CW20: Treading Screen
The results of my Custom Screen are in for this week and they are... disappointing haha.
Only 4 names were produced ($DOW $WEC $NRG & $XEL) and, frankly, I don't like any of these setups for this coming week.
All show weak uptrends above EMA/SMA's with no confirmation yet and, most likely, this rise is part of the "chop" expected in Stage 3. Not touching.
Since I don't need to do any DD/FA on these names, I'll use the time to analyze this strategy.
#1: Total output
The total number of leads from this screen has been decreasing recently. This makes sense given the current state of the market (fewer Stage 2 setups). For example, retail stocks ($WMT, $DG, etc.) were part of the output of previous screens showing a weak push for Stage 2 (similar to above) that obviously did not hold.
I've also included $SPY 's weekly closing price on the chart below to see if there was any correlation with screen output (R2 = 0.39).
#2: Potential Return (backtesting)
This is more difficult to accomplish because the screen is only meant to be a starting point (NOT a hands-off algo type strategy). For me to put money at risk, I need to:
- See a strong setup/entry opportunity
- Like the company fundamentals
- Scan for any red flags in the news
- Assess the sector and macro impacts
But, a wise woman once told me: "Ain't nobody got time for that!"
(Miss the reference? Here ya go!)
Instead, I did a quick check on all outputted tickers and assumed an entry price as the previous week's CLOSE and calculated the average % return using the HIGH of the next week. The assumption of selling at the absolute top is an idealized scenario but can be easily reproduced with your favorite index ETF. Using $SPY for comparison yields:
Across all weeks, the global average return (and stdev) shown above is:
SPY: +1.55% (1.71%)
TreadingStocks: +2.58% (1.18%)
Keep in mind, the TreadingStocks return is the average return of all tickers that the screen produced; this includes so-so setups, companies with bad fundamentals, risky sectors, etc... For a given week, the averages above result from a distribution of the individual ticker performance and this distribution is important to understand and displayed below via a boxplot.
You can see, week 8 in particular had the potential to be feast or famine based on my subjective selections:
Select correct tickers (possible ~20% gain)
Select wrong tickers (possible ~10% loss).... for me, that's a scary bet to make week-to-week
The good news: most other weeks show a more narrow distribution and the vast majority of tickers for a given week had the potential to finish >0%.
Overall, I am pleasantly surprised with the results. Hopefully, with my input, I can help and not hurt these returns over the general market.
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I like that when your screen doesn't produce any name you like, you don't force action, and instead spend the extra time analyzing the strategy.