The Seven Rules of Magic Trade Compounding

In The Lure of Doubling your Money, I wrote about a fantastically profitable AREX trade that offered investors an opportunity to double their money in a single 4 month trade in late 2011.

The problem with this trade was that it was the only opportunity all year, in this stock to get a 100% return. Investors that spotted this beautiful rally and stayed in for the full 100% were very patient, very skilled, or very lucky.

I made a number of AREX trades in 2011, but wasn't one of the lucky traders who nailed the 100% gainer. And that made me pretty annoyed. So I've been looking at a better way to make 100% returns on your money in the same time frame, but without having to nail a single, big lucky trade that only occurs once a year. 

The 100% Six Month AREX Backtest
So what I did was backtest AREX using what I'm calling the 'Magic Trade Compounding'  starting with $5000, and using  swing trades under 15 day duration, based on a common set of technical analysis charting tools. I didn't refer to an index once, and used no news reports of the stock or the market. I completely ignored earnings and fundamental information.  During that seven months, the market was all over the place, and AREX ended the six months at a lower price that when it started.

Here's the result:

1/3/2011  Start Capital $4,688  (200 shares at $23.44)
23 trades later.... (less than one a week)

7/1/2011 End Capital  $10,418.00 (450 shares at $23.00)

122% Return in 7 months

The Seven Rules of Magic Trade Compounding
1. Choose a volatile stock with clear chart movements
2. Trade the same stock again and again
3. Use the same charts, indicators and rules every time you trade.
4. Reinvest the new account balance on every trade, whether you win or lose.
5. Make your trading decisions at the same time(s) every day
6. Never make a trading decision before 10:30 in the morning EST.
7. Decide how much profit or loss to take based, and automate trade exit.