Orson Merrick : The 2560 Investment Strategy Explained

Orson Merrick : The 2560 Investment Strategy Explained
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Orson Merrick : The 2560 Investment Strategy Explained

Most investors tend to focus solely on going long, capitalizing on the market’s upward trends. While this can be a profitable strategy when the stock market is rising, true mastery in the financial markets requires the ability to adapt and profit in all conditions. To become a true winner, one must not only make money but also effectively hold onto those hard-earned gains. However, this is easier said than done, as profit can be difficult to achieve, and the storage of those profits is not always an easy task. When the market experiences a long-short transition, many investors find themselves shedding most of their profits during the decline, and some even transform from winners to losers. Sadly, those who lack the basic skills and a comprehensive understanding of both long and short strategies may find themselves without the necessary capital to continue trading after a significant loss occurs, further exacerbating their financial woes.

Therefore, the true measure of success in the stock market is not simply the amount of profit generated when the market is rising, but rather one’s ability to navigate the declines with equal skill and resilience. Over the past decade, I have witnessed far too many cruel reminders of the long-short alternations that characterize the financial markets. During periods of significant market increases, there are often only a select few profitable stocks, while the majority of investors live in a state of false security. However, when the market falls by a mere 500 points, the harsh reality becomes all too clear. The real winners are those who can not only avoid the pitfalls of a market decline but also achieve profits and retain the majority of their funds. Even in the face of a downturn, those who can accurately identify the prevailing trends, have the courage to short the market, and ultimately profit from the decline will emerge as the true masters and big winners in the long run. Mastering both the long and short strategies is the key to becoming a lasting success in the ever-evolving world of investing.

Recently, some of my investor friends have been inquiring about the 2560 investment strategy. Today, we have set aside dedicated time to delve into the details of this approach. This particular strategy is inspired by the renowned Swiss-American short-term investment guru, Andrew Bush, who has an impressive track record of winning the world’s top Wall Street Trading Championship a remarkable four times. At the core of his success lies the implementation of what we now refer to as the 2560 tactics. As we explore this investment methodology, it is clear that the insights and principles developed by Mr. Bush have the potential to significantly improve the investment outcomes for those willing to learn and apply them. By understanding the nuances of this strategy, we can equip ourselves with the necessary tools to navigate the ever-evolving financial markets with greater confidence and, ultimately, achieve lasting success in our investment pursuits.
Instructions for using the 2560 strategy:

The 2560 strategy employed by the renowned investment guru Andrew Bush is remarkably straightforward in its approach. The key tenets of this methodology are as follows: First, the 25-day moving average must be firmly trending upward. Then, when the 5-day moving average crosses or steps back onto the 25-day moving average, and the trading volume over the past 5 days is greater than the 60-day average, an opportunity for intervention presents itself. The optimal time to act is when there is a small star line transition occurring. Specifically, there are four distinct scenarios to watch for:

1) When the K-line starts to move and the 5-day average drops below the 60-day average, it signals a tempting opportunity that should be seized decisively.

2) When the K-line begins tracking the 25-day moving average and the 5-day average crosses above the 60-day average, this indicates a momentum-driven, short-term opportunity with a relatively unstable pattern.

3) When the K-line is moving along the 25-day moving average and the 5-day average is rubbing against the 60-day average, it signifies a trading volume band opportunity with a well-established pattern.

when the K-line is tracking the 25-day moving average and the 5-day average has remained above the 60-day average for some time, but the most recent 1–2 days have seen the lowest pit volume levels, this represents a contraction, or a “black horse” opportunity for bullish stocks. By meticulously following these guidelines, investors can leverage the 2560 strategy to navigate the market with heightened precision and profitability.

Buying conditions for “2560 Tactics”:

The 2560 strategy relies on two fundamental conditions being met. Firstly, the 25-day moving average must be trending upward in a consistent manner. Secondly, the 5-day moving average must be situated above the 60-day moving average. Only stocks that satisfy both of these criteria can be considered eligible for the 2560 strategy. From there, the strategy examines additional factors to identify optimal entry points. Specifically, the strategy looks for instances where the stock is stepping back towards the 25-day moving average, while the trading volume is continuously decreasing, ideally with the volume falling below the 60-day average.

1. when a stock is stepping back towards the 25-day moving average. In this scenario, the strategy closely examines two primary factors. Firstly, the trading volume must be continuously decreasing, with the ideal scenario being that the volume falls below the 60-day moving average.

2. The appearance of a small star line near the 25-day moving average is regarded as a favorable signal, as it can help to halt the stock’s decline, the presence of multiple small star lines that do not breach new lows is viewed even more favorably, as it reinforces the notion of a stabilizing trend.

Due to the large number of stocks that meet the above conditions, the following conditions can be added for further screening and filtering to enhance the safety of the stocks:

1. The strategy looks for stocks where the 5-day moving average is generally flat or, ideally, tilting slightly upward.

2. The strategy seeks the presence of a bullish golden cross pattern in the KDJ indicator, as this signals strengthening momentum and increasing buying pressure.

