The Power of Following the Market's Repeating Patterns

Editor's note: It's only human to let your emotions get in the way. But as Pete Carmasino from our corporate affiliate Chaikin Analytics writes, there's a better way to invest... It just takes a bit of discipline. In this piece, adapted from an October 2025 issue of the free Chaikin PowerFeed daily e-letter, Pete explains how one legend outperformed the market with a rules-based model... and reveals how you can transform your own approach.

For more than three decades, Jim Simons blew away the broad market...

In 1978, Simons left his job as a math professor at Stony Brook University to enter the world of finance. He set up shop in a nearby strip mall on Long Island.

Simons ran his company differently than most financial firms of that era...

In short, he treated the markets like a complex math equation that he could solve.

While most other traders watched financial news on TV and read analyst reports, Simons hired mathematicians and physicists. His team ultimately became a "quant" powerhouse.

These analysts fed massive amounts of data into their computers. In turn, their computers uncovered tiny patterns that might've otherwise been missed...

If the price of oil typically dropped on Tuesday, what happened to energy stocks on Wednesday? If gold's value went up one week, how did mining companies react the next?

Now, to be clear, the patterns didn't always work out.

In fact, Simons and his Renaissance Technologies team were only right about 51% of the time. That's barely better than a coin flip.

But a few of their patterns worked consistently. And when you're doing thousands of trades like Simons and his team did, any small edge can quickly add up in terms of profits...

The Importance of a Disciplined Trading Approach

Their approach is now known as "rules-based trading."

Rules-based trading involves cobbling together a series of criteria to produce a repeatable approach. And one thing made Simons and his team different from every other trader...

They learned to never let their emotions get in the way.

That didn't happen overnight, though. Like anyone, Simons and his team did allow their emotions to interfere at first. And as a result, their returns initially suffered.

But over time, they learned to trust their system. They would never override the computer. And they wouldn't give in to fear, greed, or any second-guessing.

During the 2008 market crash, most hedge funds lost billions of dollars. Their investment managers panicked. They abandoned their strategies and made desperate moves.

Not Simons and his team...

Renaissance Technologies' computers kept trading based on their models.

The benchmark S&P 500 Index fell as much as 37% during the downturn. Meanwhile, Simons' Medallion Fund gained an incredible 82% in that span.

That wasn't luck. It happened because of Simons' disciplined, rules-based trading approach.

From 1988 to 2021, the Medallion Fund only had one losing year. Even more remarkable, the fund had just 17 losing months in a 13-year span from 1993 to 2005.

Before fees, the Medallion Fund returned an average of 66% per year from 1988 to 2021.

The numbers are almost too good to believe. Even Warren Buffett – whom most experts consider one of the most successful investors ever – couldn't match those returns. He only averaged 20% annual gains during his decadeslong career.

If you'd invested $1,000 with Simons in 1988, you would've had more than $42 million by 2021. That's far better than the $40,000 you'd have if you had invested that $1,000 in the S&P 500.

Simons proved that finding patterns in the market was possible. He paved the path for folks like me to use rules-based ways to comb through data to find opportunities.

And over the years, Simons' story taught me a critical lesson...

Don't try to outsmart the market. Instead, just follow the patterns that keep repeating.

When Simons died in May 2024 at age 86, it marked the passing of an investing legend. But he made a lasting impression on me – and I'm sure countless others. And he left behind timeless advice for investing...

Trust systems over emotions. And trust data and math over hunches.

Investing models and data crunching have fascinated me for years. You could even call my interest "an obsession with market structure."

To help me decide "what" I should look at, I turn to the Power Gauge.

That's the key set of tools we use at Chaikin Analytics. It combines several investment fundamentals and technicals... And it uses them to produce a simple, actionable rating – ranging from "very bullish" to "very bearish."

Like Simons, I don't care why stocks are going up. I just follow the patterns. When the technical signals align with a favorable rating from the Power Gauge, it's time to invest.

The "why" will reveal itself later...

It could be a new product launch or an earnings surprise. Perhaps it ties into a big-picture trend that no one saw coming. Or maybe a famous investor is quietly accumulating shares.

This approach takes massive discipline. Sometimes, I watch a stock for months before the technicals give me the green light.

Put simply, I wait for the data to confirm the pattern. And I use the Power Gauge to help me do that.

It's not complicated – just disciplined.

Good investing,

Pete Carmasino

Editor's note: A violent shift in the U.S. market could soon create an extraordinary moneymaking window. That's why, on March 25, Chaikin Analytics founder Marc Chaikin is stepping forward to reveal a strategy that could potentially double your entire portfolio – even if stocks plunge from here. Plus, he's giving away two free recommendations to help safeguard your portfolio against vicious downturns.