My Weekly Stock - Trading Strategy
My Weekly Stock - Trading Strategy
Dear subscribers,
You will below more details about my trading strategy.
I initiated my research in 2019 and spent the following two years collecting data, refining my algorithm, and paper-trading my stock picks. In 2021, I felt confident enough to put in actual money. After a very successful year, I have decided in January 2022 to publish my stock picks.
My priorities building this strategy were to:
Find an approach fitting my trading style (time horizon, tolerance to risk, the time I can dedicate).
Think of both the strategy (“what to buy”) and the execution (“how to buy it”).
Focus on only one strategy to fully master and perfectly execute.
Outperform the market with manageable losses.
My Weekly Stock’s Trading Approach
Swing trades focused on mega-cap stocks and options.
Momentum strategy based on a proprietary algorithm.
Optimized trading plan (sizing, leverage, stop-loss) for maximized gains and manageable losses.
Consistent positive returns 5x higher than the SP500 since 2019 (stock only, before any leverage).
Swing trades focused on Mega-Cap Stocks and Options
Swing trades
I make only one trade per week. I buy at the open on Monday and sell at the close on Friday (or before, more later about stop-loss).
I value the simplicity of having just one trade to execute each week. In addition, I can go on weekends without worrying about any open position.
Mega-cap stocks
I focus on US mega-cap stocks, with a market capitalization higher than $150bn.
Mega-caps have higher volume, lower volatility, and are less likely to experience jaw-dropping moves. In addition, investors can sizeably leverage their gains as these stocks can be bought on margin or via options.
All in all, I believe it is the right stock universe to build consistent positive returns weeks after weeks.
Options
I trade exclusively call options. I select short-dated, in-the-money options with an expiration date of one week and a strike price 7 to 15% below the current stock price.
This approach allows me to leverage my gains 5 to 15x vs. buying the stock. In addition, short-dated, in-the-money options have a small premium. Therefore, I can adequately value the option price (Price = current stock price - strike price) and don’t need a complex option pricing model.
Finally, given that I am not based in the US, the transaction fees for buying US stocks abroad are too prohibitive for a swing trader but more manageable for option contracts.
A momentum strategy based on a proprietary algorithm
Momentum
Investopedia defines momentum trading as below:
Momentum trading is a strategy that seeks to capitalize on momentum to enter a trend as it is picking up steam.
Simply put, momentum refers to the inertia of a price trend to continue either rising or falling for a particular length of time, usually taking into account both price and volume information.
For years, I have been reluctant to buy stocks at recent highs. I would convince myself I was too late to the party, the stock was too expensive, or the trend was due for a reversal. I would sit aside and watch these stocks making new highs, weeks after weeks. I would then wait for the next 5 or 10% pullback to get in. By then, I missed most of the ride up. Worst, a lot of the time, I would enter just when the trend reversed and find myself owning stocks on a downside trend.
To illustrate this, let’s look at the example of Apple in 2019. In mid-October 2019, the stock made a new all-time high and started breaking out after trading in a range for the previous 12 months. Between October 15th, 2019, and January 31st, 2020, the stock made 46 new highs during 75 trading sessions. Said differently, the stock would post a new high less than every two days. During that period, Apple stock went up 32% vs. 8% for the SP500, hence outperforming the market by a factor of 4. All pullbacks during that timeframe were lower than 5%.
Trading Algorithm
My algorithm aims at identifying the stocks that are on strong positive momentum. I run my model during the weekend, and it contains the following steps:
I collect various momentum and technical indicators for each stock in my stock universe (US mega-caps):
Moving averages, RSI, and MACD.
Performance in the last 3 months and 1 month.
Current price vs. 52-week high and 52-week low.
I perform a comparative ranking to find the best momentum stock among the specific group. For each indicator, I rank the stocks and assign them a score. For example, if I have 50 stocks on my watchlist, I will give the one with the best 1-month return a score of 50, the second 49, etc. I then calculate the average score of all the indicators (each having a different weight). The stock with the highest average score is my stock pick for the week.
