The trending stocks to watch signals began on October 6. The last profitability review showed a gain of 20.3% in 6 weeks, between October 6 and December 20. In 2015 we’ve had more turbulence (choppy isn’t ideal for a trend strategy) than during the prior period, so the gains are lower over the last three months…but the signals were still quite profitable.
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Assume 1% equity is risked on each trade (this is what I teach). Losing trades therefore represent a 1% loss to account equity, and winning trades represents a 2% gain, or greater, since all trades have at least a 2:1 reward to risk ratio. Thus, the below stats don’t show how much the stock moved, but rather the percentage increase/decrease in account capital from the trade. This is what matters. Results have not been compounded.
If a trade didn’t trigger in the week it was published (or broke out in the opposite direction before triggering our signal), then the trade is no longer valid (and won’t be listed here) unless it appeared on the following week’s list.
The stats assume you were able to get a position and that you were able to get the proper position size based on the entry, stop loss level and the 1% account risk tolerance.
Trending Stocks to Watch – Closed Trades
|CAMP +1.53%||SODA +4.6%||KMI -1%|
|APO -1%||FB -1%||DLR -1%|
|WDR -1%||UGI -1%||POL -1%|
|FB +3.3%||SPY +2%||EJ +2.87%|
|ALU -1%||LLTC -1%||BXE -1%|
|OHI -1%||MCO -1%||JEC -1%|
|CFX +4.36%||CME +2.27%||POL +2.8%|
|PTX -1%||MDU +2.84%||CP -1%|
|GEL -1%||MDVN -1%||GCA -1%|
|PEP +3.16%||DB -1%||CHD +2.61%|
|CTIC -1%||LVS -1%||FET -1%|
|JNPR -1%||VMW -1%||TXRH -1%|
|JEC +2.39%||RDS.B +2.44%||MTZ -1%|
Overall Increase in Account Equity (non compounded): +11.17% in about 12 weeks, locked in. Some periods will be more, some periods will be less. Since October 6 the strategy is up 31.47% (uncompounded). Keep in mind, this strategy takes maybe 20 minutes a week to implement. This is not a strategy that will make hundreds of percent a year. It’s meant to accumulate capital, spending several minutes each week. More aggressive growth strategies will be covered in the Stock and ETF Swing Trading Guide I am currently writing.
Over the same time frame the S&P 500 was -0.2%.
The chart below (click to enlarge) shows the S&P 500 SPDR over the last several months, as well comments related to how this movements tends to impact the strategy performance.
Biggest Draw Down (from highest point): 4% (The most your account equity would have dropped, from its highest point, at any given time is about 4%. This would have occurred when we had four losing trades in a row.)
Win rate: 13/39 = 33% (Very low for this strategy, reflecting the choppy conditions…and yet we are still profitable!)
Reward/Risk = 2.86 (We make 2.86 times as much on our winners, as we lose on our losers.)
The larger the account the less impact commissions have. On a $30,000 account the gross return is $3,351. Assuming an average commission of $9 for 39 trades, we have a commission cost of $351. This brings the return to roughly 10%. On a $100,000 account the gross return is $11,170. Commissions are likely to stay about the same with a flat fee broker, keeping the return closer to 11%. Borrowing costs must also be factored.
A lot of trades didn’t trigger. Don’t cling to old signals. These trade signals are not predictions about where the market will go. The trade trigger has to occur in order for a signal to be valid.
Trending Stocks to Watch – Still Open Trades:
XLP, JAZZ – long
TOT, MHR, KMT, HSC – short
We have pending trades in CHKP, IWS and GES. The could be added to the list of open trades if they fill in the next few days.
Trending Stocks to Watch – Key Takeaways:
- You don’t need a complex system to make money.
- Don’t sweat the losses. This was a tougher period, a lot of great day trading, but not so easy for swing trading a trending strategy like this. Always remember though that three or four losses is nothing–you make it back on one or two winners. That’s why we always try to make at least twice as much on winners as we lose on our losers.
- All the potential trades posted met the trade criteria, but we have no idea in advance which will win and which will lose (or which will trigger an actual position). It’s best to trade all signals. Due to capital limitations, that may not always be possible. Even risking 1% of account capital can result in a big share position. If that’s the case, reduce the risk on each trade to 0.5%, so you can afford to take more trades (the position size will be smaller). In this case, your gain would be half as much as the gain above, but your drawn down would also be halved.
- Taking 5 trades is better than taking 1. Anything can happen on a single trade. It is only over many trades that you see the statistical edge of a strategy play out. The key statistical edge for this strategy is that we make more on our winners than we lose on our losers.
- This strategy takes almost no time. Set and forget. Once your stop loss and target are set, you leave it alone…and as you can see, it still works pretty well. The upcoming Stock Market Swing Trading Course will provide more entry and exit options for increased profitability.
Cory Mitchell, CMT