Swing trading Mr.Market's latest Top Five Picks

[spikefader]

Equity Curve thoughts for System Totals to date.

OK, let's review the trades list first.

Previous trades (closed):
ARLP Long 63.74 out 73.05 for +14.6% profit
CWTR Long 24.62 out 25.53 for +3.7% profit
CME Long 197.40 out 198.05 for +0.3% profit
MPX at 25.90 target 26.60 +2.7%
MCRI at 35.30 retarget 34.16 -3.2%
IIG +15%
CMN +15%
BSTE at 57.28 retarget 62.78 + 9.6%
CME at 210.60 retarget 210.81 +.1%
ACRG at 3.06 retarget 3.50 +14.4%
ACRG at 3.30 target 3.50 +6%
ARLP long 70.02 target 80.79 +15.4%
CWTR at 28.18 target 32.51 +15.4%
SEB 1076.54 target 1238.02 15% profit
FORD 12.20. Target 14.03. 15% profit
SEB 890 target is 1030. 15.7% profit

OPEN Trades
CWTR 19.75 (29.62 pre split). Target is 22.71 (34.06 pre split) or 15%
NGPS 33.49 retarget 33.90 or 1.2%
FRD 12.50, retarget 11.96 or -4.3%
IIG 18.14, retarget 18.75 or 3.36%
ARLP 73.37 target is 76.76 or 4.6%
HBP 10.44 target is 12.00 or 15%

Equity Curve analysis
How do these results perform in the equity curve generator??
Well, there are 3 different equity curve calculations I can make:

1) Closed trades only (not a realistic representation of the long term)
2) All trades at final targets (a realistic representation)
3) All trades (with open trades calculated at today’s closing prices for open positions)(not a realistic representation)

Scenario 1:
Closed trades only (closed trades performance is outstanding but rather ‘rose-colored’ view)
win/loss = (154/15)/(3.2/1) = 10.26/3.2 = 3.206
win probability = 15/16 = 0.9375
*******************
Scenario 2:
All trades PLUS open trades (assuming they reach their targets)
win/loss = [(154.7+39.16)/20]/(7.5/2) = [193.86/20]/(7.5/2) = 9.69/3.75 = 2.585
win probability: 20/22 = .91
*******************

Scenario 3 (the most unlikely and unfair interpretation I could make for it):
All trades PLUS open trades where they currently stand today (not a realistic summary of system potential since open trades are yet to mature and finalize) NOTE that even with the enormous downdrafts currently experienced by the three dogs of the portfolio; NGPS, FRD, and IIG, the system still generates an average positive equity curve!!! (from 9 random generated samples)
win/loss = (154.7/15)/(137/7) = 10.31/19.57 = 0.5268
win probability = 15/22 = 0.682
*******************

SUMMARY:
It seems this system is producing very attractive positive equity curve growth results. But how much capital should one even consider throwing at a system like this one?

Well, conservative guidelines recommend no more than three percent of your total capital on any one position. That means if you're thinking of throwing a grand at each of these signals, you'd want to have 30K capital. So if this system has a half dozen open positions at any one time, that's still only allocating 20% of your total portfolio in a pretty unique and very impressive system trading activity. That leaves 80% of your capital for other grandios schemes That way, in the event a few of these signals turn out to be dogs, then you're not over-exposed to the positions. I would strongly discourage people from trading this system in a discretionary way, and throwing a large chunk of cash at one or even a select few MM Top 5 stocks. Diversification is key. If you don't have the capital to trade something like this, then you'd be better off trading more secure vehicles like the indexes or iShares that don't get hit hard with devastating news and big institutional sellers that can ram a stock down hard like what happened to NGPS. Or the other alternative if one has limited capital and looking to trade this type of system, then buy call options instead of the stock. They are cheap if you buy out-of-the-money, you have limited downside risk, and they are volatile enough to really give you some nice returns - often more than the 15% targeted in this thread.

Anyway, I think I'll take a break from new positions and just report on any targets hit and eventually get around to a final system summary to warp the thread up when they've all closed out. It's been a fun exercise and hopefully it's give people a few things to think about.

[Karel]

...

SUMMARY:
It seems this system is producing very attractive positive equity curve growth results. But how much capital should one even consider throwing at a system like this one? ...

Interesting, very interesting! Nice results, nice curves. But about: how much money, the analysis gives a hint. It is the Kelly value, but things are a bit more complicated. If you know the win/loss ratio and the win probability, and you gamble throw for throw, the Kelly value indicates how much to place on each bet, percentagewise. But as we are not "gambling" throw for throw, we have a maximum number of open positions, and taken together, that investment may not exceed the Kelly value for optimum risk/reward. Say you want to allocate 100K to this strategy. In scenario 1 you always keep 8.2% at the side (initially 8200). In scenario 2 that amount is 12.5% ($12,500), in scenario 3 it is 92.2% ($92,200!).