I then assess the confidence level and try to sense the probability for the stock to be positive in the next five days. The indicator looks at the absolute momentum for the weekly pick and the market overall. It is then compared to historical data since 2019 to assess the likelihood of success. I have defined four confidence levels:
Very High (93% hit rate since 2019)
High (82% hit rate since 2019)
Medium (69% hit rate since 2019)
Low (48% hit rate since 2019)
As I focus on a relatively small stock universe (less than 50 stocks) and the whole point of the strategy is to favor winners, it is very common to have the same stocks selected by the algorithm for several weeks in a row. For example, Apple was the weekly stock pick ten times in 12 weeks in both 2019 and 2020.
Optimized Trading Plan
Timing & Stop-Loss
I chose to buy at the open on Monday and sell at the close on Friday. It is almost certain that you can find a higher or lower price during the week than the Monday open or the Friday close. As it is notoriously difficult to time the market, I chose the simplicity of buying Monday and selling Friday.
I usually exit my trade if the stock is down 2% or up 6% vs. the Monday open. On average, there is no significant benefit of using these stops vs. a 5-day holding. However, as I trade options with sizeable leverage, I prefer to lock my gains and limit my losses.
Profit & Loss Management
Options are a great instrument to increase gains significantly, but they also increase losses. To preserve my capital and lock my profits, I follow a few principles:
At the beginning of the year, I choose the amount I am comfortable losing and never increase it.
I withdraw all my gains weekly.
I never put more funds in my trading account.
What it means in practice:
I started the year with $15,000 in my trading account, which is the maximum I will invest in my strategy. At the end of the week, if my trading account is above $15,000, I withdraw the money to get back to my original investment level. If my trading account gets below $15,000, I never put money back in and reduce my investment the following week.
Let’s look at an example:
Week 1: I invest $15,000 and gain 20%. My account balance is now $18,000. I withdraw $3,000.
Week 2: I invest $15,000 and loose 20%. My account balance is now $12,000.
Week 3: I invest $12,000 and gain 50%. My account balance is now $18,000. I withdraw $3,000.
Week 4: I invest $15,000…
These principles define the maximum weekly investment. For example, I can invest even less than that if my confidence level is low.
While the approach may seem conservative (vs. just compounding gains, for example), it helps me to be comfortable with the amount I trade and potentially lose.
After nine weeks of trading in 2022, I have already withdrawn almost $27,000 from my trading account. In the improbable event I would lose all my trades for the rest of the year, my minimum profit for 2022 is $12,000 or an 80% return.
Trading Plan
Shortly after the open on Monday, I finalize my trading plan. I primarily use the confidence level to define the leverage and the size of my position. Below the indicative average and position size I typically aim at:
Very High: leverage of x15, a position size of 100%.
High: leverage of x10, a position size of 100%.
Medium: leverage of x10, a position size of 50-75%.
Low: leverage of x5, a position size of 0-50%
Consistent positive returns since 2019
I measure weekly performance based on an entry at the Monday open and an exit at the Friday close. Cumulative and yearly performance assumes weekly results are compounded.
Even without leverage, the strategy generates sizeable returns in absolute and relative to the SP500. My Weekly Stock’s picks delivered a cumulative return of 400%, 5x the performance of the SP500 since 2019.
Access here our performance tracking
I personally trade all the weekly picks, using options with a 179% return so far in 2022.
Give it a try!
My objective with My Weekly Stock is to provide:
A momentum trading strategy, easy to mirror. 1 stock per week to hold for no longer than 5 days.
A no-hassle service. No jargon or complex charts. No penny stocks, meme stocks, or cryptocurrencies. Beginner or professional traders, anyone can use the service.
Results visible immediately. There is no need to hold the stock picks for months or years before seeing a positive return.
Transparency to my trades and my performance.
Try My Weekly Stock with a 14-day free trial and receive:
My Weekly Stock picks every Sunday.
Timely trade alerts during the week.
Disclaimer
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