The market we are witnessing today is different than it was before Labor Day. It is no longer one-sided in an upward direction. Sellers actually exist, and in environments like this, trading strategies generally outperform buy-and-hold strategies. Because of this, I will show you one of the best-performing trading strategies in my arsenal. The name of the strategy is the Stock of the Week Strategy. Over the week we will open up five-day, 20-day and six-month charts for the Dow Jones Industrial Average, the S&P 500, the Nasdaq and the Russell 2000. We will then create technical trendlines for all of those, and then combine them to create a combined technical analysis of the market. Once done, we will do the same for all of the 1300 stocks we follow, and then review them to find the stocks that are most likely to correlate to the market. Once we do that, we will have a short list of stocks, and we can conduct a basic review, making sure there are no important news events next week, and that there were no recent major catalysts. We look for correlation, and that’s all, not for big moves. Once we do that we can narrow the list down to one stock, and from there we just follow a simple trading plan for that particular stock based on what we think the overall market is going to do in relation to the trendlines we have created. We use a fixed stop, no trailing stops here, and if stopped out, will re-enter the trade if conditions are satisfactory. We end every week in cash. This strategy has a few important features. First, the Stock of the Week Strategy is capable of making money both when the market increases or when it falls. However, it is rule based, and decisions need to be made more frequently than in traditional buy-and-hold investment models. The rules that govern the strategy are simple: Trade one stock, and one stock only, every week, follow your trading plan, end your week in cash. It is important to drive home one aspect of the trade. The strategy itself is actually boring. It trades boring stocks and does not look for home runs. It is designed with the notion of “slow but steady wins the race,” so it is not for everyone. I'm saying this because there are many investors out there who will say that they are better off in Tesla TSLA, +0.25% or Facebook FB, +0.46% or Apple AAPL, -0.26% and that's fine for those people (not me), but those are not strategies, those are stocks. With that said, the most important feature of this strategy, from my observation, is the fact that every single week ends in cash. It is sort of like taking a nap after a long day. Your body might need the recovery, as your mind might appreciate being in cash over the weekend. More importantly, however, it also allows you to approach every new week objectively. When we end every week in cash, we do not have an underlying bias for the week ahead, and therefore, we can approach the coming week with a clear mind. I also like to say that by ending every week in cash, we become able to be more present with family, but in recent months that has not been a problem at all. If the tides turn, it will be more important, though. Think about how distracted you might be if the market fell by 20% or 30%. I know from past experience that when investors allow themselves to get hit like that, all they can think about is their portfolio. This strategy can also be operated using conditional orders, and most online brokerage firms already give you the opportunity to use conditional orders in their trading platforms. That means this strategy can be automated, at least to a certain degree. So, after all that has been said, why is this strategy the best-performing strategy that I know of? The answer is not only performance, but also risk control. Because the strategy is capable of making money when the market increases as well as when it falls, the down years can be just as good as the up years. Two thousand eight was a great year for this strategy, but that's only for one reason. The risk controls imbedded in the strategy, the stop losses in the trading plans, for example, allow us to cut our losses when we're wrong and maximize our gains when we are right. The result in 2008 was fabulous, but the strategy also performed well during the subsequent market surges. source