3 The MACD oscillator, looking for either a shortening of the green column or a lengthening of the red column.

Selling Conditions for “2560 Tactics”:

If one of the following conditions is met, it is necessary to consider reducing positions. The more conditions are met, the more you need to sell:

1. When the stock price is far away from the 25 day moving average or there is a “runner” phenomenon.

2 When the J value is above 100 or when J is downward or KDJ is deviated from the top.

3 When the K-line is near the high point of the previous wave.

4. When the stock price does not reach a new high after a strong pull up.

5 When the K-line is near an important moving average.

6 When the K-line is in a chip intensive area or platform position.

7. When the 5-day moving average crosses with the 60 or 120 day moving average.

Practical cases:

The white line in the above picture shows the 5-day moving average, the pink line represents the 25-day moving average, and the yellow bar represents when the 5-day moving average crosses the 60-day moving average. The white line indicates the five-day moving average, while the yellow line represents the 60-day moving average.

Two primary buying points
 The first buying point occurs when the stock’s price crosses above the 25-day moving average, with the 5-day moving average already greater than the 60-day average.

The second buying point is identified when the stock’s price retraces back to the 25-day moving average, accompanied by trading volume that is greater than the 5-day average volume.

 

In the above figure, before crossing the 60 day average on the 5-day average, although there were also two small and ultra short opportunities, these opportunities did not meet the requirements of the 2560 Tactics, so we must resolutely give up because “whenever the K-line starts and the 5-day average is below the 60 day average, it is a tempting opportunity.”. So, we must wait for the 5-day average to surpass the 60 day average before finding an opportunity to enter.

The only way for small funds in the stock market to grow is to teach you the most “stupid” methods, memorize them frequently, and know how to buy and sell

1. Low lock of chips

In the process of a stock’s rise, in general, a strong rise in the stock price will lead to upward divergence of chips, but in some cases, chips will not transfer to the top, and the vast majority of chips

Still settling at a low position without moving, this distribution state of chips is called “low lock” of chips. In terms of the distribution of chips alone, the low density and low locking of chips appear to be almost the same. The difference lies in the stock price trend of the chip distribution: the low density of chips presents a horizontal trend after a deep decline in the stock price, or a low fluctuation after a deep decline in the stock price; The trend of the low locked chip’s stock price should be an upward trend, which means that the low locked stock price should generally be in the process of being pulled up by the main force.

To explain this issue, it is necessary to explore what caused so many chips to be locked low.

Once the profit of a stock exceeds 10%, one’s mentality is very excited, nervous, and even fearful — this 10% is not easy, especially afraid that the money obtained will be taken by others. For small and medium-sized investors, if the floating profit reaches 10% and they are just restless, then once the floating profit reaches 20%, it is almost impossible to hold it. On the other hand, a large number of chips have made a profit of up to 30%, but no one has thrown them. Who has such good composure? There is only one answer: it is the banker. 30% is a big number for both you and me, but it’s too little for the banker. A 30% price space may not be the target level for the main players to profit from. So, the low lock of chips indicates an important piece of information about this stock — the banker’s high position. Since it is a high position of the main force, a 30% increase in price is not enough to satisfy their appetite. It is obvious that if an investor held the stock before it rose, and now they have a 30% floating profit, should they sell or not? Of course, it’s better not to sell.

2. The high density of chips

Contrary to the low density of chips, the high density of chips is likely a sign of main shipments. These high-level chips are the form of upward transfer of low-level chips, indicating that a large amount of profit taking behavior has occurred or is occurring in the market.

The high density of chip distribution is a quite dangerous technical characteristic of individual stocks. The market meaning of high concentration refers to the large-scale profit taking of low profit positions at high levels. The rapid rise in stock prices must be the result of the main force pulling up; The reason why the main force is willing to lift these stocks must be because they have a large number of low priced chips; At this point, the disappearance of these low priced chips at high positions indicates that the main force is shipping on a large scale. It can be said that the high density of chips in most cases means the departure of the main players in the early stage.

The old family is selling stocks, and the recipients of these stocks may be retail investors or new family members. Anyway, if there is something to sell, there is something to buy. This is an unchanging market rule, and it is difficult to determine who the buyer is. The subsequent trend of most high concentration stocks was a sharp decline, but there are indeed some stocks that formed a new round of rise after showing high concentration, which may be due to the entry of new stocks and doing a relay speculation. However, from the perspective of investment safety, it is recommended not to buy stocks with high concentration, as once entering the market during the main shipment, the opportunity to unwind in the future is often very slim.

3. The low density of chips

If the chips are dense in the low price range, they are called the low density of the chips, while if the chips are dense in the high price range, they should be called the high density of the chips. Of course, high and low here are relative concepts. The high and low prices of stock prices do not necessarily refer to the absolute value of stock prices. A few yuan is not necessarily low, and a few tens of yuan is not necessarily high. Therefore, the low density of chips refers to the new concentration formed in a relatively low price area after a deep decline in stock prices from a certain price point. A more precise definition can be given to the low density of chips: when chips flow from high to low and aggregate in a relatively low narrow price space, it is called “low density of chips”.

