Where the real traders make their money
Monday, 30 October 2017
By Bernd Struben
- Just add blockchain
- This is how real traders make money
Here in Melbourne, preparations are well underway for the Melbourne Cup next Tuesday.
The race may not literally stop the nation. But it does qualify as a public holiday in Victoria. And it invariably draws huge crowds from across Australia, both live and over the airwaves.
Last year, more than 5.6 million people tuned in for the big race. And punters are estimated to have gambled over $140 million.
That’s an incredible pool of bets. And it makes you wonder how people choose which horse to gamble on.
Some are drawn to the long shots. Not because they’ve analysed the field and decided that it’s time for the weaker horse to turn around. That surely it’s reached bottom after a string of losses and now is set to rebound.
No, they’re drawn to the 50-to-one payoff. Knowing that a small bet could see them walking home with a big reward. Few, if any, would bet on a weaker horse and jockey if the payoff was only slightly higher than the stronger looking candidates.
Yet, in the investment world that’s exactly what you’ll find many punters doing. Trying to pick the bottom. Trying to select a weak stock that’s been in a downtrend and hoping it’s due for a turnaround.
And they’re not expecting anything near a 50-to-one payoff, either. A possible return of just 20% above market is enough of a carrot to convince many investors to take a punt on a weak stock.
According to Quant Trader’s Jason McIntosh, that often turns out to be a costly mistake.
As he reveals in his guest essay below, ‘Possibly the best trading advice I ever got was to buy into strength.’
When someone with a highly accomplished 26-year career in the markets offers trading advice, it pays to listen. How accomplished, you ask?
Jason — a former trader for a Wall Street investment bank based in Sydney — was so successful trading the stock market that he was able to retire from the corporate world aged 37.
In 2014, Greg Canavan introduced Jason to Port Phillip Publishing. And he decided to share his trading secrets — atop his stock recommendations — with subscribers of his premium advisory service, Quant Trader.
Now Jason has just finished filming a special six-part video training series, in which he’ll share those same secrets with you. And it’s 100% free.
Secrets like how Jason eliminates the stocks most likely to fall and how he focuses his buying on a shortlist of high potential companies.
The free six-day online training event begins Friday, 3 November 2017.
Now…to the markets!
Over the weekend, the Dow Jones Industrial Average closed up 33.33 points, or 0.14%.
The S&P 500 gained 20.67 points, or 0.81%.
In Europe, the Euro Stoxx 50 index finished up 15.03 points, or 0.41%. Meanwhile, the FTSE 100 climbed 0.25% and Germany’s DAX index gained 94.26 points, or 0.64%.
In Asian markets, Japan’s Nikkei 225 index is down 18.11 points, or 0.08%. And China’s CSI 300 is down 0.30%.
In Australia, the S&P/ASX 200 is up 19.54 points, or 0.33%.
On the commodities markets, West Texas Intermediate crude oil is US$54.02 per barrel. Brent crude is US$60.54 per barrel.
Gold is trading for US$1,271.76 (AU$1,658.53) per troy ounce. Silver is US$16.83 (AU$21.95) per troy ounce.
One bitcoin is worth US$6,153.10.
The Aussie dollar is worth 76.68 US cents.
Just add blockchain
Before handing over to Jason McIntosh, the following headline from Bloomberg caught my eye over the weekend, ‘This Company Added the Word ‘Blockchain’ to Its Name and Saw Its Shares Surge 394%’.
The article continues:
‘A British company that has been investing in internet and information businesses is having its best day on record.
‘On-line Plc jumped as much as 394 percent on Friday after announcing plans to change its name to On-line Blockchain Plc, following an initial climb of 19 percent on Thursday when it first announced the news…
‘“Blockchain technology and cryptocurrencies are a new and exciting area we have been working on for some time,” the Essex-based company said in a statement on Thursday. “We feel the time is right to re-name the company to reflect these developments, where we believe the future growth will be in our sector.”’
On-line Blockchain Plc is not alone in predicting blockchain will drive future growth in the internet and information business.
Last week, crypto and small-cap analyst, Ryan Dinse, launched a brand-new service, Exponential Stock Investor, with exactly that premise in mind. The service neatly combines Ryan’s comprehensive knowledge of all things blockchain, with his many years’ experience in the small-cap investing space.
Bitcoin, as you may know, was the first real-world implementation of blockchain technology. But the possibilities of this distributed ledger technology have moved well beyond cryptocurrencies.
In what Ryan labels ‘the blockchain collision’, it’s creating explosive share price gains for a select few early moving companies.
In his first special report, Ryan recommended two such Aussie listed companies last week.
One is up 75.86% over the past five days.
The other gained 40% last week, before going into a trading halt on Friday after announcing a capital raising.
Ryan is confident this is only the tip of the iceberg. Not just for these two Aussie small-caps. But for the explosive impact the coming blockchain collision will have on the way information is shared…and monetised.
