Introduction

“Buy low, sell high!” Or so we've been told. Lots of investors have this incredible knack (which they invariably deny) for “buying high” and “selling low.” It's easy to get trapped into following the psychology of the market, what with all the excitement generated by the media and the market itself. It takes a lot of guts to buy into the stock market when it's at the very bottom—first of all because you never know when you've arrived at its bottom and second because just about everything you read at the end of a bear market is full of despair and doom. On the other hand, most investors have found out through painful experience that the easiest (and worst!) time to buy stocks is when everyone is euphorically proclaiming the immortality of a soon-to-be-ended bull market.

Market timers and fundamental analysts have their own methods of trying to make this investment dictum come true. Even so, the rest of us who are too busy or too realistic to try calling turns in the market have not been totally left out in the cold. Although we can join in their “beat the market” games, we are far less experienced, informed, and capitalized than they are. We can buy their assistance, but often at a price that may exceed its actual value, if any. Or we can strike out on our own, despite the rough terrain of emotional hills and valleys implied above. Formula strategies are the pack mules that can help you in this journey.

A formula strategy is any predetermined plan that will “mechanically” ...

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