TWO PERCENT GOAL TO FINANCIAL INDEPENDENCE

1. Invest only in the 500 largest cap stocks on the New York Stock Exchange aka the S&P 500.

   • For all three techniques mentioned, only invest in the top 500 companies in the number one economy in the world. This helps minimize risk and with the large trading volume for each stock you can get in and out very easily with your trades.

2. Look at the S&P 500 Large Cap Index.

   • A rising tide raises all ships. Quite simply only go long when this index is bullish and only go short when bearish. Look at the chart below for the S&P 500 Large Cap Index. (Full disclosure. I have no relationship with stockcharts.com. Feel free to use any chart provider you wish). I strongly recommend you do some research on the MACD. It is an exponential moving average that I highly endorse.

• Look at the black line of the MACD.  There is a 1:1 correlation between the slope of this line and the direction of the index.  When the slope is upwards, the index is bullish, and you only go long.  When the slope is downwards, the index is bearish, and you should only short.  If it’s going sideways, maintain your path until it reverses the trend.

3. Technique #1 – MACD Confirmation with 50 day 200 day Moving Averages

   • After looking at the market from a macro perspective, look at individual companies. When going long on a stock, the 50-day moving average MUST be above the 200-day moving average.  NO EXCEPTIONS You want the stock to be in a climbing mode and you want to ride that trend.  

• In the above chart for IBM the blue line represents the 50-day moving average and the red line is the 200-day moving average. When buying a stock, the 50-day average must be above the 200-day average on the day of purchase.

4. Redundant MACD signals.

   • At this point you need the company’s MACD to show three things.  First, it has to go from negative to positive territory.  Second, the black MACD line has to intersect and go below the red MACD line above the zero line.  Third, the histogram  bar has to be moving upwards with the black line remaining above the zero line.. This is the final confirmation point that you need.  It is coming out of weakness.  It is picking up strength and that strength has been confirmed.  YOU MUST BUY THE STOCK THAT DAY.  YOU CANNOT WAIT.

• Look at the above chart for Broadcom Inc (AVGO).  In the fall of 2023, the MACD was below the zero line.  It crossed into positive territory and intersected Dec 12.  The S&P Large Cap Index had a positive sloping MACD on that day as well.  In the spring of 2024, the same signals were present.  The MACD was in negative territory in May.  It crossed the zero line and the two MACD lines crossed June 11 with the S&P Large Cap Index showing a bullish positive sloped MACD as well. 

  To summarize, the slope of the MACD of the S&P Large Cap Index has to be heading upwards, the individual company must have its 50-day moving average above its 200-day average; the company’s MACD has to come from negative to positive territory, finally it has to intersect above the zero line.  That is the precise day you buy the stock.

Technique #2 – Relative Strength/MACD/Price Confirmation

• • The second strategy is the Relative Strength Index (RSI), MACD and price charts converging/diverging.  Look for stocks where the RSI has come out of oversold territory on two difference occassions in the last hree months.  Notice the lowest points on the RSI of the last two periods and draw a line connecting those two lows.  Is the slope of that line heading up?  If so, look at the price chart.  Look at the two corresponding price points that coincide with the RSI lows.  Draw a line connecting the two lows.  Is it sloping downward? If so, the relative strength is suggesting the stock price is too low and unsustainable.  Look below at the MACD chart.  Connect the price points to the MACD curve and draw a line.  Is that line sloping upward?  If so, both the RSI and MACD are saying the stock price is too low and is headed for a rebound.  Buy this stock when it comes out of ovesold territory on the RSI chart for the second time.

6. Technique #3 – Overbought/oversold RSI with 50 day/200 day Moving Averages
   

   This last technique combines the RSI with the 50 day – 200 day moving averagess.  If the 50 day average is above the 200 day average, the stock is in a long term bullish mode.  Look for the RSI to be coming out of oversold territory.  When it does, look at the MACD.  When the black line of the MACD crosses above the red line, buy it.  Big picture, the stock is bullish.  It had a teremporary pull back and is coming out of it and has been confirmed with a positive MACD intersection.

7. Use Stop Losses to Minimize Losses and Maximize Gains

   • Our ultimate goal is to double our money each year.  We break that down into smaller bites by aiming for a  2% return per week by swing trading.  No method, including those outlined , are 100% guaranteed.  There will be times when we are wrong.  In order to protect yourself, after buying the stock, immediately put in a stop loss that is 3% below the settlement price. If you buy a stock at $100, your stop loss should be set at $97. This will minimize losses for those times the stock did not do what we thught it would.
   • Use stop losses to maximize gains as well. By using stop losses you can also ride the wave and make more than your 2% goal. Again, let’s say you entered a trade at $100. Your goal is $102. Let’s say in three days the stock surpassed your 2% goal and closed at $102.75. You set your stop loss at $102 to guarantee a 2% return. Now let’s say the intra day low price the next day only went down to $102.50. Your stop loss order was not filled. GREAT.
   • Revise your stop loss to $102.49. Let’s say the stock is climbing and the next day the intra day low was $102.75. EVEN BETTER. You revise your stop loss to $102.74. Each day you keep revising your stop loss order so that the trigger price is one penny lower than the previous intra day low.
   • You repeat this process daily. Sooner or later there will be a down day and your stop loss order will be filled. You will have taken advantage of a major upswing while still guaranteeing your minimum goal.

8. Go Short Too.

   • This process works very well for shorting stocks as well.  Everything is reversed.  The slope of the MACD S&P 500 Large Cap Index has to be pointing down.  The 50-day average is below the 200-day average.  The MACD has to come from positive territory to negative territory.  The MACD lines have to intersect and confirm below the zero line.  Short the stock that day.  Look for a 2% drop as that is your goal.  Use a stop gain order to lock in profits or minimize losses.
   • For technique #2, it’s the exact opposite.  The RSI has to be in overbought territory twice in the last three months.  The line segment connecting the highs needs to have a declining slope, the MACD slope needs to be declining but the price points need to have higher highs.  It is overbought and ready to be shorted when the RSI comes out of overbought territory.
   • For technique #3, the RSI has to be in overbought territory, but the 50 day average needs to be below the 200 average showing overall bearishness.  Short the stock when the MACD intersects negatively.

9. Diversify and Consider Leverage.

   • Don’t put all your eggs in one basket. Don’t put more than 10% of your portfolio in one trade. This is crucial to minimizing risk. Since you are diluting your returns with diversity, seriously consider leverage.

   
   

   • Buying your stocks on margin will drastically increase your returns while diversity minimizes risk. If you have a $100,000 portfolio, a 10% diversity factor means you would never put more than $10,000 in one stock purchase. By using a 3% stop loss, you are risking a $300 loss. If you bought this on 3x margin, you would be risking a $900 loss. A $900 loss on a $100,000 portfolio is less than a 1% loss of the entire portfolio and certainly within guidelines for swing trading.

   
   

   • If buying on margin is still outside of your risk tolerances, don’t do it. Try this these strategies without buying on margin until you gain confidence in the program and then ease into margin slowly.

10. Repeat.

    • A 2% gain doesn’t sound like much but if you can do it every week, you will generate a great annual return with very little risk. This method is not flashy; it’s not sexy; it’s boring, and it works.