The Weekend Trend Trading System

trend kompass

trend trading systemAfter my discussion with Nick Radge for Episode 9 of the Don’t Talk About Your Stocks Podcast, I began to actually form some sort of idea about what kind of trading would fit well with my situation.

Because I don’t have an extra couple hundred thousand dollars laying around (and likely won’t for quite some time), trading futures would almost certainly end in blowing up my account. However, this doesn’t mean that I won’t be able to apply systematic approaches. I can trade systems that were designed for equities markets. I think Nick made a lot of interesting points when he discussed why he chooses to trade equities over futures, but for me it is purely a financial issue.

The system that Nick describes in his book, Weekend Trend Trader, is basically a 20 week breakout system. He recommends using the Russell 2000 as a stock universe, but loading the entire index into TradeStation proved rather difficult. Since the S&P indexes were already built-in, I decided to use the S&P 500 and the S&P Midcap 400. I believe that the S&P Midcap 400 will be more suited to a growth strategy, but thought it might be interesting to see how many breakouts come from the S&P 500 as well.

One interesting idea that I came up with while setting up this system was to try trading it using the IBD 50 as a stock universe. Obviously, 50 stocks is far smaller than the 2000 that Nick recommends, but there will be significantly more stocks to choose from because the IBD 50 is constantly changing. This presented me with an interesting systematic way to trade IBD stocks that are already screened for growth potential. This could present alternative entry points for CANSLIM stocks……or I could be an idiot.

I started two portfolios on November 10, 2013. Here is how the first week went:

The Weekend S&P Index System

The Weekend S&P Index System signaled only four entries last weekend. This led me to believe that the system might not be able to generate enough opportunities from such a small universe. That would be proven wrong scanning for week two.

The system was luck to establish a position in DDD right as it began blowing up on Monday. After that, the rest of the week was a very enjoyable experience. The system also scored a big profit in ENDP, as well as smaller profits in ANR and X. Four for four on the first week was pretty encouraging, but of course this is a very small sample size.

Here is what the portfolio looked like at the end of that first week:

trend trading system

After enjoying the success of the past week, I began to scan for new entry signals to add to our portfolio for Monday morning. I was shocked to find that there were 8 signals on the S&P Midcap 400 and another 6 signals on the S&P 500. These signals included three stocks that are already held, so that meant 6 new signals on the Midcap 400 and 5 on the 500.

The new entry signals on the S&P Midcap 400 are: SLXP, GPN, DECK, TRN, JBLU, and SUNE.

The new entry signals on the S&P 500 are: FSLR, PBI, DAL, CMG, and LUV.

Normally, we would have to be selective about these positions and rank them by their Rate of Change over the past 20 weeks. Since we are just starting this portfolio, we have room for all of these new positions, so I put in orders that equate to a 5% of trading capital in each stock to be executed at the market Monday morning.

The Weekend IBD 50 System

It’s been no secret from the beginning of this blog that I am a huge fan of the work that Investor’s Business Daily does. I believe that their combination of fundamentals and technicals is a great approach. My only struggle with the CANSLIM system was with the discretionary aspects of the actual trading. Therefore, combining Nick Radge’s simple weekend breakout system with an IBD 50 stock universe really interests me. I can be sure I am trading fundamentally sound growth stocks, but with a mechanical entry and exit strategy.

The first week that I plugged in the 50 stocks that IBD put on their list, I came away with three stocks that were at new 20 week highs with an ROC of at least 30 for the past 20 weeks. Here’s what that portfolio looked like at the end of the first week:

trend trading system

As you can see, the Weekend IBD 50 System got a big boost from DDD as well. Its other positions also did well with good returns from RGR and SSYS,

When I plugged in the IBD 50 this weekend, there were 16 stocks that qualified as entry signals. Two of them, DDD and SSYS, were already held. I also ran into issues with PCLN and MA. They were both too expensive to be kept under 5% of my total capital, so I excluded them.

This left me with 12 new entry signals: NOAH, AKRX, JAZZ, LL, WX, WDR, CMG, URI, SLXP, OPEN, KORS, and ACT.

As you can see, this is a pretty solid list of CANSLIM stocks that all meet the system entry point. Many of the Market Wizards pointed out that entry and exit signals are far less important than cutting losses, letting profits run, and managing position size and risk. The structure of this system will take care of most of those things. My only concern is that the risk could be concentrated a bit (too many 3D printing or airline stocks right now). However, that is something we can improve on if the system continues to look promising.

Even if neither of these systems amounts to anything, I think they represent a huge step forward from the simple systems I was following before my Google Finance portfolios disappeared.