You Could Beat the Market With the Help of Quant Trader

Some people love them, others loathe them. I even have a habit of forgetting them.

Do you know what I’m referring to?

Well, let me tell you: it’s birthdays.

Everyone has their own take on them. For instance, my 11-year-old had a countdown on the fridge door for two months. Nothing beats youthful anticipation.

I’m a bit more blasé…

While I don’t dread birthdays, they aren’t top of mind. I remember my wife asking the kids what special event was happening next week. I had to pause to think — it was my birthday!

Yes, birthdays can bring on a range of emotions. But one thing is for certain: they are one of life’s great milestones — a chance to both reflect and celebrate.

Quant Trader had its own ‘birthday’ recently. The service has now hit the four-year mark.

That’s right, live signals began back on 14 November 2014.

Today we’ll look back at the first four years. You’re going to see the highlights, and the lowlights. I also have a few charts to help bring it all to life.

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Trading in current conditions is tough

Looking back, I’d say Quant Trader’s start date was just right. Not because a roaring bull market was beginning. But because conditions were some of the hardest in a decade.

You see, anyone can make money when prices are steadily rising. Trading often seems effortless. People begin to believe trading is an easy way to make money.

But it’s rarely that simple…

The easy pickings of a bull market never last. Successful traders also need to navigate the tough times. This is when you see who really knows their stuff.

Quant Trader has certainly been put to the test. The last year has been especially challenging, with the market experiencing sharp falls in February and October.

Check this out:


MoneyMorning 30-11-18

Source: BigCharts

[Click to open in a new window]

This is the All Ordinaries since Quant Trader began live signals. There hasn’t been many bright spots — the index is only ahead by 9%, or just 2.2% per annum.

Choppy and volatile markets are typically hard to trade. They lack the consistency of a big, sweeping upward trend. This often leads to more trades and small profits.

Many people struggle in these conditions — even the professionals. I know several traders who’ve been retrenched in recent months. Career changes are common during these periods.

How has Quant trader been performing?

So how has Quant Trader been doing?

Let’s start with a chart:


MoneyMorning 30-11-18

[Click to open in a new window]

This shows the performance of every long trade since going live. It assumes placing $1,000 on each signal, and it doesn’t account for costs or dividends.

I’m only going to discuss long trades today. I’ll cover shorts separately next week.

Since peaking in October, Quant Trader’s hypothetical profits have been pulling back. This is largely in-line with the correction in the broader market.

The industry term for this is a ‘drawdown’. This is an unavoidable part of trading where you give back a portion of profits — nothing moves endlessly higher in a straight line.

The sell-off has seen four big trades come to an end:

  • Treasury Wine Estates Ltd [ASX:SGF] up 70.2%
  • Alumina Ltd [ASX:AWC] up 59.1%
  • Pinnacle Investment Management Group Ltd [ASX:PNI] up 188%, and
  • Nine Entertainment Co Holdings Ltd [ASX:SIQ] up 69.4%

Quant Trader rarely exits at the high — that’s not how the system’s trailing stops work. This means the strategy will always surrender some profit when a stock turns lower.

While I know this frustrates some people, it’s the act of letting a profit run that makes gains like these possible. Traders who take small profits rarely make big returns.

Now, here’s how all the signals have been going:


MoneyMorning 30-11-18

[Click to open in a new window]

This covers Quant Trader’s first four years — 14 November 2014 to 13 November 2018. It includes all open and closed trades to give you the full picture.

Quant Trader’s strategy is to identify stocks that are rising. It’s then a case of maximising profits by running winners, and using a stop loss to minimise losses.

On average, Quant Trader is making $1.82 for every dollar it loses. This is less than the system’s historical back-testing. But, it’s still a solid profit margin in a tricky market.

OK, let’s put some names to the data.

Here are Quant Trader’s top 30 long trades:


MoneyMorning 30-11-18

[Click to open in a new window]

You can learn a lot about the strategy from this table.

Have a look at the profit column. Start at the bottom and move upwards.

You’ll notice the numbers increase smoothly as you go up the list. This is the sort of distribution I look for in a system. It tells me the strategy doesn’t rely on one lucky trade.

This type of result is typical of a trend-following strategy. The bulk of the profits come from the top quarter of trades. This enables the system to perform well with a win rate of around 50%.

Quant Trader’s strategy is to have many relatively small trades, not a few big ones. This is a natural risk limiter, which helps lessen the impact of unsuccessful trades.

A mistake many traders make is to bet big, in the hope of winning big.

But this approach often ends in disaster.

You see, no matter how good your entry process is, losing trades are inevitable. It’s your strategy for managing losses that largely determines your success or failure.

Here are Quant Trader’s 30 least successful trades:


MoneyMorning 30-11-18

[Click to open in a new window]

You can see the same orderly movement in the percentages.

The outlier in the table is Sirtex Medical Ltd [ASX:SRX]. The large loss was due to the shares gapping lower on negative news. Such extreme cases are generally few and far between.

You’ll also notice that the losses are mostly smaller than the profits (in previous table). This is consistent with back-testing, and essential for any successful system.

The group’s average loss is 37.5%. By comparison, the top profitable trades show a 165% gain. This is what’s possible when you run profits and cut losses.

Quant trader is out-performing

There’s one more chart I want to show you. This puts the last four years into perspective. It matches Quant Trader’s performances to the broader market.

Take a look at this:


MoneyMorning 30-11-18

[Click to open in a new window]

This graph converts performance into percentage terms. The blue line represents Quant Trader’s long portfolio, and the red line tracks the All Ordinaries.

The missing element over the past four years has been a consistent rising trend. While the system would benefit from a healthy market, it’s still out-performing.

Quant Trader’s results are largely due to buying into strength. This automatically excludes stocks that are falling from entering the portfolio. And this makes a big difference.

You see, Quant Trader is cherry picking. The aim is to only buy strong stocks, while avoiding (or shorting) the ones that are pulling the market lower.

It’s a case of buying what’s rising, and sidestepping what’s not.

This isn’t to say every signal will be a winner — a strong stock could reverse course. But it means you’re trading with the trend. In my experience, this shifts the odds in your favour.

Quant Trader has had a positive impact on many members. Whether it’s been from following the signals or improving their trading skills, it’s rewarding to hear their stories.

But I also know that some members haven’t done as well. It’s always disappointing to read that someone hasn’t been making money.

Trading is an uncertain pursuit. A good system could improve your chances of success. But there’ll still be times, like now, when trading is difficult — no matter what your approach.

I talk a lot about spreading risk. This does two things: it improves your chances of buying some of the best stocks, and it reduces the likelihood that a few bad trades ruin your year.

The final point I’ll make is about time. Quant Trader is a medium-term system that aims to profit from large share price moves. These usually take months, if not years.

Try not to worry when your portfolio slips backwards. There’ll always be periods when prices go sideways, or fall. This is an unavoidable reality of the game.

The past four years show that it is possible to outperform the market. The key is to stick to your strategy. Patience and persistence could take you a long way.

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Until next week,

Jason McIntosh,
Editor, Quant Trader


Jason McIntosh is a professional quantitative analyst. Before he graduated in 1991 he joined Bankers Trust — a Wall Street investment bank — to be a trader. After Bankers Trust was taken over in 1999, Jason, already financially independent, co-founded a stock market advisory and funds management business called Fat Prophets. At 37 he sold his part of that business and retired. These days, he’s a private trader and system developer. In 2014 he launched the wildly successful trading service: Quant Trader.


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