What are the star ratings on trading signals?
StockSpotter applies data mining filters to each entry signal when the signal is generated. The filters rank each signal by assigning a star rating based on historical performance. The 5 star rating is the most
stringent and the 2 star rating is the least stringent. Thus a 5 star pick, all other things being equal (which is seldom the case), should outperform a 2 star pick. Star ratings are affected by
overall market conditions and there will be periods of time where lower star ratings outperform higher ones.
Note that the star rating is assigning a probabilistic value to an individual event. Much like when a baseball manager puts in a right-handed pitcher to face a left-handed batter, the odds of success may be improved but this does not guarantee success. Note also that there
will be far fewer 4 or 5 star picks than 2 or 3 star picks and thus the 4 and 5 star cases can be subject to the law of small numbers bias
What is a cycle peak and trough?
Imagine stock prices as a perfect sine wave. If you knew the frequency of the sine wave, you could buy at the trough (bottom) and sell at the peak, and do this over and over.
The higher the amplitude (top to bottom height), the higher your profit per trade. This, in a nutshell, is the premise of the MESA Cycle indicator
In the real world, cycles are ephemeral and vary dynamically in frequency and amplitude, thus deviating from the ideal sinewave scenario.
It is important to note that MESA Cycle removes the trend component of prices.
What this means is that the cycle should not be the only consideration in trade selection
(unless prices are non-trending and the expectation is that this will continue). So, in the typical case, if prices are trending up and the expectation is that the trend
will continue, buying at a cycle trough and selling at a cycle peak could give you an added edge because the uptrend has additionally contributed to any price increase
while the trade was open.
What are your average and maximum hold times?
StockSpotter's trading signals are of the short-term swing trading variety, designed to capture near-term upswings and then exit quickly.
The trading system will always generate an exit signal within a maximum of 21 market days (approx. a month) after an entry, however the average hold time
is usually much less.
You can see average hold times in the Overall Performance
the holding time for individual trades in the Trade-by-Trade Details
Why do your simulated trades enter and exit at the market open?
StockSpotter's swing trading signals are generated after the market close (typically by 8 PM Eastern) and intended for the next open. This is the case for both entry
and exit signals.
We use the subsequent market open because it (1) is a well-known, well-published price and (2) it represents a reasonably realistic way to simulate real-world trading.
If we were to enter on a stop or limit, this would be less realistic in that a real-world fill may or may not be possible.
By simulating all entries and exits at the next market-on-open, of course a actual trade would not achieve exactly the same entry/exit prices. However,
on average, actual trades at the open would sometimes get a better fill and other times a worse, averaging out in the long run.
Why don't you use stop-loss orders?
Stop-loss orders can, of course, be used in real-world trading at a trader's discretion. We don't use stops on StockSpotter.com because we feel we would not be
able to accurately simulate the stop price in a real-world setting. For example, if one were to set an 8% stop after entry, there is no guarantee of what price the trade would actually stop
at. If prices were moving rapidly or a large gap occurred at the open, the stop-loss could be significantly greater than 8%.
The downside of placing a stop-loss order is that the stop might be hit and then the stock price could later recover.
Many of your trades could have been held longer for more profits. Why not hold during trends?
In designing algorithmic trading systems, there is a tradeoff between maximizing trade profit, trade duration, and
percentage of winning trades. StockSpotter's trading signals were designed specifically to swing-trade with a typical
trade duration of 10 days or less and a maximum duration of 1 month. StockSpotter's algorithm was designed to maximize
As a result, StockSpotter will sometimes exit a swing trade just as the trade is entering a trend. Keep in mind that
trends are easy to spot in hindsight and not so much when they occur. None the less, a disciplined trader can often use the MESA
Momentum indicator to spot a trend beginning and ignore StockSpotter's exit signal in an attempt to capture additional profits.