Swing Trading Performance – Key Takeaways
One thing I always do when swing trading is keep track of what is performing best in the current market. Its critical to review your trades to correct mistakes. Its also important to keep track of which strategies have the best performance in the current market conditions.
The annual May performance chart update was just completed for the 3 Stocks to Wealth strategy. It continues its incredible run since inception in April 2012. Click the chart for more details. This strategy outperforms the swing trading performance of other strategies and top investment newsletters that I have found online.
A couple key takeaways found after looking at the performance in detail are a greater focus on large cap stocks through the latest drawdown and industries that are more shielded from political uncertainty.
I remember hearing an argument late last year from a top analyst that software and cloud stocks were over-valued and ready to roll over. This did not make sense to me, at the time, for a couple of reasons:
- Tariff uncertainty was likely to continue whether a deal was reached with China or not. China was likely to break any deal and there would likely be a response from the administration. Also, I understood the argument early that the trade conflict was about more than just tariffs and fair trade.
- Economic growth in the US was still strong and money had fewer places to go to get good returns. Software stocks were likely to continue to perform well and be one of the few places to go to avoid headline risks while still capturing that growth.
However, the most important factors to us using our strategies are rising estimates, relative strength of the industry and the long-term trend in the stock. All of these factors were still positive for many of the top software stocks. On top of that, earnings and sales growth were still strong and accelerating in some cases.
So we focused more on this area of the market which helped. Its also why we had so many big winners this year in the Tradetobefree alert service including TTD, NOW, PAYC and others.
Another reason why the performance has been so good is that we saw the weak performance of many of the small cap stocks and were focusing more on larger cap companies. This makes sense if we are later in the economic cycle as larger companies have certain advantages over smaller companies in this environment while small caps were carrying a hefty valuation.
This also allowed us to greatly outperform the drawdown vs other corrections over the past 7 years. Generally, we see about twice the drawdown versus the S&P 500 while this time we had only slightly more than the S&P 500 and actually had less drawdown than the Nasdaq on a weekly basis which was a pleasant surprise.
The strategy focuses on stocks and industries with rising estimates and that are beating those estimates consistently. It also focuses on those that have no significant bearish technical factors. This has worked for quite a long time for us.
The investtobefree.com 3 Stocks to Wealth strategy is a stalwart in our own trading portfolio. However, we also trade top technical trading opportunities where we use technical analysis to more precisely time our entries and exits. These swing trading strategies are taught on tradetobefree.com.
Meanwhile, the strategy taught on investtobefree.com is more of a “portfolio approach” to swing trading. It takes only 15 minutes per week when you let us do all the work for you in finding the top 3 stocks to hold for the following week.
One of the few disadvantages to technical swing trading, as I see it, is that you are often in cash waiting for an ideal technical setup when sudden positive news is released. It may be from the Fed, trade deals, a great economic or inflation number, etc…
When this occurs, the market often gaps higher and may rally strongly from there. Using technical swing trading techniques you often miss a good portion of this move. This is one of the big advantages of the 3 Stocks to Wealth strategy where you are always in the 3 top stocks in the market in terms of their quantitative and technical factors.
However, the very best technical strategies on the best stocks over $20 can outperform this strategy. We like to focus on just the best stocks in the best performing technical swing trading patterns. This may be a hot IPO, a small to large cap tech stock or just an undervalued UPOD stock in a superior long-term uptrend.
Over the past year we have been discussing how the high, tight flag pattern is the leading technical setup. And we continue to see that.
Just last week, we took a nice profit on SWAV in a high tight flag and watched BYND break out and hit the first 7% to 10% target within 24 hours. We did not jump in at the entry point because of the absurd valuation on BYND but once again enormous technical strength trumped the fundamentals on stocks over $20.
Keep in mind that both of these trades worked despite the overall market dropping 2.5%. A sizeable down week given it was only 4 trading days.
Now BYND is not likely to end well but for a short-term swing trade it was good. This technical pattern has the highest win rate and average profit per day based on our research when trading the ones that meet all the requirements in our high tight flag strategy at the breakout point and using the entry/exit strategy taught in our course. Recent IPOs have a little lower win rate, however.
It will be more difficult to do well on these by just using our free videos and other free content online. The high tight flag course delivers a great strategy that has had great performance in the current market.
The ones that do not meet the requirements in the course at the point of entry are decent but with a much lower win rate. If you do not have a good entry and exit strategy beforehand with the right stop-loss, its likely not to go nearly as well. Or just cause traders to give up during a period of drawdown.
Meanwhile, large symmetrical triangle patterns on top stocks continue to do well when you can find them. Earlier this year we featured SCWX in our alert service in a symmetrical triangle before it soared 40% within a couple weeks. Last week we saw EHTH, featured in the Weekly Alert the week prior, soar 11% after reaching the entry point last Thursday despite the market dropping about 4% since then.
Stay tuned. With the market starting to become oversold, we will likely see many great opportunities in the weeks ahead. EHTH may just be the beginning of quite a few big winners.