After a solid year last year, and a great start to this year, all of the major indexes are trading at new all-time highs.
And there are plenty of investors handily beating the market.
But far too many investors continue to underperform.
So what's the best trading strategy to use in today's market?
There are lots of different trading styles out there: Momentum, Aggressive Growth, Value, Growth & Income, and more.
Some of these are more conservative while others are more aggressive.
But which one works best?
Let's take a look.
Momentum traders look to take advantage of upward trends (or downward trends) in a stock's price or earnings. They believe that these stocks will continue to head in the same direction because of the momentum that is already behind them.
We've all heard the old adage, "the trend is your friend". And who doesn't like riding a trend? In fact, if somebody were to ask you what your best stocks are, you would likely name the ones moving up the most in your portfolio.
This, of course, would include stocks making new highs. Especially since stocks making new highs have a tendency of making even higher highs.
Our momentum strategy, fittingly called 'New Highs', focuses on that very thing by selecting stocks with the best momentum characteristics, and applying that to companies with a Zacks Rank #1 Strong Buy, outperforming growth rates, and other powerful items.
How Has It Done?
• Over the last 17 years (2000 thru 2016), using a one-week holding period, this strategy has shown an average annual return of 52.9% vs. the S&P 500's 4.2%.
• And in 2016 alone it was up 95.5%, crushing the S&P's 11.96%.
So is this the best style?
Maybe for some. But maybe not for others.
More . . .
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This momentum style strategy is an exciting one to trade. But for some, the high flyers and fast movers aren't the kinds of stocks they want to get into.
Maybe getting into stocks that are lower in their price recognition cycle or finding undiscovered gems is more to your liking.
So let's take a look at the value style.
Value investors and traders favor good stocks at great prices over great stocks at good prices. This does not mean they have to be cheap in price though. The key is the belief that they're undervalued. That they are, for some reason, trading under what their true value or potential really is. The value investor hopes to get in before the market 'discovers' this and moves higher.
Some may think that value investing is boring. Or that you have to sacrifice returns. But neither could be further from the truth. In fact, value investing has proven to be one of the most successful forms of investing over time.
Value investing became famous from legendary investors Benjamin Graham, and more recently Warren Buffett. Obviously, they know something. And they do.
Our value strategy, called 'Value Method 1', keys in on undervalued stocks with a Zacks Rank #1 or #2 Strong Buy or Buy rating, increasing earnings, and a proprietary blend of three highly predictive filters.
How Has It Done?
• Over the last 17 years, using a one-week holding period, this strategy has shown an average annual return of 54.1% vs. the S&P 500's 4.2%.
• And in 2016, it was up a whopping 153%, outperforming the S&P by nearly 12x as much.
This strategy also does well using a four-week holding period, which is ideal for less active traders.
And since many value strategies are often less volatile, the smoother ride this style can provide, while still outperforming the market, may be just what you're looking for.
Or maybe a Growth & Income Style approach with core holdings that pay income producing dividends is what you're really after.
This kind of strategy will tend to focus in on more mature companies with solid revenue and consistent payouts.
You'll have a longer time horizon with this style (at least 12 weeks), especially since you'll want to hang onto your stocks long enough to receive the dividend.
A perfect example of this is our 'Growth and Income Winners' strategy, which has shown an average annual return over the last 17 years of 16.9%, with a win ratio of 72%.
Then again, the allure of getting in on a newer company and watching it blaze a trail of success, as an Aggressive Growth Style strategy will do, may be your goal instead.
Aggressive Growth traders are primarily focused on stocks with aggressive earnings growth or revenue growth (or at least the potential for aggressive growth).
You'll often find smaller-cap stocks in this category.
And while this style will typically require a more hands on approach to monitor how these companies are doing, it can be well worth it when it's hitting its stride.
Like our 'Small-Cap Growth' strategy is doing, which has shown an average annual return over the last 17 years of 61.0%.
And the #1 Trading Strategy Is...
...the strategy that's right for you!
No one style or strategy is better than the other. They're just different from each other.
And that's fine.
So the number one trading strategy is the one that's right for you, and that picks the kinds of stocks you want to get into.
Because if you find yourself getting into stocks that are not in alignment with who you are or want to be as a trader, you'll find yourself dropping that strategy the moment the market hits a rough patch. Or talking yourself out of winning trades altogether, because you're uncomfortable being in stocks that don't fit your style.
You Can Beat the Market
As you can see, beating the market isn't just for the pros. Anybody can do it with the right strategy.
But the best trading strategy in the world won't make you any money if you don't use it.
It all comes down to knowing what works, and doing what works.
If you know what strategies work, you'll have the confidence to use them. And following a proven strategy that works can transform your portfolio.
To build confidence in your trading, remember to first:
1) Identify what kind of trader you are or want to become. This will help you find the style(s) that are right for you. And don't worry about fitting perfectly into one style or another. Many people will be a combination of several styles rolled into one.
2) Once you understand the different styles and where you fit in, you can then concentrate on what kinds of strategies will help you pick those stocks so you'll always get into the right ones.
3) Don't give up. As mentioned above, the most successful trading strategies work best when you use them. Once you've identified your style and the method to pick those stocks, you'll be beating the market no matter what it's doing.
This is true whether you're picking and choosing from our proven profitable strategies, or building and testing your own.
You can do it. And it's easier than you think.
Where to Start
There's a simple way to add a big performance advantage for your stock-picking success. It's called the Zacks Method for Trading: Home Study Course.
With this fun, interactive online program, you can master the Zacks Rank, which has nearly tripled the S&P 500 with an average gain of 26% per year since 1988 through 2015, without attending a single class or seminar. Do it online in your own home at your own pace. It covers the investment strategies and ideas I just shared and guides you to better trading step by step.
Discover how to identify what kind of trader you are, how to find stocks with the highest probability of success, and how to trade them for maximum gains no matter where the market is headed. The course also includes some of our best-performing strategies (like the ones mentioned above and more), and shows you how to create and test your own.
Today is the perfect time to get in. I'm giving participants free hardbound copies of my book, Finding #1 Stocks, a $49.95 value. Its 300 pages unfold virtually every insider secret I know about the stock-picking system that has nearly tripled the S&P 500 for more than a quarter century.
Please note: Copies of the book are limited and your opportunity to get one free ends midnight Sunday, March 5. So if you're interested, be sure to check this out right now.
Click here to learn more >>
Thanks and good trading,
Zacks VP Kevin Matras is our chart patterns and stock screening expert. He developed many of Zacks' most powerful market-beating strategies and directs the Zacks Method for Trading: Home Study Course.
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