AlgoTrendTraders Free Weekly Report - June 20, 2022
Disciplined, Rules-Based Trading
Thomas Meyer, Editor
June 20, 2022
Welcome to this week’s AlgoTrendTraders report. Before we get into this week’s report, be sure to follow us on Twitter: @AlgoTrendTrade1
We’ll post updates throughout the week.
The information in this report is very valuable. Please share this newsletter with your friends and colleagues who can also benefit from an intelligent, disciplined, rules-based trading system. And if you have a question, feel free to send an email. We’ll be glad to clarify anything that’s not clear in the reports.
New Oversold Conditions in SPY and QQQ
Markets continued to drop last week and our bearish trades in both SPY and QQQ moved into oversold conditions. When this happens, we know that there’s a higher probability of a snapback higher in price. Of course, an oversold condition can last months at a time (see ARKK for that).
When this happens, we make an adjustment to our exit strategies and move from fixed stops to trailing stops. The new stops are listed below in the Composite Table and the individual charts underneath. Later this week, we’ll publish a report about oversold (and overbought) conditions and get into a little more detail.
For those wanting to know more about Trend-Trading
The overview of the AlgoTrendTraders system is underneath the charts. Those familiar with our methodology can get right to the trades. If you’re new to trend-trading, be sure to read this introductory section. This will help you understand the concept of trend-trading and why it’s so powerful.
Each week, we show you the Composite Table that has the week-ending price, current volatility, and the updated exit strategy for each of the ETFs and Bitcoin. We repeat this a lot because it’s the most important element for successful investing:
Always have your exit strategies prepared before you enter into any trade.
The Composite Table for June 20, 2022
SPY (S&P 500 ETF) closed sharply lower last week and it remains in a Bearish condition. We’ve instituted a trailing stop of 2 EM (28.84) from Friday’s closing price which is 365.86. If SPY moves lower during the week, be sure to update the trailing stop.
QQQ (Nasdaq 100 ETF) also closed lower last week and it too remains in a Bearish condition. The move lower caused us to institute a trailing stop of 2 EM (31.82) from Friday’s closing price of 274.69. If QQQ moves lower during the week, be sure to update the trailing stop.
ARKK (Ark Innovation Fund) closed lower for the week and it remains in an oversold condition and in a Neutral condition. There is no trade this week in ARKK.
GLD (physical gold ETF) closed lower last week. GLD is in a Neutral condition in the yellow channel Transition Zone (TZ). There is no trade this week in GLD.
BTC (Bitcoin) closed sharply lower last week and it remains in a Bearish condition. Bitcoin also remains in an oversold condition. There’s a new trailing stop of 2 EM (6.890.72) from last week’s lowest price (17,599.73). This puts the current exit price at 24,490.45. If BTC moves below last week’s low during the week, be sure to update the trailing stop.
Be Sure to Read the Disclaimer at the End of This Report
Here are the latest charts…
In this weekly free report, we give you the trading signals for five of the most popular investment tickers. The signals are based on trend-following principles. Very simply, stocks stay in trends until they don’t. Trends can last a short time or they can last for months and even years at a time.
This is not a “get-rich-quick” scheme
If you’re looking to make a ton of money in a short time, you’re going to be disappointed. Trend-trading is not fancy; it’s boring, and takes time to be successful. This is a system that relies on a historically-proven process to generate solid returns on winning trades and avoid large losses on losing trades. We’re definitely the tortoise, not the hare.
Trend-following systems don’t try to guess what the next move in the markets might be. Instead, we measure the markets each week and use our algorithms to determine the current trend and the exit strategy for the current trades.
This system is the same one that was used in two paid investment newsletters for the past few years. Each of the newsletters had several different tickers, but the S&P 500 and Nasdaq 100 were used in both. Here are the updated results on the closed trades through May 2022 from the trading signals given in these two indices beginning October 2019.
This means the average gain per trade in the S&P 500 (SPY ETF) was 5.09%. Had you been able to make all eleven trades according to the signals, the potential gain was more than 55% with very little downside risk. For the Nasdaq 100 (QQQ ETF), the average gain was even greater at 6.25% per trade. That’s a total potential gain for the 12 trades of more than 70%. Again, the downside risk during this time that included the quickest bear market in history was limited.
The largest individual winning trade in the S&P 500 was the bearish signal generated in early March 2020. The largest winning trade in the Nasdaq 100 was the bullish signal generated in May 2020 that lasted until February 2021.
The key to the winning trades greatly outperforming the losing trades is the risk management system. If a trade moves against us, we’ll get out of the trade with a small loss. But if a trade trends higher for months at a time, we have the ability to build up substantial profits.
AlgoTrendTraders uses both trend and momentum to generate the trading signals. The yellow channel you see in the center of the charts is called the “Transition Zone”. When a stock is above the yellow channel, it’s in a Bullish condition. When it’s below the yellow channel, it’s in a Bearish condition. When it’s in the middle of the channel, it’s in a Neutral condition and there is no trade.
Selling is More Important Than Buying
Every trade has a pre-determined exit strategy. This is based on the normal volatility of the underlying ticker. Each stock has its own unique volatility. And, volatility is dynamic. It’s constantly changing. Each week, we look at the previous 52 weeks of price movement to come up with its normal weekly volatility. This is called the “Expected Move”. The Expected Move equals one week of the normal volatility of the stock or ETF being measured. Every week, the exit strategy for each ticker is updated.
The system is based on the weekly closes of the underlying tickers. All trading information and volatility calculations are based on weekly volatility. By using weekly calculations, the system ignores the day-to-day noise in the markets and is able to give better signals.
It’s easy to see the periods of time that volatility increases and decreases. As the yellow channel Transition Zone widens on the charts, the volatility is increasing. The opposite is true; when the Transition Zone narrows on the charts, the volatility is decreasing.
The best time to enter a trade is when a new signal is given. This gives you the greatest opportunity to get into a trend that could last a long time. Though it’s possible to get into a trade after a trend has been in place for a while, the risk in that trade is elevated. Consider using 1/2 or 1/3 of your normal investment for these situations.
For this report, we give signals that can be followed by both novice and more experienced investors. Novice investors can use these signals to help them manage their 401(k) and retirement plans by adjusting the signals for SPY and QQQ to match the mutual funds in their plans. Though you won’t be able to short these indices when they become bearish, you can stay away and avoid devastating losses from bear markets.
Experienced and sophisticated investors can use leverage or options, but the risk is substantially greater. Never risk more money than you can afford to lose.
The information published in this newsletter should not be used to make personal investment decisions. We are not licensed by any federal or state entity to give investment advice. We do not know your personal financial situation. Investments should be made only after consulting with your professional investment advisor and only after reviewing the prospectuses or financial statements of the companies in which you’re considering investing.