That collision happens on 1 November…this Wednesday. If you haven’t checked out Ryan’s work yet, you still have time. But not much!
And now, over to Jason.
This Is How Real Traders Make Money
Jason McIntosh, Editor, Quant Trader
Are you ready for a punt?
The first Tuesday in November is almost here. It’s time to grab a form guide and place a bet.
Yes, I know I’m a bit early. The final field won’t be out for another five days. As of this morning, there were still 45 horses vying for one of the 24 starting positions.
But believe it or not, the bookies are already accepting bets. And some have been writing betting slips for almost a year. So you could place a bet now.
The catch — and it’s a big one — there are no refunds if your horse doesn’t get a start. That’s the price of accessing the early betting markets. You can’t have second thoughts.
Betting this way is extra hard. There are a lot more horses to choose from — many of which won’t reach the mounting yard. The odds are stacked against you.
Traders face a similar dilemma.
Consider this: The ASX has over 2,000 listings. Some of these will be 2018’s top performers. The best stocks could rise hundreds of percent.
But — just like the 55 Cup hopefuls — they won’t all do well. Many listings will trade sideways or in downtrends. Buying a few of these ‘non-starters’ could cost you your shirt.
So how do you separate the high potential stocks from the pack?
I’ll tell you how I narrow the field in a moment. It’s a method you can easily try yourself. Focusing your entry strategy this way could really boost your performance.
But first, here’s why a shortlist of stocks is so valuable.
Pretenders and contenders
OK, check this out:
Click to enlarge
Every trader will recognise this graph. It’s the All Ordinaries since 17 November 2014 — the day my service, Quant Trader, began sending live signals to investors. The index is rising at an average annual rate of barely 3%.
Grinding markets like this are tough. Many stocks go nowhere, while others trend lower month after month. It’s a grim time for a lot of traders.
But this doesn’t mean you can’t make money.
The trick is to develop a shortlist of high potential targets. You can then use this list to potentially beat the market.
Part of the Quant Trader service is the weekly portfolio. This lists every ASX stock that meets the Quant Trader entry criteria. It’s a quick way to sort through the 2,000-plus listings.
I had a look at the current line-up during the week. There were 356 open trades.
Just think about this for a moment.
From more than 2,000 ASX listings, only 356 have made it through the system’s screening process. That’s about one in every six companies.
Put another way, the algorithm I use has rejected around five out of six stocks. These are the ‘non-starters’ — the ones that can potentially drag down your portfolio.
So how are these 356 stocks shaping up?
The average profitable trade is ahead by 23.7%, while the average loss maker is down 6.6%. Of these, 68.5% are showing a gain. The top 100 trades are up an average of 48.3%.
Compare these results to the All Ords. Quant Trader’s shortlist is comfortably out in front.
Narrowing the field
So how do you know which stocks to buy?
Possibly the best trading advice I ever got was to buy into strength.
A wise older trader told me to forget trying to pick a stock’s low — that was for gamblers. Instead, he said focus on what’s already going up. That’s where real traders make their money.
Understanding this concept was a key moment in my career. You see, buying into strength is trading with the trend. This can improve your odds of making a profitable trade.
But that’s not all.
Strength is also an excellent screening tool. By only focusing on strong stocks, you automatically cull many of the worst performers. This can give you a big advantage.
Have a look at this:
This graph shows the hypothetical gains of the portfolio I told you about. There’s no allowance for costs and dividends. It also assumes $1,000 on every trade signal.
Now, this chart covers the same period as the one for the All Ordinaries. While the index has been tracking sideways, the profits from Quant Trader’s portfolio have been on the rise.
And this month, the portfolio’s gains hit a new record high.
Have another look at All Ordinaries:
Click to enlarge
While profits from Quant Trader’s shortlist of strong stocks are making new highs, the All Ords is still around its 2015 peak. There’s only a moderate correlation between the two.
Why is this?
Well, the All Ords is a collection of the top 500 stocks. There’s a yearly rebalance. But otherwise, there is no allowance for strength or weakness. You get the best stocks…as well as the worst.
Quant Trader is more selective.
The system only signals stocks that are on the rise. This helps reduce 2,000 listings to a select group of high potential stocks.
It’s like a market within the market.
There’s no reason you can’t get this sort of advantage yourself. The key is to buy into strength.
I’m going to talk about this more next week in my free video training series — which you can sign up for here.
Buying as prices rise also reduces your number of choices. You can cut down a field of 2,000 stocks to a concentrated group of possibilities. This could really boost your odds of success.
Editor’s note: Finding the best stocks can be hard. Your job is that much tricker when you have over 2,000 possibilities. It’s a bit like trying to pick the Cup winner from the early nominations list.
But there are ways around this.
Jason has just finished filming a special video training series. Register today, and you’ll learn how he eliminates the stocks most likely to fall and how he focuses his buying on a shortlist of high potential companies.
Click here to register for exclusive access.
Quant Trader sources all images and graphs unless otherwise stated.