Every since I received the positive backtesting results from Cesar Alvarez for the DTAYS Quantitative Growth Fund, I have been itching to scrap the beta testing phase an get some real money on the line. If the backtesting results show that the system has an edge, why should I waste my time with paper trading, right?
The answer to that is that I need to settle my excitement and stick to the plan. While I do have proof that the system has an edge over the long run, I still don’t have a good understanding of how it could fluctuate on a daily or weekly basis.
As this week demonstrated, it is going to be much easier to gain an understanding about what to expect from those fluctuations while trading with Monopoly money than it would be if my own capital was on the line. Experiencing equity swings like I did this week has taken me by surprise, and surprise is not a feeling I want to be dealing with when my own money is on the line.
For that reason, I need to continue to be cautious and stick to my plan of paper trading until at least the end of the year. At that point, I will have enough experience trading this strategy to determine whether it is a good idea to put real capital at risk.
Overall Fund Performance
This was the most up and down week yet for the QG Fund. It started out the week just barely down for the year. By the end of the day on Tuesday, the fund’s value had grown to a return of more than 2% for the year. That move was short lived though, because the rest of the week was very rough.
The current value of the QG Fund is $99,142.41, which represents a loss of 0.86% for the year. That value is only slightly worse than the Dow Jones Industrial Average, but is falling further behind the growth of the S&P 500 and the Nasdaq Composite.
Here is what each of the fund’s individual holdings looks like this weekend:
Stocks Leaving the Fund
Despite the way that we closed out the week, there was only one stock that flashed a sell signal. After Thursday’s close, NVO had fallen below its 5-ATR stop, so I placed the order to sell it on Friday’s open. However, I accidentally placed a limit order instead of a market order, so the sell order was not filled.
This brain-fart demonstrates another reason that I shouldn’t be risking real money just yet. In order to correct this mistake as authentically as possible, I have re-entered the order to be executed on Monday morning. The small loss that NVO posted on Friday will simply be an “idiot tax” charged to the fund.
Stocks Entering the Fund
The overall market is looking pretty scary right now, so if I was investing on my own opinion, I would probably not be taking on any new positions. However, my opinion has nothing to do with the DTAYS QG Fund. The QG Fund bases entry decisions on a strict set of rules, and since the SPY is still well above its 100-day moving average, we are going to take a look at adding some new positions.
Here is what a scan of this weekend’s IBD 50 returned for stocks at new 20-week highs:
As you can see, there are a total of eight stocks out of the 50 that are sitting at new 20-week highs. Using our ROC requirement, we can eliminate CMG and BWLD off of the list immediately. We can also eliminate UA and THRM because they don’t pass our Historical Volatility screen. That leaves us with MTW, URI, LPLA, and VMW.
Since the QG Fund already holds MTW and URI, we are left with LPLA and VMW as potential additions. Since we have 2 spots open, we can add both of those stocks on Monday morning. Because of my bone-head move in not getting rid of NVO, I will have to wait until the sale goes through on Monday morning before I can place the second buy order.