Algorithm and Portfolio Stats: 02/26/2024 - 03/01/2024
Overall, our day trade bot had a negative performance this month. If you’d taken every trade it recommended, allocating 1/75th of your capital into each trade (the most aggressive possible allocation strategy that guarantees not needing margin), you’d be down a little under 0.9%. That doesn’t sound like a lot, but it’s pretty substantial for this system. The part that concerns me most isn’t the amount of loss, but rather how consistent it’s been throughout the latter half of this month. We can see things beginning to turn around during the last few days, but we aren’t interested in making the assumption that this trend will continue. As such, we are making the call to replace this system.
I want to note here that this system is designed to be cherry-picked. When reviewing our biggest losers, most are obvious fake-outs. But saying “our system is profitable in the hands of an experienced trader” isn’t a satisfactory review. I’ll be frank: I won’t be happy with it until it’s consistently profitable even if you’re following it blind.
I’d like to use the algorithm section of our weekly report to elaborate on what’s going to be changing, and what’s going to stay the same. First off, the general format of the bot will remain identical. Trade notifications will be sent out during the day, on 5 minute candles. Each notification will still include expected hold time, stop loss, exit, beta, etc. We will continue doing daily reviews of our best/worst trades, as well as weekly reviews where we go over stats and what’s in the works behind the scenes.
Now for what’s changing:
This new system will incorporate re-entries into its trades. Typically, we’ve only seen 1 or 2 trades per ticker per day with our current system. With the new one, entering a position opens the door to re-enter if technical indicators look appealing again later. These re-entries are also based on quantitative research and analysis, but once we enter one position with a ticker, the system will have a higher propensity to take more positions with it that same day.
We expect to see shorter hold times on trades coming from the new system. We’re going from an average hold time of about an hour, to about half an hour. That’s a reduction, but when we consider that we’ll also be using re-entries, tickers will still be the subject of interest for a substantial amount of time.
We are discontinuing overnight positions.
Stop losses will no longer be constant, and in fact will move over time as we hold positions. We can’t send out notifications every time we change a stop loss (it would be far too many), but notifications will still come out when a trade gets stopped out. If you want to follow any of our trades, but can’t watch the channel, using the Tenkan-Sen conversion line as your moving stop loss will get you pretty close to what we’re doing.
While target exit prices will still be sent out, the bot will only exit a trade when it hits its stop price. The model we’re using for the new system doesn’t actually incorporate target exits - the moving stop loss is its sole condition to exit a trade. We are choosing to include target exit prices to keep the bot user-friendly. We understand that a lot of people who want to use it can’t constantly check the chat to see when to exit trades. Even if the exit prices aren’t hard rules anymore, we’re choosing to include them more as general guidelines. Less, “exit the trade if it hits this price”, more “if the stock hits this level, it might be time to consider taking profits”.
This new system requires some updates to be made to our bot’s engine, so we won’t be able to make these changes right away. We’re going to test the updated bot in a private server, to make sure it’s working as intended. We expect these tests to last no more than a couple of days, so if all goes as planned, we’ll be rolling out the new bot in the middle-late part of this week.
I want to give a big shoutout to Fred - one of our traders. He worked closely with me on developing this new system, and his expertise as a trader has been invaluable. If you attended his recent class on Ichimoku Cloud strategies, a lot of signals from this new system will look pretty familiar to you!
In the meantime, we will be publicly running our current day trade bot. As always, this is not financial advice. We would never advise you take a trade without doing your own due diligence and reaching your own conclusions.
Now then, let’s look at our biggest winners and losers this month.
The best trade we made this month was this long on MPWR. We got in just before close on the 21st, and hit our target exit immediately upon open, for a return of 2.87%. I’ll note here that our analysis assumes the ability to get out at exactly your stop loss or target exit price, when that isn’t necessarily the case - especially with overnight positions. If you’d gotten out at exactly the open price, you would have in fact made 4.52% - a massive return! As happy as I am to see this, we kind of got lucky here.
The best trade of the month that didn’t involve any overnight holdings was this one on ALB. We went long at $122.76, and exited when technicals stopped looking good, at $125.37, for a cool 2.13% return. Going into it, this trade looks great. The lagging line is right where we want to see it, the cross isn’t perfect, but it’s very strong, and there’s good momentum going into the trade. If you’re using the Tenkan-Sen as a stop loss, you would have been stopped out a bit early, but still made out with plenty of profit. This does follow a rather volatile opening stretch, however. There are a few red flags about taking this trade, but at the same time, there were a lot of signs for this one’s success.
Our best short of the month as on ENPH, for a return of 1.91%. This one was held overnight, and closed out near the open, but not due to a major gap in either direction. I’m content with this one largely because the movement before and after the overnight holding was extremely consistent. Going into the trade, this one looks very solid. There’s momentum before entry, the lagging line is below price action, and the cross is pretty strong. All in all, this trade is really the gold standard. It would have been very hard to lose money on this one.
Let’s finish with a bang: our worst trade of the month. This was a long position on ALB, that lost us 4.56%. On paper, this trade looks perfectly acceptable. There’s certainly momentum and the lagging line looks great. The cross isn’t ideal (the lines are stuck together beforehand), but the diversion is very strong. That said, there are 2 reasons here that I think a human trader would have refused this trade.
The opening is extremely volatile. Normally this isn’t a red flag, but the stock had a price range of almost 10% during the opening 30 minutes. That’s a pretty insane level of volatility to see, and it’s going to throw off any technical analysis strategy.
This trade was immediately after ALB’s earnings report. Our system didn’t have a filter for that, but it’s something a human trader would consider, and a pretty major red flag.
This is really emblematic of what I was saying earlier with the cherry-picking approach. Even though the algorithm saw negative returns overall, most of its biggest losers have red flags that are clear to a human trader, even if they fly under the radar of the machine. We’re optimistic that our new system will be better at catching these, before they hit the chat.
Now then, let’s discuss our long term portfolio.
This week, our portfolio finished more or less in the black with SPY, profiting 0.923% to SPY’s 0.895%. As with the last few weeks, we’ve been carried pretty hard by tech, but so has the market overall.
Looking at our allocations this week, that’s not going to be changing. Tech remains our biggest allocation by more than 20%. Our betas are similar to SPY’s, with more emphasis on tech and consumer discretionary. Lastly, here are our holdings for this coming week. For the sake of brevity, only tickers with an allocation of at least 0.5% are included.
That’s all I have for you tonight. Thank you for reading - and happy trading!
