SPB, STZ: Two More Stocks Making New Highs

Here are the two stocks that my scans found this weekend:

The stock above is making a new all time high after breaking out of a congestion zone.   Notice, also, how the stock twice found support on the huge gap up.


I mentioned the above stock last week, but I mention it again because it is continuing to show strong price action.

I won't be buying any of these stocks next week, since according to my rules, I've maxed out the amount of risk I can have in my account.   The only thing left for me to do now is wait and react to what happens next.

High Potential Stocks of the Week

Here are the two best stocks my scans found this weekend:


This stock is hitting a new all time high on tremendous volume.   It may be difficult, psychologically, to buy a stock after already rising 44% for the week, but in my experience, what feels wrong is often the right thing to do.


This stock is also making a new all time high after a nice gap up through a consolidation zone.

That's all I have to say this week, but here are some trend following related resources that I enjoyed recently:

Stocks at New All Time Highs

Here are a few stocks that my scans found this week:

This stock is exhibiting the exact characteristics I am looking for in a stock: a strong uptrend, a lengthy consolidation period within that uptrend, and a breakout to a new (all time) high on heavy volume.


This stock is also at a new all time high.   In my view, once a stock makes a new all time high, the odds are it will make another all time high.


I mentioned last week that the ETF VXX was doing a very poor job at following the actual VIX index.   Well, I found this Ultra ETF that is doing even worse.  The ETF above, which disintergrated by 96% in 2012, is making yet another all time low.

High Potential ETFs

I added a new position today:  ITB, an ETF that tracks the homebuilding sector:

The ETF above is making a new multi-year high and is, by any definition, in an uptrend.   Another ETF that is similar, but appears slightly weaker is XHB. 

Second, shorting the ETF VXX is also a good bet, in my view:

Because ETFs such as VXX tend to erode in value over time, you can benefit from this by simply shorting them.   The red area above shows that the ETF has done a poor job at tracking the actual VIX index (which can be found on Stockcharts.com by typing in $VIX).

Lastly, note that whenever VXX formed an island top, much lower prices followed.   

2012 Performance Review

Now that 2012 has come and gone, it's time to review how things went for the year.  I feel that it is important to record all trades taken so that one's performance can be objectively assessed on a monthly or yearly basis.

I calculate earning 14% for the year, including dividends (which is slightly worse than just simply buying and holding the S&P 500.)  There are other metrics you can use to assess your own trading besides this, however.

One such metric to assess performance is win rate.   I placed 31 trades for the year, of which 17 were winners, giving me a win rate of about 55%.

Another (and in my opinion more important) metric is win/loss ratio.  This is where you take your average winner and divide it by your average loser.   For me, this number was 1.28 for the year.

With these two metrics, you can plug in your performance into what trend follower trader Nick Radge calls a break-even curve:

In the above chart, I have drawn a red oval indicating where my 2012 trading performance stands.  In addition, what this charts demonstrates, is that, for example:

  • You can be 80% accurate and be a consistently losing trader
  • You can be 20% accurate and be a consistently winning trader

In other words, as Nick Radge himself says, "the amount you win when you win versus the amount you lose when you lose is more important than trying to be right."

As a practical example, I could easily create a trading system that would be at least 95% accurate.  All you'd have to do is buy stocks and place a limit order 10 cents above your entry price.   In almost every case, your limit order would get picked off and you would be generating small profits left and right.  The odd time, however, your limit won't get hit, as the stock tanks, leading to an enormous loss. 

Option sellers are another example.  You could sell deep, out of the money options and collect a premium every month.  Strategies such as these generally earn 1% per month, with a very high win rate - until something unexpected (like the credit crises) comes along and wipes out years of profits. 

Conversely, the Forex trading system that I am experimenting with is only expected to be profitable 25% of the time.  The reason for this is that my stops are very tight, so I generate small losses often.  On occasion, however, the price gets away on me, resulting in a win that can cover the cost of many small losses. 

Here is a quote from The New Market Wizards interview of William Eckhardt that to me seemed profound at the time, but am only now fully starting to understand:

The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance.