Trade Anatomy Portfolio
.41% MTD | +4.89% YTD
7 long | 2 buys | 0 sells
Two new positions were added this week from the watchlist. Both entries were position sized risking .50% per trade resulting in an additional 11% allocation towards the long side. In total, the portfolio is now roughly 37% long equities across 7 names. FN was mentioned a few weeks ago and continued to move higher after crossing the $30 mark last week. Likewise several other positions continue to move higher which is allowing the trailing stops to be placed on the net positive side. Looking back over the last month and a half, one trade stands out from the watchlist that probably should have been taken which was ORBC. At the time of its breakout, it was only one of a handful stocks representing the technical setup that I prefer to trade. With the overall environment extremely negative, I chose to pass. In hindsight, that was a poor decision, but that's also trading.
Watchlist Commentary and Summary
I want to spend the majority of my time today discussing screening and watchlist development which are the first steps in finding the proverbial "needle in a haystack". The reality is that there's not just a single needle in a haystack when it comes to stocks, but several. The key is to be able to remove most of the hay without removing the majority of the needles. It's now been over 14 years since I developed the main screen, and the exact criteria is still used today. For me that requires both a set of technical screens, as well as, fundamental screens. If you've been reading the Trade Anatomy blog, then you know that my prefered setups are big weekly charts that are near past price highs set over multiple years. This alone will generally eliminate the majority of stocks in the trading universe, but adding a few fundamental criteria helped bring the list down to an even more manageable amount without removing a large portion of big winners. In essence, the amount of needles to hay ratio improved dramatically.
As a trader, your first priority when developing your screens should be to produce a concentrated level of "fat tail" trades. To do so, you have to study past winners. Run scans that rank the top performing stocks for each year and make a note of the ones passing your scans. Look at their weekly charts and ask yourself where you would want to enter, now examine the fundamentals at that time. Put the data in a spreadsheet and begin cross referencing data points. Eventually you will find a few fundamental and technical points that can be used to make your screened list more manageable. When I look across past winners from the 60s to now, very little has changed in their technical or fundamental makeup. Below are a few chart examples from 2010 after the market had moved out of its May-August correction. I've also included the main screen list for the weekend, maybe you can find a few needles in the haystack. You should be able to copy and paste the list to Excel or directly into your preferred charting software.