Lets take a look at the Closed Trades for the 1st Quarter of 2019 to see how the system performed.
We know that the first two months of the year the overall market was on a tear higher, but things stalled out a bit in March. The smaller cap stocks represented by the Russell 2000 actually peaked out towards the end of February and spent most of March in pullback mode. IWM actually pulled back -6.9% over that period.
We’ve actually been looking forward to some type of market pullback to help gauge the behavior of the system during rough periods. And what we learned is quite interesting.
The nature of the “system” is that it automatically weeds out the weak stocks. The strongest stocks continue to perform as Open Trades, but we saw an increase in small insignificant stop-outs in the month of March.
Here’s a look at the breakdown of winning trades versus stop-outs over the 3-Month period.
Keep in mind that the Number One Goal in Swing Trading is to have more winners than losers – and for the winners to be bigger than the losers. This simple goal ensures that you will be successful over a long-term series of trades.
Although we saw an increase in the number of trades that got stopped-out in March, the Average % loss remained very reasonable at only -2.66%. The reason we are able to maintain such a minuscule average stop-out percent is because of the system Dynamic Trailing Stop.
In the majority of the stop-outs, the trailing stop had already been ratcheted-up, just not quite up to breakeven status.
Keep in mind that the back-end Quant System that drives everything only closes an Open Trade when the Trailing Stop is hit (or the day before earnings are released. The stats don’t reflect gains that could have been locked-in at the system Target or the Parabolic Stops.
The great thing about analyzing the entire 1st Quarter is that we have a fairly large data set now.
Here’s a look at every single closed trade from the beginning of 2019 to the end of Q1: (oldest at the top)
That’s a lot of trades so it’s a little tough to take in all at once, but it shows the Minimum percent move and the Maximum percent move of each Open Trade for the Quarter.
The dark green bars are the Maximum distance the trade moved in our favor after triggering.
The light green bars show the Minimum distance the trade moved in our favor before it hit the “ratcheted-up” trailing stop. In only a very few cases did we take a full stop-out, meaning the “initial stop” got hit prior to the first trail-up move.
It’s interesting to see how just a few full stop-outs can affect things, but one of the things we always focus on is the system performance over a large series.
Over the course of the 3-month period, the system achieved its goal – more winners than losers – and the winning trades were significantly larger then the losing trades. That’s really the simple key to success in swing trading stocks.
Since our new quant system runs fully automated on the back-end and all aspects of these trades are based on pre-programmed logic, the system takes on a life of its own. Weeding out the weak stocks and sticking with the strong stocks is just the nature of how it works.
Considering that we are just 3-months in since inception, things are looking good. Everything is running like a finely-tuned machine and we have a good data set to analyze.