Trending Stocks to Watch Profitability Review: +20.3% (account equity) in 6 weeks
The trending stocks to watch signals began on October 6. With the holiday season I’m not publishing a December 22 version. There will be one published on December 29, but since those trades will last into the New Year, it’s time to look back and see how the published (free) trade signals did.
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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 (only one trade below had less). 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in the week it was published (or broke out in the opposite direction before triggering our signal), then the trade is no longer valid (and won’t be listed here) unless it appeared on the following week’s list.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 (some shorts were hard to borrow) 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:
IDTI – 1%
VFC + 2%
COST +2% (unless very quick and a bit aggressive on the entry price, you may not have been able to get into this trade)
BCS – 1%
CHL – 1%
SCLN + 2%
LYG – 1%
L +4.3% (there were two targets at 2% and 4.3%, both were reached).
KMT + 3% (targets at 2% and 3%, both were reached)
TCBI – 1%
Overall Increase in Account Equity (non compounded): +20.3% in about 6 weeks, locked in. Some months will be more, some months will be less. That’s a pretty good yearly return when you extrapolate over 12 months (legal warning: past results don’t guarantee futures performance).
Over the same time frame the S&P 500 was up about 5.2%, and up 8.5% at its highest point.
Biggest Draw Down (from highest point): 3% (The most your account equity would have dropped at any given time is 3%. This would have occurred on the three losing trades in a row above.)
Win rate: 10/19 = 52% (You don’t need an insane win rate to be very profitable)
Reward/Risk = 2.81/1 = 2.81 (we make 2.81 times as much on our winners, as we lose on our losers. To figure this out, add all the percentage winners and then divide by the number of winners: 28.1%/10 = 2.81, the add up the percentage losers and divide by the number of losers: 9%/9 = 1. Divide the two results.)
A lot of trades didn’t trigger. Don’t cling to old signals. If the stock breaks out the other way, leave it alone. 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:
EDU – currently about +3%, this was a very aggressive target (looking for about 5%) so a standard targets based on a 2:1 or 3:1 reward to risk have been hit multiple times already.
OHI – remains open, close to flat.
SODA – remains open, onside about 0.5%
WDR – remains open, -0.5% after coming very close to target.
FB – about +1% onside
APO – about +0.75% onside
ALU – about -0.95% (very close to stop)
Pending Profits: +3.75% to account equity
Trending Stocks to Watch – Key Take Aways:
- You don’t need a complex system to make money.
- Don’t sweat the losses. Toward middle to end of December, there were 3 losses a row, potentially 4 if including ALU which is likely to be stopped out. That’s trading. 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 trades met the trade criteria, but we have no idea in advance which will win and which will lose. 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 draw down would also be halved.
- 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. This is different than my forex strategy where I actively manage trades. Once your stop loss and target are set, you leave it alone…and as you can see, it still works well. Other entry and exit methods will be discussed in the upcoming Stock Market Swing Trading Course.
Have a great holiday season everyone, and a prosperous New Year!
Cory Mitchell, CMT