This week I’m wrapping up our study of how to beat the Dow Jones Industrial Average using just the 30 stocks in the DJIA and the tools of TradeStops. As promised last week, I’ve come up with a way of reducing the number of trades … and still achieving the same outperformance while outsmarting the DJIA.

Last week we left off here:


The black line is the DJIA since September of 2012. The blue line is what you get if you use the TradeStops volatility adjusted position sizing (aka the Risk Rebalancer) and rebalance annually. The green line is what you get if you add the TradeStops SSI system and you’re only in the DJIA stocks that are not stopped out (i.e., not in the SSI red state).

The only trouble with replicating the green line is that you had to rebalance the portfolio every time a stock was stopped out by the SSI or was added back in to the portfolio via the SSI Entry signal. That was a lot of transactions.

So my team and I worked together this week to come up with a set of rules that would allow you to achieve this same kind of outperformance while reducing the overall number of transactions. Here’s what we came up with:

  • On September 21, 2012, look at the 30 stocks in the DJIA and only buy those stocks that aren’t stopped out by the TradeStops SSI. Use the TradeStops Risk Rebalancer to take equal risk on each of the positions.
  • If a stock is stopped out then sell it immediately.
  • If a stock that was stopped out triggers a new SSI Entry signal then buy it on the first trading day of the following month.
  • If there were changes to the portfolio in a given month (stocks stopped out or added back in) then rebalance the portfolio at the beginning of the following month.

To follow this strategy you have to choose from just 30 stocks. You have to sell when the SSI system says sell. You have to check once a month to see if any new stocks triggered SSI entry signals and if the portfolio needs rebalancing.

That’s it. Doable. Right?

If you’re willing to follow these simple steps, then you can achieve the gains shown in the purple line of this chart:


The purple line is nearly identical to the green line we showed earlier. In fact, the purple line is sitting right on top of the green line … but we’ve dramatically reduced the amount of work you had to do to realize these improved returns.

Make more. Risk less. Mission accomplished,