Testing AoT “Top Pick of the Week” Performance
Hi folks,
So, last week I was thinking about the weekly watchlists that I send out each Sunday to Art of Trading members and I thought “I wonder how the top pick of the week stocks have performed over certain time frames?”, this gave me an idea! What if we took the top pick from each week and tracked the performance over certain timeframes and criteria! I did just that.
What's nice about this strategy is it really only requires $10k in capital to work with it!
I send out a “stocks to watchlist” each Sunday night or early Monday morning to Art of Trading members. I have been asked by many Art of Trading members how they can make the most of these lists. I encourage traders to take the skills they have been taught through the Art of Trading and apply them to these lists. Occasionally some of the stocks on the list might be alerted as an official trade through out the week depending on how the market acts and firms up.
When I create these lists, I look for the strongest performing stocks across multiple sectors with VERY STRONG technical characteristics. Short term (1 – 2 weeks) these setups I find are usually ready to make some sort of move. So, with this in mind I went back and tracked all of the Top Picks from 2022 and compiled the performance over 1 week, 2 week, 3 week, 4 week and if you had just bought the top pick and did nothing but held.
Here are the criteria I used for the data:
I assumed the opening price was bought on Monday
I assumed the closing price was sold on a Friday
I assumed only "1" position was taken (In the case that 2 "Top Picks" made the list)
“1 week” hold means “bought Monday open – Sold Friday close”
“2 week” hold means “bought Monday open – Sold second Friday close”
Same goes for 3- and 4-week data as noted above
Each position is sized with $10 000 capital
After compiling the data, I found that performance over a 1 or 2 week hold period is the sweet spot for squeezing the most out of the “top pick” and although the 3 and 4 week hold period still perform ok you must assume much more risk. Also note if you’re holding past the 1 week mark then your capital requirement doubles for the strategy if you take the next pick on the following week while still holding the previous week pick.
Ok, lets look at the data!
*Please note that some weeks are missing. Poor market conditions don't always produce decent watchlists. Missing weeks means a watchlist was not sent*
What did we learn from the data? Well, a lot of things. Here are the key points:
The best win / loss percentage occurs in the 1 week hold category. Which makes sense, since most of these “Top Picks” are stocks that are ready to make a technical move imminently
Performance is strongest in the 1 – 2 week hold criteria where as performance starts to drop off in the 3 – 4 week category. “Just held” performance is nice but requires much more capital.
Let’s talk about PnL. Assuming a $10K sized position at the start of the week and using the 1 week hold criteria “Buy the Monday opening price – Sell Friday closing price”
If you did that in the 1-week category for 2022 your PnL $ return would be +$7730 in PERFECT circumstances. Let’s say perfection isn’t priced in and we give 10% margin for error, you’d still be potentially +$7000 using this strategy as described above. Keep in mind this is only using ONE $10K sized position per week.
The 2 week hold category is the “best bang for your buck” scenario but requires 2x the capital as you’d be holding 2 positions at a time if you took a new pick each week. The win / loss ratio in this category is attractive as well.
What I find the most intriguing about this data is if you’re someone who works a full-time job or just wants to small portfolio with a very mechanical approach this strategy using the Art of Trading top pick of the week could potentially be a viable option.
It’s a very hands-off approach and according to the price data it performs quite well. I’ll be tracking these ideas further as the year progresses.
Cheers and Happy Trading,
Art of Trading
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