Most Traders Won’t Think to Look Here…

You just can’t beat this time of year…

Sounds of cicadas, kids, and splashing water fill the air. The mad pre-Christmas rush is now a fading memory. In its place are the long relaxing days of early January.

One of my favourite mid-summer activities is a day at the cricket. I’ve been a regular at the Sydney Test Match since I was a youngster. It’s a tradition I really enjoy.

I still remember my first day at the SCG back in 1982. I was a cricket mad 12-year-old, and Dad was taking me to see Australia take on the mighty West Indies.

Cricket in the early 80s was very different to what it is today — both on and off the field. You see, the ‘Windies’ were the dominant team back then. No other side came close.

Such was their fame, many of the players had nicknames. Leading the team was ‘Supercat’ Clive Lloyd, then there was the ‘Master Blaster’ Viv Richards, and ‘Big Bird’ Joel Garner.

These guys were household names. Even people who didn’t follow cricket knew them.

My Dad and I would watch the game from the Bradman stand. This was an ideal spot to take in all the action. It was also opposite ‘The Hill’ — a big grassy bank below the scoreboard.

Now, The Hill was an interesting place. It catered to a colourful mix of cricketing enthusiasts. Flags, banners, war cries, and plenty of full strength beer made for a lively day out.

I remember Dad pointing to a commotion on The Hill during the lunch break. It was one of the infamous beer can fights. Dozens of empty tinnies flew in all directions.

You couldn’t imagine such a scene today. But it was all part of cricket in the 80s.

Much has changed in 37 years. A modern grandstand now sits on land that was once The Hill. And sadly, the Windies are no longer so mighty. It was a different era.

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Annual reviews are an important part of a trading plan

Cricket isn’t the only thing I’ve been reflecting on these holidays. I’ve also been reviewing Quant Trader’s 2018 results. But unlike the cricket, it’s not just a nostalgic step back in time.

Annual reviews are an important part of my trading plan. They help me focus on how the overall strategy is performing. Key themes often emerge when I slice and dice the data.

Have a look at the table below:

MoneyMorning 25-01-19

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These are Quant Trader’s top 20 long trades for 2018.

I’ve excluded signals from previous years. This means many profitable trades don’t appear. I’m also using the Overflow signals. This gives you the complete picture of what the system identifies.

So tell me, what do you notice about this data?

Well, the obvious point is the overall performance. While none of the signals went on to make a ‘ton’ in 2018, there are plenty of good double digit gains.

For comparison, here’s a chart of the All Ordinaries for the same period:

MoneyMorning 25-01-19

Source: BigCharts

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It’s fair to say that 2018 was a time most traders would rather forget. The All Ordinaries closed the year with a loss of 7.4%. The stocks in the table did quite a bit better.

This isn’t to say that all of Quant Trader’s signals did well. There were of course losses. Hopefully you were able to minimise these by applying the system’s trailing stop.

But performance isn’t the most interesting aspect of the previous table.

So how about the entry dates?

17 of the signals were in the first half of the year. This isn’t surprising. These stocks had longer to perform, so you’d naturally expect them to be amongst the frontrunners.

More interesting are the other three stocks. These came from the volatile second half of the year. It goes to show that opportunity can potentially appear at any time.

So let me tell you the piece of data that interests me most.

More than half the stocks are from outside the ASX 300

Have a look at the last column. It shows which ASX subindex each stock belongs to. Take Bravura Solutions Ltd [ASX:BVS] for instance. It’s part of the ASX 200.

Now, scroll your eyes down the list. Only four stocks are from the ASX 200. This is the subindex many fund managers focus on. And if you prefer big caps, only one ASX 50 stock makes the list.

Here’s a summary of the data.

MoneyMorning 25-01-19

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The numbers are telling: More than half the stocks are from outside the ASX 300.

Quant Trader scans practically every ASX stock. It doesn’t favour any particular segment. The algorithm’s first priority is to identify movement.

Take another look at the top 20. Most of these stocks aren’t household names. Yet they have outperformed many of the larger and more familiar companies.

The ASX has around 2,000 stock listings. And most of these are virtually unknown companies. The first time most traders hear about some of these businesses is after they’ve done well.

And I can understand why…

You see, few traders can analyse every stock on the exchange. Their solution is to narrow their focus to a subset of the market — like the ASX 100, or perhaps the ASX 200.

The downside of this is that it filters a lot of potential top performers. That’s because many of the fastest growing companies are outside the top 200. In fact, many are beyond the All Ordinaries.

2019 is bound to have its share of surprises. We can only guess what sectors will outperform.

But no matter what happens, you’ll have an eye across just about every ASX stock. This could give you a real advantage over most everyday traders.

You also have a complete trading strategy, and I believe that’s the key to long-term success.

Quant Trader will continue to buy what’s working, and sell what’s not. It will be interesting to see this year’s leader board. I suspect we’ll see several new emerging stars.

Until next week,

Jason McIntosh,
Editor, Quant Trader

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Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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