How to Beat the Cheesecake Factory Effect

Forex traders have it easy. While there are more than 30 tradable currency pairs, only about eight of them – the majors – are heavily traded. That means a currency trader has only a handful of symbols to track.

Stock investors, on the other hand, often suffer from what I call the “Cheesecake Factory Effect.” The menu of options is simply too vast, ultimately leading to paralysis by analysis.

Sure, you can specialize in a small subset of stocks. I’ve mentioned before how a friend of mine ONLY trades pharmaceutical stocks. He’s an expert on these! And he knows very little about all other stocks.

Yet, that’s a very limiting proposition. Profitable trend moves develop in a wide range of stocks. Why wouldn’t you try to catch them all?

Over time, I’ve learned that a systematic approach to investing can be vastly rewarding. By establishing a clearly-defined set of rules – complete with objective entry and exit triggers – investors are able to leverage technology to access profitable moves in thousands of stocks.

Next week, at our Irrational Economics Summit in La Jolla, I’ll be showing attendees how to leverage systematic investment strategies to capture the market’s biggest trends.
Yet, some are in stocks, or markets, that likely never cross your mind.

Like… say… Egypt!

Upon reading Mark’s analysis of the Egyptian stock market, I became curious as to what signals my systems were giving in this market. And interestingly, I found that the strategy I use for Cycle 9 Alert had given a buy signal on the Market Vectors Egypt Index ETF (NYSE: EGPT) on August 7, just as the ETF was making a bullish break out of a reverse head-and-shoulders pattern.

Take a look…

See larger image

I’ll be frank. I rarely track or consider the Egyptian stock market. I’ve made these observations in hindsight.

That said, this is an interesting example of how traditional technical analysis – like Elliot Wave Analysis and head-and-shoulders patterns – can act as a complimentary tool to systematic trading strategies.

Any student of technical analysis would have picked up on the head-and-shoulders pattern that formed in EGPT between April and September, likely buying into the bullish move on a break above the neckline (the blue horizontal line), at $46.

Meanwhile, the automated buy signal on August 7 would have added further weight to pattern’s bullish implication.

I hope you’re joining us in La Jolla next week! I’m very excited to share with you the philosophy behind my investment strategies and, specifically, how you can leverage them to capture the market’s biggest trends.

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Categories: Markets

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.