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Profitable Trade - Rayner Teo

The document outlines lessons from a decade of trading and discusses strategies that were backtested. It describes three main mistakes traders make: 1) buying "cheap" stocks that remain cheap, 2) having no plan, and 3) being fooled by randomness into thinking short-term results will continue. Two strategies are backtested: buying low and selling high, and buying high and selling higher. The latter performs better with annual returns of 12.81-15.7% compared to 9.28% for the former. Adding a trend filter of only trading when indexes are above moving averages further improves returns. The key principles are to buy high and sell higher, use indexes as filters, and have an entry, position size

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Irene Salvador
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2K views31 pages

Profitable Trade - Rayner Teo

The document outlines lessons from a decade of trading and discusses strategies that were backtested. It describes three main mistakes traders make: 1) buying "cheap" stocks that remain cheap, 2) having no plan, and 3) being fooled by randomness into thinking short-term results will continue. Two strategies are backtested: buying low and selling high, and buying high and selling higher. The latter performs better with annual returns of 12.81-15.7% compared to 9.28% for the former. Adding a trend filter of only trading when indexes are above moving averages further improves returns. The key principles are to buy high and sell higher, use indexes as filters, and have an entry, position size

Uploaded by

Irene Salvador
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 31

TradingwithRayner presents:

Prof i table Tradi ng S ecrets:


L e s s ons f rom a De ca de of Tra di ng
Profitable Trading Secrets
 The biggest reasons why traders fail and how to avoid it

 Trading principles that work


Mistake #1: Buying “cheap” stocks
 Can remain “cheap” for years (opportunity cost)

 Higher probability of loss


Mistake #2: No clue, no plan, no idea
Mistake #3: Fooled by randomness
 The law of large number

 Short run, your trading results are random

 Long run, it’ll be aligned towards the system’s expectancy


An example
 50% win-rate:

WLWLWLWLWLWLWLWL

LWWLLLLLWLWWWWLW

 Abandon the strategy and look for the next “big thing”
Recap
 Don’t buy “cheap” stocks

 Have a plan

 Don’t be fooled by randomness, understand the law of large number


Principle #1: Buy high sell higher
Backtest #1: Buy low sell high
Buy rule:
Go long when a stock hits a 50-week low

Exit rule:
20% trailing stop loss

Filter:
Top 20 stocks with largest price decline over the last 50 weeks
Backtest #1: Buy low sell high
• Transaction Costs: $0.01 per share
• Test universe: Russell 1000 stocks
• Execution: Market open
• Maximum open positions: 20
• Positions size: 5%
• Test period: 1990 – 2018
Results: Buy low sell high
 Number of trades: 467

 Winning rate: 43.68%

 Annual return: 9.28%

 Maximum drawdown: 52.27%


Backtest #2: Buy high sell higher
Buy rule:
Go long when a stock hits a 50-week high

Exit rule:
20% trailing stop loss

Filter:
Top 20 stocks with largest price increase over the last 50 weeks
Backtest #2: Buy high sell higher
• Transaction Costs: $0.01 per share
• Test universe: Russell 1000 stocks
• Execution: Market open
• Maximum open positions: 20
• Positions size: 5%
• Test period: 1990 – 2018
Results: Buy high sell higher
 Number of trades: 707 (467)

 Winning rate: 48.66% (43.68%)

 Annual return: 12.81% (9.28%)

 Maximum drawdown: 40.75% (52.27%)


Principle #2: Rising tide lifts all boats
Rising tide lifts all boats
 Trend filter

 US Stocks (Russelll3000, S&P 500, etc.)

 Philippine Stocks (PSEi)

 Singapore Stocks (STI)


Backtest #3: Buy high sell higher (with TF)
Trend filter:
Buy only if the Russell 3000 index is above the 100-week MA (or else stay in
cash)

Buy rule:
Go long when a stock hits a 50-week high

Exit rule:
20% trailing stop loss

Filter:
Top 20 stocks with largest price increase over the last 50 weeks
Backtest #3: Buy high sell higher (with TF)
• Transaction Costs: $0.01 per share
• Test universe: Russell 1000 stocks
• Execution: Market open
• Maximum open positions: 20
• Positions size: 5%
• Test period: 1990 – 2018
Results: Buy high sell higher (with TF)
 Number of trades: 905 (707)

 Winning rate: 49.17% (48.66%)

 Annual return: 15.70% (12.81%)

 Maximum drawdown: 35.08% (40.75%)


Principle #3: You got to have a plan
1. What markets are you trading?

2. What’s your entry trigger?

3. How much do you risk per trade?

4. How many shares/units do you buy?

5. How will you exit the trade when you’re right?

6. How will you exit the trade when you’re wrong?


Backtest #3: Buy high sell higher (with TF)
Trend filter:
Buy only if the Russell 3000 index is above the 100-week MA (or else stay in
cash)

Buy rule:
Go long when a stock hits a 50-week high

Filter:
Top 20 stocks with largest price increase over the last 50 weeks

Exit rule:
20% trailing stop loss
Backtest #3: Buy high sell higher (with TF)
• Transaction Costs: $0.01 per share
• Test universe: Russell 1000 stocks
• Execution: Market open
• Maximum open positions: 20
• Positions size: 5%
• Test period: 1990 – 2018
Recap
 Buy high sell higher

 Use the stock index as a trend filter

 You got to have a plan


But before I end…
The lessons…
 Your past ≠ your future

 The WHY is more important than the how

 WHY > Excuses


PDF Slides
 Tradingwithrayner.com/event
THANK YOU

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