I am no longer using Paytrading…please visit My Investing Approach.
What is PayTrading?
PayTrading can be referred to generically as rigidly timed upgrade trading for short-term gain in a long-term construct based on the historical tendency of fundamentally qualified, upgraded stocks to present relative lows at a specific time in the trading day. (from thefounder, Eric Shawn’s site). A unique method of investing in which one gains 1% over an average of 8.4 days. (my description)
Where can I learn how to PayTrade?
You can get a brief summary of PayTrading at the above link. Or, you can download a PDF with a detailed description at this link: PayTrading PDF
PayTrading seems almost to good to be true, doesn’t it? Eric Shawn states that with just $2000 one can accumulate $1,000,000 in a span of just 10 years. This is assuming a 1% gain per trade over 625 trades. As some people on the Download.com page for PayTrading say, with a $20 commission any gains would be wiped away by commissions.
As I suspect most people are that visit this site or download the PayTrading eBook, I was quite fascinated by the prospect of securing an consistent 1% gain per trade. However, I am quite analytical and was not going to trust my money to this stock trading scheme without evidence that it worked. So, I paid the $5.99 fee to access the TipSheet. Besides providing the PayTrading picks for each day, the TipSheet also gives access to the archives of picks since it began back in July 2001. Unlike many of the trading systems that are out there, it has been in use since then and was not recently made to “fit” historic data. So, over the course of a month I made a spreadsheet of the entire archive and went through stock by stock to determine how long a 1% and 1.5% gain took. This way I could see the legitimacy of Eric’s claims.
What I discovered was quite startling. On average, a 1% gain was achieved every 8.37 trading days and a 1.5% gain every 11.06 trading days. (Weekends were not counted). For a 1% gain, the mode holding length was 1.00 days and the median was 1.50 days. The average is also most likely inflated. Many of the stocks reached the 1% gain on the first day but then closed below that. Consequently, I could only count a stock selling on the first day if the close was greater than the 1% sell price. I was unable to find historic intraday stock prices I compensated for this by indicating the length as including a fraction of a day. For example, a stock that might have sold the first day but then not until 30 days later, would have a holding length of 29.5 days. So, as you can see, the average hold length is too high if anything. Also, if you had put an equal dollar amount into each PayTrading pick at the time it was chosen and elected to hold until 2/4/2005, there would have been a cumulative change of over 11,670%.
Assuming approximately 400 trades since July 2001 and $2000 invested each time, the total cost would have been $800,000. I certainly don’t have that kind of money but assuming that you could put that much into each stock, the total account value today would be $1,033,400, a gain of about $200,000 in a little over 3 years.
But, the purpose of PayTrading is to make “quick” 1% gains and not to buy-and-hold. See below for the data that shows PayTrading is profitable: Historic PayTrading Data and Hold Lengths [PDF 86.2KB]
You will notice that a number of the picks were not included in the average. This reason for this is indicated here: PayTrading Discrepancies
I’ve also made some spreadsheets that you can use to keep track of your profits in the PayTrading system. On February 15, the OpenOffice version was updated to make it much easier to use. I doubt I’ll have time to attempt to update the Excel version the same way. Some fields are locked from editing so that they can’t be accidentally overwritten. The password for unlocking them is: paytrading
Discussion on Google Groups Investing in the Stock Market
Karim’s analysis (in OpenOffice format) can be downloaded here: karim.sxc