The strategy of The Chartist Newsletter has evolved over the years, but its basic approach to the market remains the same. Founder and Editor Dan Sullivan explains, “We do not make predictions or pretend to have a crystal ball. Instead, we let the market be our guide. If we are wrong we simply get out of the market and wait for a more opportune time. And while we are quick to sell off our losers, we part with our winners very slowly. This approach might not work for everyone, but it has worked for us.”
He uses relative strength for his stock selection process.
Essentially, this is a buy high, sell higher approach. The basic concept of relative strength is that the stocks that are stronger compared to their peers will appreciate to a much greater degree than the average issue. This dictates buying stocks after they have already made significant gains. The average investor finds this difficult to do because it is, in effect, the opposite of conventional lore of buying low and selling high. The high relative strength stocks, however, are exactly the ones Sullivan wants because they offer the potential for the greatest gains.
It should be cautioned that relative strength is a double-edged sword.
These stocks have the potential for outsized gains in bull markets, but will be among the hardest hit during bear markets. For this reason, Sullivan combines his stock selection process with market timing. His proprietary indicators measure the risk in the stock market.
Sullivan has been utilizing these techniques for over 50 years. He believes in his disciplined approach to investing and puts real money on the line to prove it.