I’m going to make a confession.
I always tell my kids to keep an open mind. I say there’s nothing to gain by closing yourself off to new ideas…flexible thinking can take you a long way.
But sometimes I struggle to hold true to my own words.
You see, I can also be a sceptic. There are times when I just won’t listen. I’ll make an on-the-spot assessment and move on without a second thought.
Any ideas when that might be?
Well, it’s to do with the financial industry. I’m often sceptical when I hear claims of astonishing success. The type of success that could turn you into an overnight millionaire.
I recently saw a claim that made my eyes roll back. It was truly extraordinary. The promoter was saying that 50,000 of his clients had seen their investments increase 10-fold.
Now, I can’t say this isn’t true. But I do know that trading isn’t an easy business. The idea that tens of thousands of people are making 1,000% gains is simply beyond belief.
My financial markets career began back in 1991. I’ve sat alongside some of the best traders in the business. These are smart and highly successful people.
And do you know what? 10-fold gains are a rarity. Yes, they can, and do, happen. But they’re not the easy pickings that some people would have you believe.
Sure, be open to new ideas. But be wary of seemingly outrageous claims.
I’m by no means unique. You’ve probably seen your share of the implausible. It’s little wonder that many people have a critical eye when it comes to the financial industry.
Transparency is an important element of Quant Trader. You’ll find a complete history of every signal on the website. This includes open and closed trades — nothing falls through the cracks.
But some people still wonder if there’s a catch. And do you know what? I don’t blame them. Good results deserve scrutiny. That’s how you test they’re the real thing.
Have a read of the email below. It’s from a new member of Quant Trader…
‘Thanks for the opportunity to provide some feedback on my experience so far. Two weeks in and I’m watching it like a hawk. I’ll exercise the money back option if it doesn’t work.
‘The readings say that Quant Trader doesn’t pick bottoms or tops but aims to jump on and ride mid-trend. But I am seeing quite a lot of signals that indicate to me the mid trend has being missed; and the signals are kicking in where things look a bit extreme. I am also leery of the signals that get triggered by a sudden price gap.
‘Apologies if I have the wrong end of the stick on all this. Perhaps I am looking at these charts with “non Quant” eyeballs. Mostly what I am seeing with my eyeballs is trends already done and trade signals that don’t make too much sense.
‘I would appreciate some comments on this please and at the midpoint of my 30-day trial, I would like to see if there is anything you can tell me which would make me a good deal less sceptical about this system.’
This is a smart approach. Christine isn’t accepting Quant Trader at face value. She’s critically assessing the strategy to see how it measures up.
Christine also sent me an analysis of 17 recent signals. This provides an overview of each situation. She then goes on to ask about the logic behind the entries.
Here’s an example:
‘Sigma Pharmaceuticals [ASX:SIP] has been trending up since the February 2016 low. It is at a high not seen since 2005 and the buy signal kicks in at the high ($1.405) which it only reached after September price gap?
‘Did the signal pick up and ride any of the February to May uptrend before I was a customer?
‘What I am really wondering is why are we getting a buy signal right at this somewhat perilous looking top? (I am in this trade, so I am hoping I am wrong and the system is way smarter than me).’
OK, so let’s start with the chart…
Click to enlarge
This shows SIP’s price action from 2015. The stock was one to avoid for much of last year. But, as Christine notes, the shares have been climbing steadily higher since February.
Quant Trader’s first buy signal was on 9 May 2016 at $1.15. There was a second entry at $1.41 on 9 September (this is when Christine buys. I also own shares in SIP.) The current price is $1.46.
What do you think when you look at this chart?
Many people will see trouble ahead. They’ll say the run higher is ending and that buying now is too risky. Christine calls it a ‘perilous looking top.’
And I can understand why. People often cite the phrase ‘buy low, sell high’. They believe this means you need to buy a stock near its low. SIP simply doesn’t fit this description.
But here’s the thing. Strength is not a sign of impending weakness. Yes, it could peak tomorrow. But the odds favour a trend will continue…and some continue for a very long time.
Let me show you another chart.
Click to enlarge
Compare this graph to the chart for SIP. You’ll notice a similar overall pattern. Both stocks trade sideways for months, before beginning a strong upward push.
