Tuesday, February 13, 2007

January short-term performance

Normally, I register the success or failure of my newsletter picks according to my assigned Stop and Target prices. For today's analysis I took the stock picks for January and tested performance according to a fixed (arbitary) risk threshold, aiming for a three:one reward for risk. I am looking at short term performance of these picks and a potential alternative trading strategy.

As an introduction, January was a mixed month for the markets, and was a similar roller-coaster ride for my own newsletter picks. The free stock picks are down an average of -5.41% per trade to date, but the paid-for stocks[$] provided to subscribers are up an average of +1.47%. It should be added, weak stocks will hit their exit point before good ones reach their targets. So early exits are heavily slanted towards losers - but even allowing for that, the free picks have done poorly.

Taking the list of stocks provided for January (n = 84; 30 of those stocks were available for free, 54 for members only), how did they perform if one looked for a 3:1 reward:risk with a fixed risk of 1%, 2%, 5% and 8%? The next day open price was used as the fill price and formed the basis of calculating percentage risk:reward targets.

The return using a 1% and 2% risk was relatively favorable - particularly for Subscriber picks which had a 48% win percentage on a 2% risk (6% profit). With a greater risk threshold the figures get more skewed by a smaller sample size; for a 5% risk (15% profit) 38 of the 84 picks had reached either a profit or loss, and this figure fell to 18 stocks on 8% risk (24% profit).

Expressing the data as profit per trade, the 2% risk showed a good return for Subscribers. Although the best returns came from trades risking 8% - but the large number of open plays for this risk factor could move this substantially one way or the other.

As a final note, I took a measure of the win percentage according to the Investors Business Daily ranking. I excluded "E" and non-ranked stocks from the analysis due to the handful of stocks. Not surprisingly, "D" ranked stocks had the lowest win percentage across the board. More surprising was the performance of "C" ranked stocks compared to "A" ranked stocks on a 1%, 2% and 8% risk threshold. The best win percentage came from "B" ranked stocks on a 2% risk (= 52% win and an average return of 2.16% per trade).

This is something I will keep an eye on.

** PS. Paypal are offering a $15 rebate after spending $30 (added to your account in May). I am not sure if the offer is valid on buying membership to my site ('services' are excluded) - but it will work on Ebay purchases. You must register your email address here to qualify **