Friday, March 16, 2007

Trade Ideas January performance

Previously, I had analyzed the January return of my newsletter picks based on using fixed % risk, looking for a 3:1 return. But what about the returns for the Trade Ideas picks featured on this blog using the same parameters?

Plenty of water has passed under the bridge in the last couple of weeks! So I have updated the newsletter returns to account for the market decline and compared it to the Trade Ideas picks for the month of January.

The returns posted are for closed trades only. So first up is the current percentage of open trades based on the risk parameters I have set?

My newsletter picks (n=84):
1% risk: All trades closed
2% risk: All trades closed
5% risk: 25% of trades open
8% risk: 45% of trades open

Trade Ideas picks (n=57):
1% risk: All trades closed
2% risk: 2% of trades open
5% risk: 39% of trades open
8% risk: 59% of trades open

QQQQs return (n=20):
1% risk: All trades closed
2% risk: 35% trades open
5% risk: 70% trades open
8% risk: All trades open

Individual stocks will be more volatile than the Qs, so it is still open season for most of the Qs trades, which is reflected in its returns. The Q's had the highest return based on 1% risk; 65% profitable trades with an average return of 1.6% per trade. But none of the 2% and 5% risk plays closed profitably (for an average loss per trade of 2% and 5% respectively) - although a large group of trades are still open in the latter group.

What were the parameters for the Trade Ideas scan?



The win percentage and average return per trade were substantially better for the Trade Ideas picks than my newsletter picks; reflecting the benefit of buying the pullback to the 20-day MA (the Trade Ideas picks) versus the breakout to new highs (my newsletter picks).



For both my newsletter picks and Trade Ideas picks, the 6% reward to 2% risk proved to the best strategy based on market conditions from January to mid-March 2007.

The Trade Ideas scan returned an average of 2.57% per trade based on 2% risk. The absolute return could be considerably higher; for example, taking the first pick for each day, buying the day after a target or stop hit and starting from January 3rd to the end of January, the Trade Ideas scan would have selected:

MGG (6% win) - AVZ (6% win) - KMP (6% win) - BAP (2% loss) - ASD (6% win)

For the above sequence, there were 80% profitable trades for a cumulative return of +23.7%, but this needs to be viewed within the context of an average 57% win percentage for this group. So, if this sequence had two losers (and three winners) then the cumulative return would have fallen to +14.4% and with three losers (and two winners) it would have been a respectable +5.8%. Especially when considered the Qs at 2% risk would have triggered two trades for a loss of -3.9%. For the record, using stocks from my newsletter would have triggered only one trade for a -2% loss (the trade having initiated at the start of January and held into March).

Over the course of the coming year I will assess returns based on different risk:reward parameters, hopefully covering a range of market conditions.

If you would like to try a full version of the Trade-Ideas software, follow this link for a free 7-day trial.



 
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