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"An Approach
to Successful Stock Trading Combining Company Fundamentals with Chart Technicals" |
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Comments or Questions (TSM Service, Methodology, Performance or Your Success Stories) Go Here - (rmiller@triplescreenmethod.com) |
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TSM Methodology & Results
for Last 27
Quarters (2,520 Trades)
TSM Stock Performance (27 Quarters from 2003 through 2nd Quarter 2010)
A list of new TSM picks (accumulated from 23 fundamental, a value, and an earnings quality/revision screen) is published in Monday's TSM Report: 50 to 150 stocks with strong fundamentals, with projected quality earning’s performance (Zacks), and with remaining value (two year PEG ratios). This is the list that I search daily over the next week looking for those stocks giving strong technical signals (usually pullbacks), i.e., those stocks that are likely to make a bullish run over the next 1 to 10 days. The quality of the pullback is characterized by its 2-period RSI: two consecutive closes below 15 provides and excellent buying opportunity either at the close or at the next day's open.
During two quarters in 2006, for example, 174 picks (longs and shorts) were forecast in the daily TSM reports, each with their respective buy/short points and profit and loss targets: 164 (94.25%) gained at least $0.25, 152 (87.36%) gained at least $0.50, 140 (80.46%) gained at least $0.75, 129 (74.14%) gained at least $1.00, 99 (56.90%) gained at least $1.50, 76 (43.68%) gained at least $2.00, 52 (29.89%) gained at least $2.50, 32 (18.39%) gained at least $3.00 and 18 (10.34%) gained at least $3.00.
Yearly results for TSM forecasted stocks are summarized in the following table. Bottom line: in an economic climate that restricted the S&P 500 to a +3.49 percent gain, the TSM stocks have gained 1,956 percent; a $35,000 account would have grown to $719,585 in 27 quarters. Perhaps most impressive were the results in 2008: when the S&P fell -38.5 percent, the TSM stocks returned an impressive +110.7percent, as short-term stock picking was virtually the only strategy for success because of the constant sector rotation of money.
Here's how I recommend you use TSM data. First, look at the "Market Update" for a technical interpretation of today's S&P, comments on current economic conditions, and watch outs for historical factors, like the six-month cycle. Did you know, for instance, that if you had invested $10,000 selectively in only the good six months of the year from 1950 through 2006, that stake would have grown to ~$500,000, while a similar amount invested exclusively in the bad six months would have lost money over the 50+ year period?
Next, move to a discussion of "TSM Stock 'Pick of the Day' " highlights a stock trade (mostly longs, some shorts and some inverse ETF funds to hedge) that combine TSM's unique qualification of fundamentals, earnings revision fuel, and remaining value at its current price with technical patterns ripe for buying or shorting. About 20 picks will be made each month, and each will have its own trade management criteria: both profit ranges and stop loss points to sell half positions. Open positions are forecasted, tracked and updated daily (see the Index box on the daily report, "TSM Performance (Current Quarter)"). Find a current list of all closed TSM trades for stocks forecasted over the last 27 quarters from 2003 to 2010 .
In addition to the TSM stock
trades, most daily reports will contain a list of potential Naked Put Positions.
This list is chosen to meet return (>18 percent annualized) and
downside protection (from 5 to 15 percent depending on time to
expiration) criteria. Usually, from one to 10 opportunities
are presented from the 1,000s available for this group of TSM
stocks.
If you're interested in learning Day-Trading Methodology, particularly for TSM
stocks, the "Day-Trading Edge" provides statistical
edges that are constantly being developed. For example, over 52 trading
days between 11/05/07 and 1/18/08, 80 percent of the time AAPL made either its
high or low of the day in its first hour of trading. And over 80 percent of the
time AAPL traded at least $1 higher and $1 lower than its prior day's close.
Both provide trading edges important to the day trader, as I write this (04/11/08), TSM
has developed six such trading edges. Others are sure to come. So, how has the TSM
approach performed? Very well is the simple answer. Over a 27-quarter
period between 4th quarter 2003 and the end of second quarter of
2010, 2,658 half-position trades were forecast (mostly long but a few short and
inverse ETF plays): 1,839 winners and 819 losers for a 69.2
average percent win rate ( with about 101 half-position trades
executed each quarter) [last 13 quarters the win rate averaged 76.2 percent: 80.5, 78.0, 73.2, 73.1, 72.5,
74.1, 73.2, 61.7, 76.0, 82.6, 91.2, 73.5 and 81.4
percent, respectively, from 2nd Q '07 to 2nd Q '10--over some very difficult times] ;
25 of the 27 quarters produced
greater than 5 percent gains--18 greater than 10
percent; the 27 averaged 12.3 percent and ranged from -6.2 to +23.9) [find
a complete breakdown by quarters here] and only once
did the TSM approach actually lose money (-6.22 percent in 3rd Q or '03). The average
trade lasted 6.3 days (3.25 days in '08, 3.88 days in '09 and 9.2 days in '10), and a $35,000
account would have grown to $719,585 (1,956 percent return) while
the S&P gained 3.49 percent over the same period. See Results
for further
information. Finally,
take a look at the "Trader's Corner."
It offers a series of articles aimed at teaching the components of the TSM approach.
Is TSM the "golden goose" that will make you
millions? No. TSM is a sound approach to
picking quality stocks for longs and failing stocks for
shorts. Even so, it's stringent trade management
criteria (profit and stop-loss targets for 1/2 position
trades) result in profit only 69.2 percent of the time (76.2
percent on average over the past 13 difficult
quarters). Albeit, over 98 percent of the picks are
profitable during the trade's life but some 30.8 percent don't meet the TSM
profit target and get stopped out for a loss. The market's true
"golden goose" is sound trade management. Don't let
anyone ever tell you different.
The most foolish refrain heard concerning
stock investment: "It's a quality company, and its stock
price will recover. I'll just hold and wait this
temporary downturn out!"
Good luck and good trading,
Ric Miller,
Ph.D. and Master 6-Sigma Master Black Belt
Statistician
Returns 2003 (4th quarter) through 2nd quarter 2010: With the close of 2010's 2nd quarter, let's summarize the 27 complete quarters in which long/short trades have been forecasted since 9/15/03. Results are in the accompanying Chart and Table. The TSM approach primarily buys undervalued, fundamentally sound stocks giving quality technical entry points: pullbacks and breakouts. Each entry is accompanied by profit and loss exit points: two for profit. See trade optimization details in the 8/29/05 report. The following chart tracks the account balance and percent drawdown over the 27 quarters.
Distribution of TSM Trade
Returns for 2006:
The chart below shows that 154 of the 175 stocks
traded in 2006 (88.0%) had gains from the buy or short price of at least $0.50, while 133 (76 percent) had gains of
$1.00 or more over
the life of trade.
Truthfully, the TSM approach is at its best in a bullish, trending market. It's based on a sound combination of technical and fundamental criteria that are hard to beat. A complete 27-quarter record is shown in the following table.
TripleScreenMethod (TSM) Methodology and Results for 2003 to 2010