ranked stocks. Stated another
way, the NSP Top 20 stocks are also the top 20 of the NSP 100
Index, and the NSP Top 10 are also the top ten stocks that make
up the NSP Top 20. Past performances have basically shown more
strength at the top of the Power Ratings as the NSP Top 10 and
NSP Top 20 have conveyed. 2010 has really been no different
year-to-date with those two again effectively outperforming the
S&P 500 so far. Let's also not forget the magnificent
simplicity utilized to arrive at those stellar results. All
that is done is to buy at Monday's open and then re-balance at
the following Monday's open--essentially replacing those stocks
which are no longer ranked within the specific parameters.
So does that mean that the #1 ranked stock will necessarily
perform better than the #83 ranked stock for example in that
upcoming week? 100% absolutely NOT! The NSP ranking system is
certainly not some type of Holy Grail where the #1 stock will
consistently do better than #2 and #2 better than #3 and so on.
Oh, if only it were that easy. While the higher ranked stocks
are there for a reason, many spectacular opportunities can
arise out of the lower ranked stocks as well. Remember that all
of the listed stocks had to meet very specific requirements
just to be included in the rankings in the first place. One
cannot always know for sure just where the big winners will
emerge from. While they obviously will not all be successful we
have confidence in the chances for success for each of the
listed stocks. They have passed the NSP's stringent tests after
all.
As an offshoot of the prior discussion comes the "NSP Value
Plus" methodology. Now the major difference with this
systematic approach is just that it is a bit pickier in its
actual entry techniques. The NSP Value Plus will only buy at or
below a very specific strategic price if it gets to that level
on the first trading day of the week. If not, then that
particular stock will be passed for the week. It should be
noted that the desired price level is also arrived at
completely mechanically based on actual price action. History
has tended to show that the NSP Value Plus has been more
consistent overall across varying market conditions than merely
buying and selling at the open. It should be stated with those
restrictions however, that it also can miss out on some great
upward moving stocks also that the other NSP indices capture.
Simply buying quality stocks at the week's open can also have
its advantages at times.
Here really comes the inherent beauty of the NSP system. The
various entry and exit techniques which can be employed are
virtually limitless. For purposes of this discussion though, we
are focused on entry points. Do we believe that the NSP Value
Plus specified prices are necessarily the absolute best place
to buy? Certainly not! while the prices are deemed to be at a
strategic key point derived from actual price action, the
potential successful methods that could be utilized are really
too numerous to mention.
For example, how about buying at a defined percentage off of
Friday's closing price? Might it make sense in cases to buy
either above or below the indicated Value Plus price? How about
evaluating the situation at a certain time of day, or even
buying yet on Tuesday etc.? Would adding some additional
technical analysis to the equation, use of indicators, or
employing some other filtering mechanism improve the results?
Skilled traders could obviously have preferences of what works
for them.
The bottom line objective in all of this is merely to emphasize
just what the NSP is intended to provide. In the most basic
sense, the NSP is a systematic approach designed to identify
individual stocks poised to rise in value in the near-term. The
NSP Value Plus, NSP 100 Index, NSP Top 10 and NSP Top 20 were
essentially created to just be a sort of gauge as to how the
method has been performing over a specified period of time. No
claim should be made that these are necessarily the absolute
best ways to trade these stocks. That's the exciting part
though. Could a certain process make it even better?
In the future we will look deeper into various possible entry
scenarios. Also stay tuned for discussions targeting subjects
such as exit techniques, holding periods, and in-depth
performance analyses, just to name a few. Incidentally, many
NSP selected stocks have proven to perform quite well when
being held longer (even quite a bit longer) than the standard
one-week time-frame. Certainly that type of approach can have
its share of built-in advantages also. Stay tuned for
more.
by Bill Nowatske -
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