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 ** Fallond
