THE TACTICAL TRADING ALGORITHM

The algorithm is based on the manipulation of a numerical series; I will use a series of 1 2 3 4 in my example and we will presume we are betting on black in a roulette game, black is a win, red is a loss. My bet size of any chip denomination is determined by adding the two end numbers of the series together. If I win, I cross off the two end numbers, if I lose, I add the sum of the two end numbers to the end of the number series. Then I add the two end numbers together and bet again. When all the numbers have been crossed out the cycle is completed.

Series	Bet	Action	Win	Loss	Total
1 2 3 4	5	W	5		5
2 3	5	L		5	0
2 3 5	7	W	7		7
3	3	L		3	4
3 3	6	W	6		10

In this example I simply alternated between a win and a loss. Even if this activity had occurred randomly, when all the numbers in the 1 2 3 4 series are crossed off, I will always win 10 chips in the end. You will learn more about this, the foundation of Tactical Trading in a following chapter. If you can’t wait, go ahead and try this series yourself by flipping a coin, you will see that it works every time.

When applying Tactical Trading to the stock market, the chips are shares of stock. I will introduce you to what’s called the “share multiplier” as well as the “trade spread”. Share multiplier is what will determine how many shares to buy or sell. The trade spread tells us when to buy or sell based on price movement.

To provide a quick example of the power of tactical trading lets run the 1 2 3 4 series again using shares of stock rather than chips.

Our set up will be on a $10 stock. I’ll use a share multiplier of 100, and a trade spread of $1. If the stock rises by $1 I will sell (or have a “no action”), conversely if it falls by $1 I will buy.

Remember that we know what our trade will be by summing the two end numbers of our cycle series. In this case we are using 1 2 3 4 and the two end numbers add to 5. The 5 is multiplied by our share multiplier of 100. The system is telling us to buy 500 shares of our $10 stock. Follow along:

The first order is to buy 500 shares at $10:

Series	Shares	Price	Action	Win	Loss	Total	Value	Cash
1 2 3 4	500	$10				500	5000	-5000
2 3	500	$11	W	0		500	5500
2 3 5	700	$10	L		+200	700	7000	-7000
3	300	$11	W	-400		300	4400	-2600
3 3	600	$10	L		+300	600	6000	-5600
Close	0	$11	W	-600		0	6600	+1000

Referring to the above chart allow me to explain the steps taken.

1. We began by buying 500 shares at $10, creating a cash debit of -$5000
   
   
2.  The stock went up by the amount of the trade spread of $1 to $11. The system tells us to own 500 shares there, which we already do, so no action is required. We cross off the two end numbers making our series 2 3
   
   
3. Next, the stock falls by $1 back to $10 which tells us to sum the two end numbers and add the result to our series, now 2 3 5. This tells us we need to own 700 shares. We add 200 at $10. Our cash debit is now -$7000
   
   
4. Now the stock ticked up by $1, a win, so we cross off the two end numbers of our series, which now becomes a single number, 3. We own 700 shares, the system says we should hold 300, so we sell 400 shares at $11. The cash debit is reduced to -$2600
   
   
5. Our stock pulls back to $10, a loss. Our now single number series is treated as an end number and our series is now 3 3. We now should own 600 shares but only own 300. We add 300 shares at $10. Our account debit is negative $5600
   
   
6. Our series is now 3 3. The stock goes up by $1 to $11, a win, so we cross off the remaining two numbers. This completes the cycle, and we are to own zero shares. Therefore, we sell our remaining 600 shares at $11 and take in $6600. Less our existing debit of -$5600 we are left with a profit of $1000.

If you took notice, throughout the cycle the stock only alternated between $10 and $11. Had we simply bought the initial 500 shares at $10 and sold them at $11 (same ending price as the system) we would have made a buy and hold profit of $500. Instead, the Tactical Trading system produced a $1000 gain; double the buy and hold profit.

The mathematically perfect algorithm, through tactically buying and selling shares at a predetermined price level, will always outperform a buy and hold stock position. I will explain more in a later chapter which will amaze you as you learn that Tactical Trading is hugely profitable. Using the Tactical Trading system, we doubled the buy/hold profit and made $1000! Imagine the compounding of profits trading a stock in the system, cycle after cycle throughout the year.