This was one of those weeks where trading seems pretty damn easy. Here were my thoughts on the week from Friday morning:
All green again today in the #QGFund. If you aren’t making money this week, you should just quit.
— Andrew Selby (@DontTalkStocks) August 29, 2014
…and if you are making money this week, don’t think it’s because you’re special. — Andrew Selby (@DontTalkStocks) August 29, 2014
While there was certainly an element of smart-ass in those tweets, there was also a lot of truth. On a week where the majority of growth stocks rocket higher and higher, if your strategy isn’t performing as well as the rest of the market, maybe it isn’t a good strategy. At the same time, the fact that you are making money in a huge bull market does not mean that you are special. Everyone was making money this week.
This line of thinking makes me wonder what it was like to traders back in the late 90s, where these types of weeks happened over and over again for years. The people who saw that it was a bubble and sat on the sidelines missed out on years of huge profits. At the same time, the people who thought that the easy money would never end didn’t know what to do when that easy money suddenly tanked on them.
My entire approach to trading is attempting to identify and walk that fine line between those two extremes. I know that the current bull market is being fueled by a ridiculous level of government spending that simply cannot be sustained. I know that a fantastic crash is inevitable, but I’m not going to miss out on the easy money while I wait for that crash!
The goal of trend following is to identify trends and capture the middle portions of them. We are clearly in an uptrend. It is certainly going to end at some point. My job is to capture as much of the current trend as possible, while at the same time protecting myself from the inevitable downside that is coming sooner or later.
This weekend, the DTAYS Quantitative Growth Fund has a value of $111,692.10, which represents a positive return of 11.69% on the year. That means the fund has now jumped ahead of the S&P 500, which has returned 9.36% so far in 2014.
Of course, we have also been tracking the performance of the QG Fund since I made some key changes at the end of March. Starting at the beginning of the second quarter, the QG Fund is up 17.88% compared to the S&P 500, which is only up 7.00% during that time.
What is even more interesting is that the QG Fund is still suffering from holding many of the half size positions that it established before I switched from 20 holdings down to only 10. Many of those half positions have become my biggest winners of the year, and the fund might be performing even better if they had been full positions.
Here is what each of the individual holdings look like this weekend:
As you can see, the big winners like THRM and CAR are really starting to pile on with respective profits of 72.53% and 46.73%. This speaks to the power of the trend following nature of the QG Fund. While backtesting proved that I was hurting performance by cutting losses too short, it is pretty obvious at this point that letting those big winners run is working pretty well.
Entries & Exits
There were no exit signals to worry about this week. In fact, nothing even came close. It was just one of those weeks where everything went right.
Because the fund is currently holding 9.5 positions, I don’t have room to take on another full positions. That means that I will just sit tight and see what happens in the coming week. However, if I was looking to add a new position, here is what a scan of this weekend’s IBD 50 for new 20-week highs returns:
Once again, we see that quite a few of IBD’s top 50 stocks are at new 20-week highs. After filtering out stocks with low 20-week ROC or high Historical volatility, we are left with SLCA, AKRX, GILD, SWKS, AVGO, CELG, and TMH. If we were looking for a new addition to the QG Fund, it would be AVGO, because the fund already owns the first four stocks.
As I say every week, I have no idea what to expect in the week to come. My job is simply to follow the rules of my system and make sure that I execute my daily routine in order to make sure that I follow those rules. Everything else will take care of itself.
Photo Credit: Phillip Taylor