As noted in last week's essay, we had received a trading system submission to our $1,000.00 Award Challenge which looked like a winner. The submission we liked the best came from Mr. William Cook of Mission Viejo, CA.

The challenge for the $1,000.00 Award was issued in my essay of August 13, 2010. It was based upon the observation that from August 18, 2009 to August 13, 2010 the VectorVest Tote Board showed that the "Bottom Fishing in Rising Industries" Strategy had a cumulative gain of 104.99% with an Efficiency Factor, EF, of 24.81%. VST Mighty Mites, another great performer, gave a cumulative gain of 85.50% with an EF of 24.48%. These phenomenal performances were achieved during a period in which the Price of the VectorVest Composite gained 13.04%.

The problem here is that it would have been difficult to replicate the performances of these Strategies in real life. One would have had to buy the top 10 stocks returned from the Strategy at the market's close each day, sell them at the next day's close; then repeat the process every trading day. We're talking about 4,980 trades over the test period of 249 trading days. That sounds like a whole bunch to me. So the challenge was "to send in a practical, feasible trading system for capturing the profit potential of these great Strategies." We believe Mr. Cook has submitted the best system for doing what we asked so far.

Mr. Cook is a long-term user of VectorVest who first subscribed in 1998. He left VectorVest for a while; then re-subscribed in 2005. We met at a VectorVest event years ago, but I can't recall the meeting. Nevertheless, his approach to meeting the challenge was novel and easy to understand. To decide when to buy and sell stocks, he used the VectorVest 7 version of the Market Timing Graph which shows pricing data as Candlesticks. He would go long when he saw two consecutive green candles plus an up follow-through day and go into cash when he saw two consecutive red candles plus a down follow-through day. He also used a five-stock portfolio with no Stops and he claimed an 82% gain with 110 trades.

We also received another submission which challenges Mr. Cook's candlestick system, but it has some unusual techniques that require the Simulator to implement. We plan to modify and test both these systems so that end-of-day traders, i.e., the infamous Midnight Cowboys, could use them. In the meantime, we like Mr. Cook's ideas enough to share them with you, so we're sending him a check for $1,500.00. Thank you, Mr. Cook, for Cook's Candles.

COOK'S CANDLES.
For the complete story on how this new trading system works, visit the VectorVest University to see Mr. Todd Shaffer, Manager of Research, explain and illustrate this week's interesting "Strategy of the Week" presentation, "Cook's Candles."