I thought it prudent to review an alternate scenario to my trading during the recent game period. I take on board that some trades I probably exited too soon, on my belief that the market was due to let off some steam.
As I write, the market has indeed dropped substantially in the last week and looking like it might retest earlier March lows.
For this back-testing, I stuck to my trading plan – whereby I didn’t exit until the share price closed beneath the stop loss for two consecutive sessions. Which extended the duration of some of my early trades, especially PDN. Once the stop loss was activated, I’ve simply taken the next stock I entered as its replacement.
Just out of curiosity, I’ve also included a straight buy and hold of the original five shares selected. I read with interest that the winning portfolio was a simple buy and hold strategy (Holding AWC, MGR, GDY, BKN). However, I have doubt that this is a good strategy as after the recent drops in prices – those same portfolio’s would not look so rosy if the owners had continued to hold.
Buy and Hold – the original selection of shares; just sit and wait (not a very exciting way to trade!)
WPL, UGL, PDN, SUN, JBH
Prices at close on 3/6/09
PDN would have been the highest earner at $4,580.
Buy and Hold – but exit when stop loss broken by two consecutive closes beneath it (following my trading plan to the letter)
If a position, in theory was closed out, I have simply taken the next stock I purchased to replace it – not a faultless way to back-test – but will suffice.
Profit: $17,233.19 (+34%)
Overall number of Winners: 9
Overall number of Losers: 1
Biggest loss: $705 (COH)
Biggest win: $4790(PDN)
So this turned out to be an interesting exercise. By sticking to the plan I could have doubled my profits and made only 10 trades as opposed to 15. If I would have been really brave, PDN also triggered another buy during the trend, and would have been an opportunity to pyramid into this position.