Imagine that you have a historical daily stock-price chart in front of you. If draw a line between the highest two tops of the prices and another through the lowest two bottoms . . . and those two lines are more or less parallel (run in the same direction), you have found a rolling stock. Basically, it is a stock that operates like a sine curve (if you remember what those look like from trig class). Or think of it as an undulating wave bounded on the top and bottom.
Stocks will sometimes trade in these circumscribed ranges for some time, falling from the tops of the range to the bottom, then rising back to the top, and repeating.
If a stock does exactly this quite frequently, you can buy near the lows and sell near the highs, let the stock drop, and do it all over again. That's the fundamental idea. This has been a standard trading strategy of professional investors for decades.
What is different about this book is that it is the most complete articulation of how to pursue this trading strategy that I have seen. As such, it may provide the basis for some individual investors to learn how to use it.
The book describes the strategy in detail, provides some examples, takes you through some case histories, shows you how to find these stocks, provides ways to finetune the strategy for higher rewards, portrays the risks and rewards, and shows you where to get more information.
Mr. Witt reports that he most frequently finds such stocks among the lowest priced stocks, after they fall from a higher level, before they breakout to a higher level, with attractive stochastics (a form of technical analysis) which are probably representing ownership in a company that is unprofitable. In other words, the company's stock is in a funk because the company is in trouble.
Now, let me share my analysis and reactions with you. First, these are usually companies that are in trouble. Such stocks can break down in price very quickly. So even using stop-loss orders, you can take a 10-40 percent loss on the downside before you get out. Since the book advises you to usually place your stop-loss order at a higher price, you may do worse unless you are following the stock continuously.
Second, if you have never heard of stochastics before, this method may take more learning than you want to do.
Third, although the method is well described, it is more art than science. So you'll have to develop a touch and a feel. My suggestion is that you work with paper and pencil first. Then, if you are getting good results and like what you are doing, commit some real money. But start slowly. This should probably never be more than 10 percent of your financial assets.
Fourth, you will miss out on making much money if the market moves up quickly. Sure, you'll be able to sell out of this position. But you probably won't be able to find another stock to buy into. So there's an opportunity cost involved (what you could have made with some other investment method).
Fifth, keep good records. These trades (when successful) will trigger regular income tax bills.
Although this is less stressful than day-trading, it is also not buy-and-hold. Be sure that your nerves are up to this. Many people cannot feel comfortable following a formula like this when the market moves rapidly up or down. Ignore the formula, and you can get into trouble.
If this method seems too hard for you, consider the seasonal timing model. In that, you buy near the lows in October with a diversified group of solid company stocks and sell them near the highs in April. Almost all of the market gains historically have come during those months. This reduces your risk overall, and gives you faster gains than buy-and-hold. Often, you will buy back in during October at lower levels than in April.
Whatever method you decide to use, don't fall into the misconception that any one method will always work. Keep learning!