This seems to be a good mechanical system for trading stocks. Even though it was written in an entirely different market environment, Cooper’s pamphlet contains ideas that still probably work today, if used selectively. His system can now easily be backtested, and I wouldn’t be surprised if such a test would demonstrate that this is still over the long term a winning system.
The 5-Day Momentum Method
Written by Jeff Cooper
M. Gordon Publishing Group, 1997
This is a short book/long pamphlet of sorts that came out during the wild markets of the late 1990’s. Many of those companies that traded on the Nasdaq at prices close to 600 at that time are now six feet under, or were bought out at much lower prices. It was truly a wild time, and trading fever provided strong ratings for CNBC, as viewers watched their favorite “Money Honey,” Maria Bartiromo.
Today the markets are more the playground of bots than Mom and Pop wanna-be traders, and CNBC’s ratings, like the VIX, keep hitting new lows. The former “Money Honey” is now middle-aged and working for another network. Is this pamphlet still relevant now, or should it be put deep-sixed, like Pets.com and theglobe.com?
Cooper seeks to provide a trading system for active traders unable to sit all day by a trading desk. The system is clearly and concisely laid out. Basically Cooper looks to buy pullbacks/sell rallies on high-priced (at least $50 for longs, $40 for shorts) trending stocks. He uses ADX to identify strength of trend, and stochastics as a timing tool. Trades are placed as stop orders, a teenie (1/16) above the previous high for longs, and a teenie below the previous low for shorts.
Cooper provides plenty of cherry-picked examples. His work here shows that he is a good teacher.
There is no evidence of backtesting here, but anyone who trades for a living understands that buying short-term weakness in strong markets and selling short-term strength in weak markets are often winning strategies. I did not enclose the parameters of Cooper’s system, partly because there are literally hundreds of ways to use indicators creatively to come up with a rule-based system to trade trending markets.