After the chips formed a low density, investors in this stock underwent a large-scale shift: the previous high level held up positions were recognized as losses and eliminated. So, who exactly cut the meat and left the field? It’s hard to imagine investment institutions in the stock market, such as securities firms and foundations, taking on huge losses and leaving. They are the main investors in the market, and because they have sufficient funds, there is no need for them to surrender. In fact, these meat cutting plates are almost all done by retail investors. It can be concluded that once there is a low level of density in the distribution of chips, the party that cuts the meat must be a retail investor

Finally, investors should adhere to the following elements when operating stocks to increase the likelihood of profitability:

(1) Only do familiar stocks. Stock risks are high. If you are not familiar with them, it is best not to involve them, otherwise you may accidentally step into a minefield. Only by becoming familiar with stocks can one better understand their upward and downward trends, accurately grasp the pulse of stock prices, and thus reduce investment risks.

(2) Seize the opportunity and make a decisive move. When making investments, the most taboo is indecisiveness and indecisiveness. During your hesitation, you may miss the best opportunity to make a move. When trading stocks, it will be interrupted; otherwise, it will be disrupted.

(3) Stable, accurate, and ruthless. Stability refers to having a detailed understanding of various aspects of a stock and having a clear understanding of its trends, in order to achieve stability in stock trading; Accurate, refers to entering the market and taking a long position once the market price is accurate and meets the expected level; Cruelty refers to having the courage of a warrior to break their wrist and sell stocks when the trend judgment is wrong or when buying stocks with poor market conditions. Of course, there is another meaning, which is accurate trend judgment. If you buy stocks with good market conditions, you can increase your investment appropriately and seize the opportunity to win.

(4) If you win, fight; if you don’t win, run. Treat stocks as competitors and invest if you have confidence in them; If you are unsure about it, make more preparations to reinvest or give up investing.

(5) The trend is not clear, enter the game with caution. There are many opportunities for profit in the stock market every day. When we cannot understand the trend, we should be cautious when entering the market. Only by seizing stocks with clear trends can we help us achieve ideal returns. There is no need to take high risks to invest in stocks with unclear trends.

Speculative markets are like a mirror, reflecting not only the level of your skills, but also the strengths and weaknesses of your humanity. You can speak lies to your heart’s content, but your behavior always honestly reflects your true thoughts. Whether it’s stop loss or stop loss, what you say is not important, what you can do is fundamental. This does not require any fancy packaging. If you do it, you will do it. If you don’t do it, you will not do it. All excuses may be the reason why you can’t make money. Therefore, it is important to find out why you always can’t make money and why you can’t execute even the simplest strategy every time.

Trading is about managing risk, not profit. This is the difference between novice traders and experienced traders. The former tends to worship profit more in their eyes, while the latter tends to be more respectful of risk. Indeed, in a bull market where fools can make money, there is no one who swims naked. When the tide recedes and the high and low stand out, we cannot change the market, we can only change ourselves. Changing ourselves means adjusting our mentality.

Risk means potential losses, and no matter what trading methods everyone adopts, they must always face risks. The most important prerequisite for staying in the market is the controllability of losses. Everyone is pursuing windfall profits, and who can bear the risk of explosive losses? A prerequisite that must be acknowledged is that everyone’s level of risk tolerance is absolutely different. When you want what kind of profit, first think about what kind of losses you can bear. Since you can’t afford to sell out, don’t think about doubling every day.

What is the most important thing in a transaction? In fact, everyone’s answer is definitely different. Why? Because everyone has different levels of transaction cognition.

When I first started trading, the first impression I had was that mindset was the most important, because during trading, I was always nervous and hesitant. I feel that I need to remain calm, so I pay special attention to my mindset.

But after trading for a period of time, I realized that stop loss was more important because at this stage, I often suffered big losses and did very poorly in stop loss.

After I was able to handle stop losses with familiarity, I suddenly realized that trends were more important because even if stop losses were good, I still couldn’t make money. Only when I could make a profit in a trend can I do so.

After doing it for a while and getting used to stop losses and trends, I realized that trading systems seem to be more important because if we can’t systematize them, there is too much subjective uncertainty in our trading process, and the system can stably output its own trading logic.

After running the trading system for a period of time, I suddenly realized that execution seemed to be more important because even if you have a trading system, if you cannot consistently execute it, it is no different from not actually executing it. Therefore, at this stage, execution has become the focus of my attention.

After a period of time when there is no problem with execution, one may realize that luck is important. Because even if your system is complete and without vulnerabilities, your execution power is decisive and direct, and the variety you trade does not show market trends, it will still affect your trading results.

In the future, we may find that, after speaking a thousand words, risk control is still the most important and survival is the most important. Because as long as you live, no matter how lucky you are, you will eventually wait for your market, as long as your risk control can ensure that you maintain complete combat effectiveness in any unfavorable situation. You can achieve the profit you want.

If you discover your weakness, you will feel that it is the most important thing in your trading. In fact, for you, that is indeed the most important thing because only by solving this problem can you go further. So, for all traders, the most important thing, there is no fixed saying, is the challenge you face in front of you.

So, for every trader, the best trading opportunity is not being able to see how far profit potential is, but rather being able to control and accept risks, with predictable profits.