Now, let me ask you again: What do you think when you look at this chart?
I’ll tell you what I see: A strong uptrend.
You may remember this stock. It was in the Quant Trader portfolio until recently. Its name is Vita Group [ASX:VTG]. There were three buy signals…the last buy was at this chart’s high.
Here’s what came next…
Click to enlarge
You can see Quant Trader’s final signal on the chart. VTG’s upward trend had a lot further to go. The strong share price was an invitation to buy…not a warning to steer clear.
Did Quant Trader get in at the low? No. It simply wasn’t necessary. The system identifies trends with the potential to run further. The outcome of this seemingly late entry was a 117% gain.
Now, this isn’t to say SIP will do the same. Some trends falter early and lead to a loss. Others will produce a smaller gain, and a few will do even better.
But the point is this: Strength is a positive. It indicates buyers are paying up to own the stock. Buying into this momentum can put the odds in your favour. That’s what trend following is all about.
I always suggest spreading your risk. This limits the negative impact of any single loss. It also increases your chances of getting several stocks like VTG.
Why not get in earlier?
Christine raises a good point. She asks why some buy signals don’t occur sooner. It’s clear that a number of trends are already well in place prior to the signal.
Let me explain why this happens…
Quant Trader’s portfolio has a limit of 100 companies. This helps keep the number of stocks to a manageable level. There’ll be no signal 1s when the portfolio reaches the limit.
But this doesn’t mean the market stops providing opportunities. There’ll still be stocks that meet the buy criteria. However, the portfolio may not have room for them.
Now, this doesn’t exclude a stock forever. It just rules it out at that particular time. The same stock may trigger another signal when the portfolio isn’t full. But the entry level will likely be different.
Let me show you an example…
Here’s a chart for Bellamy’s Australia [ASX:BAL] — one of Quant Trader’s closed trades. The first of three buy signals was at $5.89 on 28 August 2015.
This was a good trade. Quant Trader identifies the rising share price. It then stays with the trend for five months. The end result is a gain of 74%.
But here’s the thing. It didn’t all hinge on one particular entry date. There were many possible entry points along the way — before and after Quant Trader’s initial entry.
So why didn’t Quant Trader give an earlier signal?
Well, it’s simple. The portfolio was full when BAL initially met the criteria. There was no signal because the portfolio was at the 100-company limit.
Here’s an analogy: Think about a busy airport. It isn’t possible for every approaching plane to arrive at once. Many will have to wait in a holding pattern until a slot becomes available.
Quant Trader’s portfolio is similar. There can be many stocks waiting to enter the portfolio. But some will have to keep ‘flying’ until there’s room to accept them.
Scrutinising performance is a good thing. I encourage you to do this with any advisor or manager you consider. Asking the right questions will also boost your understanding.
Until next week,
Editor, Quant Trader
Editor’s note: Do you avoid stocks after they’ve run higher? Many people do. They figure the shares must be due for a fall. But this often isn’t true. Counter to what many people think, buying into strength can be a highly profitable strategy.
Quant Trader specialises in finding stocks that are on the rise. The system’s algorithms are constantly scanning the market for opportunities. It then gives you a buy signal, and calculates a unique exit stop.
And right now, you can get instant access to Quant Trader with a 30-day, money-back guarantee.
Try it. See if it makes sense to you. It could change the way you trade forever.
PS: Quant Trader sources all images unless otherwise stated.
Two other stories in Money Morning this week…
The unthinkable might happen. Well, it’s not really unthinkable anymore. In fact, it’s almost a done deal. And if Donald Trump does win the US election in a few days’ time, what’s going to happen to…everything? On Thursday, Kris wrote about the best ‘Trump Trade’. In short, buy gold. If Trump wins, it could be the best investment you’ll ever make.
The ‘Lazarus’ effect is often given to those who ‘rise’ from the dead. In reality, it’s those who cheat death. As we all know, once you’re dead, you’re dead. The Lazarus Project, which Jason wrote about on Monday, is an opportunity that most investors have given up for dead. However, as Jason says, ‘I have no doubt that The Lazarus Project represents the best chance you’ll have to double every dollar you invest this year…at least.’ Jason has already shown how this project works in relation to one particular stock, which ‘rose from the dead’ and doubled investors’ money in record time.