Hi folks,
I'm sure many of you are familiar with the Art of Trading "Top Pick of the Week" Strategy. I thought this strategy up in mid 2021 and decided to put it into practice in 2022. Since then the strategy has become VERY popular with Art of Trading members, many of which have used the skills they've acquired within the group to put there own twist on the strategy!
Naturally, since the Strategy has been very popular and successful over the past two years I get some common questions about it so I figured this would be a great place to cover those. Most importantly I want to review some very interesting performance and strategy results that I've spent the time to back test on it!
We've covered the Top Pick of the Week extensively on the Art of Trading blog since its inception. Basically the strategy uses a fixed $10,000 position size each week. A "Top Pick", which is sent to Art of Trading members Sunday evening is then simply bought on the Monday morning open and then simply sold on the Friday afternoon close. The position size stays fixed ($10,000) each week. Very simple and straight forward!
I developed the strategy for those that have professional lives and full time obligations outside of the market and can't always be around screens to trade. It provides a way to be involved in the market with very little effort!
Since I've made this strategy live the Top Pick of the Week returned:
+115.74% in 2022!
+131.86% in 2023!
At the end of each week I update the Top Pick of the Week blog post with the results so its easy to follow along and adds transparency! I post these results on my TraderStewie X feed!
As you can see the strategy has produced some very promising results in which many Art of Trading private members have taken advantage of! Some members have even created their very own strategies from it!
One very common question I have received many times is "what happens if you compounded the weekly return?, What would the results be?" I spent some time this past week to extensively analyze that!
in 2022 the results would be as follows:
FIXED position return: +115.74%
COMPOUNDED position return: +117.88%
Based on a $10,000 starting position year end account values would be as follows:
FIXED position ending value: $21,574.00 !
COMPOUNDED position ending value: $21,788.27 !
I've plotted the PnL data to illustrate that for you on the chart below:
So why were the compounded results nearly even with the fixed position results in 2022?
2022 was a higher VIX environment so even though we produced consistent Top Pick Weekly results it was harder to piece together back to back weeks of strong returns. Additionally, it was much easier to have back to back weeks of strong drawdowns. Which in turn never really gave the compounding strategy a chance to break away!
Now, lets look at the 2023 fixed weekly position vs compounded weekly position results! These results are VERY interesting to say the least!
in 2023 the results would be as follows:
FIXED position return: +131.86%
COMPOUNDED position return: +214.87%
Based on a $10,000 starting position year end account values would be as follows:
FIXED position ending value: $23,187.00 !!!
COMPOUNDED position ending value: $31,486.69 !!!
I've plotted the PnL data to illustrate that for you on the chart below:
What changed in 2023 compared to 2022? Why did the compound results outperform so strongly vs the fixed position results?
Volatility contracted in 2023. The trend was your friend for the majority of the year. Drawdowns on Weekly Top Picks were much more compression and it was simply easier to string together multiple strong returning weeks allowing the compound strategy to vastly outperform!
So what would happen if we ran two strategies? A fixed position strategy ($10,000) and a compound strategy against the 2022 and 2023 data? Where would these accounts stand today combining 2022 and 2023 results and data?
We took the fixed and compounded return data from 2022 and 2023 and carried the accounts through the strategy over the past 2 years.
Both accounts started at $10,000 in 2022
The fixed position size strategy stayed at $10,000 the entire time
The compound position strategy was compounded each week 2022 through 2023!
If the strategy was carried from 2022 through 2023 the results would be as follows:
FIXED position return: +247.61%
COMPOUNDED position return: +548.96%
End of 2nd Year (2023) account values would be as follows:
FIXED position ending value: $34,761.00 !!!
COMPOUNDED position ending value: $64,895.65 !!!
These are astounding results! Accelerating the growth of the compounding account really helped by using the 2022 compounding account closing value of $21,788.27 as the 2023 starting value, essentially carrying the strategy over from 2022.
I also think it makes sense to run this strategy with two separate accounts. One for the fixed strategy and a secondary for the compounding strategy. Compounding results are completely depended on the quality of the market and the "Top Pick". Even though we only have 2 years worth of data at this point, some years the compounding strategy will be muted or even potentially underperform the fixed position strategy.
carrying the compounding strategy year over year appears to make sense too.
I really hope you enjoyed this analysis of the Art of Trading Top Pick of the Week Strategy!
I am looking forward to sharing the weekly Top Pick results in 2024!