This says nothing about how much you should allocate per stock. Take an allocation guideline of, say, 5% of your portfolio total per stock and say you use this strategy exclusively. In scenario 2, 12.5% has to remain at the side at all times. So you allow for a maximum (and optimum) number of postions of 87.5 / 5 = 17.5. If you dedicate only a percentage of your portfolio to this strategy, the number of stocks is accordingly lower.

One word of warning: In the third scenario, the Kelly value effectively says that there must be better ways to spend your money. This marked difference with the other two scenarios should make anyone pause. Not that this condemns the strategy, but it is certainly an indication that there are not enough data points to make a reasonably safe conclusion.

I also did a "third scenario" analysis for the current 66+2 winners and 12 losers of $$$Mr.Market$$$:



Now the Math expectation has me worried: on average you gain 27c on every dollar you invest. But the numbers used had a maximum return of 15%, or 15c. The reduction of individual gains/losses to a win/loss ratio seems to do strange things to the simulation. Looking back at the expections of spike's analyses, I see returns of $2 and more for every dollar. Which never went into the calculation. When I see them coming out of it, I very much wonder what is going on.

Regards,

Karel

[spikefader]

Interesting stuff there Karel. Have you worked out what is going on yet?

[spikefader]

CWTR's retarget of 1.5% profit was hit today. Another one bites the dust. The retarget was obviously due to the sell off in March and April. Glad to be out of this for some reason.
entry here
split and recalc of numbers here
and the afternoon 'spike' today to close the position:

[mmm]

CWTR has eps reporting..think it spiked into the eps.
Probably smart to sell in front of them but I think they were
expected to be pretty good.

[spikefader]

Guess what!!! The system is still rocking!

HBP 15% target of 12.00 was hit on 17 June!!
ARLP 4.6% target of 76.76 was hit recently on July 12!
NGPS 1.2% target was hit today! Hooray! That was a long time coming.....it's actually looking very bullish right now, so anyone long should be feeling very good about it.

FRD 11.96 target still open....current price is 6.85. Boo hiss.
IIG 18.75 target still open....current price is 11.17.

SYSTEM TOTALS:
Total system profit 177% in 20 trades;
an average of a healthy 8.85% per trade.
The S&P over the same period can boast only 4.9%. So this system performs slightly over 80% better! Not bad!

And it should be noted that the S&P has been on a bullish run the last few weeks. Had I taken the S&P reading 10 trading days ago the system would be outperforming the market by over 350%!!! (S&P was a mere +2.5%)

Bottom line is that despite the extremely bullish nature of the market of late, it still can't compete with MM's Top 5 picks. MM's model rocks as far as I'm concerned!

[dmk112]

Spike, what ever happened to this thread? Did you give up because you were up a measly 177%??? Is that the best you can do?? LOL

Spike, seriously you should start a fund. I'll be the 1st in line to drop it in my 401K.

[spikefader]

Spike, what ever happened to this thread? Did you give up because you were up a measly 177%??? Is that the best you can do?? LOL

Spike, seriously you should start a fund. I'll be the 1st in line to drop it in my 401K.

lol thanks for the vote of confidence! Hedge fund would be too much stress I'm sure! I'll stick to trading individuals' portfolios thanks.

And for this thread no I didn't give up, was just getting very short on time so decided to take a break from new positions as per this earlier post:

.....Anyway, I think I'll take a break from new positions and just report on any targets hit and eventually get around to a final system summary to wrap the thread up when they've all closed out. It's been a fun exercise and hopefully it's give people a few things to think about.

But I do wonder how the recent Top 5 picks would have fared. If I ever get time I may look. As for the open positions of the ones I was tracking I see they remain open, IIG is currently trading 6.45 (target is 18.75) and FRD is trading 6.08 (target is 11.96). IIG actually looking OK from here while the 6.00 low holds. Don't know about FRD... But these two have been a couple of dogs.
Good example of why diversity is essential for this type of system.

[spikefader]

FRD recent weekly booming action suggestive that it has a strong chance to hitting that 11.96 in a couple months, and IIG has inverted weekly head and shoulders that targets 12.00 resistance. I shall close that position there since it's such heavy resistance and then do a final tally of the numbers and do a final equity curve on the numbers to see where in reality this experiment sits and assess just how good the 50% retrace entry method for MM's Top 5 picks can be....

[spikefader]