The trending stocks to watch signals began on October 6. The last profitability review showed a gain of 31.47% in 18 weeks between October 6 and March 31. The review below shows the performance between March 31 and July 7, 2015.
The latest Trending Stocks to Watch article was published on June 1 (took the last 5 weeks off due to a vacation), and as of July 7 all positions have either reached their targets or been stopped out.
I have opted to discontinue the Trending Stocks to Watch articles for the time being. For those who read this blog regularly you know that my desire is never to make people dependent on trade signals, but I still want to show people who how it is done. This will be more thoroughly accomplished with the publication of my upcoming Stock Market Swing Trading Video Course.
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Trending Stocks to Watch – March 31 to July 7 Profitability Review
1% equity is risked on each trade (this is what I teach). Therefore, losing trades represent a 1% loss to account equity (occasionally more if there is a gap against us), 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. Who cares how much a stock moves…it is about how much your account grows! Results have not been compounded.
Another way to think of this is: assume you are willing to lose $300 a single trade. Then the -1% below represents -$300 (should have a $30,000+ account to risk $300). A stock like NOW which has a +3.23 beside it means you profited 3.23 x $300 = $969 for the $300 risked on that trade. MNK at 2.84 means you profited $852 by risking only $300.
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in the week it was published (or broke out in the opposite direction before triggering our signal), then the trade is no longer valid (and won’t be listed here) unless it appeared on the following week’s list.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.
Overall Increase in Account Equity (uncompounded): +17.534% between March 31 and July 7. All profits are locked in and there are no pending or open trades. We also didn’t trade the last 5 weeks which had a dampening effect on performance. I opted to close JIVE before a earnings announcement, otherwise it would have been a 1.1% loss, bring performance for the period to +16.72%.
Some periods will be more, some periods will be less profitable. Since October 6 – July 7 the strategy is up 49% (uncompounded). Keep in mind, this strategy takes maybe 20 minutes a week to implement. If all trades were not taken, this would affect performance. Since there were a lot of trades, it is unlikely traders would not have been able to take all the trade (due to capital limitations, etc). But overall the results are still favorable. Even if only about half the trades were taken, the gain would have been about 25% over the 31 weeks.
You would need to deduct your commission costs from the total return.
Biggest Draw Down (from highest point): 6% (The most your account equity would have dropped, from its highest point, at any given time is 6%.)
Win rate: 10/24 trades= 42% (If your wins are bigger than your losses you don’t need to be right all the time to turn a profit.) This is quite low, and one of the reasons is the chart below. When markets are trending, the win rate can easily climb to 60% or higher, resulting in better overall gains.
Average Reward/Risk = 3 (We make about 3 times as much on our winners as we lose on our losers.)
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.
The chart below (click to enlarge) shows the S&P 500 SPDR over the last several months, as well as comments related to how this movement tends to impact the strategy performance.
Between October 6 and July 7 the S&P 500 SPDR (SPY) is up 5.976%. From March 31 to July 7 the S&P 500 is up 0.77%.
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 for all traders unless they have access to additional leverage. Even risking 1% of account capital can result in a big share position.
–Taking 3 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 well. The upcoming Stock Market Swing Trading Course will discuss alternate entry and exit methods to improve performance.
Cory Mitchell, CMT