2015 was a tough year for many…
And the early signs suggest 2016 may not be much better.
Last year it was Greece. This year it’s China. A couple of years ago it was the US debt ceiling.
The point is there’s always something. In fact, I can’t remember a time when traders could sit back without a care in the world. It’s just not that sort of job.
They say markets climb a wall of worry. And you know what? They do.
The Dow Jones hit rock bottom at 6,443 in 2009. That was seven years ago. Last year it traded at 18,351 — that’s a gain of 184%.
Do you know the one common theme during this time?
It was the doomsayers. Year in, year out, they said the rally wouldn’t last.
A popular line the pessimists would use was ‘the end game’. It was a reference to the coming implosion of the financial system. Life as we knew it was about to end…or so they’d say.
I remember the same thing happening during the 1990s. A prominent forecaster was predicting the Dow would crash to 100. That’s right, 100!
He had a persuasive case. A lot of people followed his service…and I was one of them.
Yes, the 90s had its share of panics. There were scary headlines, and plenty of reasons to worry.
But the worst of the predictions never happened…they rarely do. Life went on, and the markets continued their centuries climb up the wall of worry.
I learnt an important lesson during this period. It’s something I remind myself of whenever uncertainty strikes.
The lesson is this: don’t let fear stop you from moving forward.
You see, it’s easy to find an excuse to do nothing. I know. I’ve done it myself. I held off buying real estate in the 1990s. I was waiting for a crash that never happened.
Hunkering down may feel safe. But historically it’s a risky strategy…most of the time the world moves on without you. All the opportunities go to those that stay in the game.
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Cream rises to the top
Last week I showed you three losing trades with a good outcome. They may have made a loss, but a disciplined exit strategy avoided a much worse result. That’s how you defend your capital.
This week I’m going to move to the other end of the performance table. I’m going to show you two of the most profitable trades. I hope you have at least one in your portfolio.
The point is this. Even in a tough year, some stocks can still do well. It’s about having a strategy to find them. And you’re not going to do that if fear has you on the sidelines.
The two stocks you’re about to see are not unique. At year end, 13 Quant Trader signals were up over 100%. These are the type of opportunities that gloomy headlines can make you miss.
Okay, let’s have a look at the first stock…
This is the share price chart for Bellamy’s Australia [ASX:BAL]. Quant Trader’s first buy signal was at $5.89 on 28 August 2015. There were two later signals at $6.92, and $8.60.
BAL hit its exit level last week. The initial signal was up 74%.
There’s a key point I want to make. Have another look at the entry date — 28 August 2015.
Now check out this chart. It’s the All Ordinaries over the same timeframe.
The market is down close to 8%…whereas Bellamy’s is up over 70%.
So, yes, the bears were right that the second half of 2015 would be challenging. But look at the opportunity they missed. You won’t get trades like this sitting in cash.
Not every signal has done this well. But that’s why we have exit stops. This is our escape path when things don’t work out.
Let’s move on to the next stock…
This the share price chart for HUB24 [ASX:HUB]. It’s a financial service stock with about $2 billion under administration, yet few people have heard of it.
Quant Trader’s first signal was on 13 July 2015. Like Bellamy’s, this was also in the volatile second half of the year. There were three entry points: $1.45, $1.74, and $2.09.
The initial signal is up by 155%.
You’ll notice I’ve included a lot more data on this chart. The share price history goes back to 2012. I’ve done this for a reason. It’s interesting to see how the signal came about.
HUB hadn’t done much for years. There was also very little activity in the months leading up to the signal. This is one of my favourite trade setups.
You see, periods of quiet trading often lead to breakouts in activity. And when that happens, you can see some spectacular results.
Quant Trader identified the early surge in the share price. It was then a case of placing the trade and letting the market do its thing. This was against a backdrop of a falling All Ordinaries.
Gloomy headlines are part of the market’s fabric. I’ve been reading them since I began trading in the early 1990s. Rarely are they a good predictor of the future.
Quant Trader doesn’t read the news — it’s not part of the strategy. All that matters are the numbers. The system buys what’s going up, and sells what’s going down.
So try putting the scary headlines to the back of your mind. I know it’s not always easy. But they’re a distraction that takes you away from the business of finding opportunities.
Until next week,
Editor’s note: Despite the recent market volatility, Jason’s Quant Trader subscribers just cashed in on a big winner. Last week, they booked a 74% profit in baby food producer Bellamy’s Limited [ASX:BAL].