February 2019 Mid-Month Update

With February halfway over, as we head into the President’s Day Holiday weekend I thought it would be a good time to review the system performance.

The market has continued to climb since the beginning of the year, which has put the wind at our backs as traders. It won’t always be this easy – so taking profits on the way up seems like a very reasonable strategy.

We’ve had 28 trades close so far this month, many of which were closed ahead of earnings. Our system is programed to close open positions the day before a company releases earnings – for reasons we’ve discussed at length on the shows. All the other trades were closed when the price pulled back to the trailing stop (which methodically ratchets higher over time).

Here’s a look at the Closed Trades with the Maximum percent move past the Trigger – and the Minimum percent gain using the system Trailing Stop.

The biggest gainer so far this month is TWLO which got closed ahead of earnings. You can see on the chart below how the system Trailing Stop ratchets up as price moves in our favor, with the goal of keeping us in the trade as long as possible. The key to the Trailing Stop is to give the stock enough wiggle-room so that we don’t get knocked-out on normal price fluctuation.

It’s been an active month so far and one of the questions we get a lot ishow do I know which stocks to trade?“.

The Investing Systems Trading Service provides you with a steady stream of high momentum stocks that are currently setting up in our specialized high probability swing trading setup. At any given time there could be a 20-50 stocks in the pending list and several or more triggering per day. Obviously you can’t trade every stock that appears in the list.

So how do you pick which stocks to trade?
One method is to filter out and choose stocks by a preferred price range that you have. Some traders prefer lower price stocks in the $10-$40 while other traders focus on higher price stocks.. $80-$100+.

You could include certain stocks in industry sectors that you are familiar with and exclude stocks in sectors that are not familiar with. Maybe you only trade stock symbols of companies that are well known and have good fundamentals. The main thing to understand here is that in swing trading you make money over the series and that each potential stock trade regardless of criteria is nothing more than a vehicle to temporarily park money in the market.

In other words, trying to filter out the best picks only goes so far. Every stock that appears in the Pending Trades list meets an extensive set of technical and statistical criteria and beyond that it becomes random. You could have a fundamentally strong company with the perfect setup but the trade fails and hits your stop while at the same time another stock with weak fundamentals and a sloppy setup goes on to be a big winner.

The market doesn’t always behave rationally or make sense so we can only take the stock selection/filtering to a degree. Spend a little time. Look at the charts. Read up on some of the stocks in the list and choose your plays. Over the series, regardless of the stocks you pick from the list, the odds are still in your favor. It doesn’t get much better than that.

Trading is a game of odds based on timing and tolerances and repetition. A crucial concept to keep in mind regardless of the exact approach you take in swing trading is that the statistical edge is attained by taking many trades over time, i.e. we win over the series. All strategies and systems have some failure rate and seeing good results from swing trading can at times be glacially slow and remain frustrating for weeks when we experience sluggish markets. What this means is that you must plan ahead to reserve judgement on your P&L until you have completed a decent number of trades, i.e. 20-30 round-trip executions which may be spread out over several months.

The great thing about the way the system is designed is that the Trailing Stops force us to get out once a stock loses its momentum. Occasionally there will be full stop-outs but using stops to protect from catastrophic loss in any one stock is a necessary evil.

While it’s impossible to know how far the current up-cycle in the market will carry, the stops will be key in the next inevitable market pullback or reversal. When and if the market cycle turns down again, Open trades will pull back and hit the Trailing Stops, while stocks on the Pending Trades list won’t Trigger. We will likely see some Reverse (shorting) ETF’s enter the mix so we can play the market corrections too.

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