Friday, October 16, 2009

Backtesting of INO's Trade Triangle Tool

Yesterday we posted a link to the "perfect portfolio" educational video by INO. The portfolio is based on using the monthly trade triangles generated by their MarketClub Trading tool, which I have and use.

The methodology is incredibly simple to use. I ran the same methodology they describe on several different stocks, backtesting from 2005/2006, wherever there was available data.

Here are the results for an initial capital at risk of $10k:

Sorted version:

Out of 22 stocks that I normally trade or pay attention to, there were 19 winners. The average of the winners was 61.3%. This is not bad at all. It is quite impressive for such an easy to use tool (you just follow the buy and sell alerts).

There were three losers: Goldcorp, SDS, and SKF. Goldcorp was ran twice, using extended time frames. The losses were reduced by using a longer timeframe. SDS is an ultra short (leveraged) ETF that tracks inversely the SPX. SKF is also an ultra-short that inversely tracks financials.

It seems that the methodology works well on regular stocks, and also on long leveraged ETFs. It does not work so well on the short (bear) versions, at least the oens we ran. The stocks that are not too volatile do fine. The indicators alerts tend to lag and it seems as if the tool awaits for clear confirmation of trend changes before issuing an alert. With fast moving stocks, this may lag too much and it may or not work. For regular, solid companies this seems ok. Now it also wokrs fine for the bull leveraged versions.

The above was all based on the monthly timeframes. It is also possible to use weekly and daily timeframes, which I will also backtest.

Of course, past performance is not a guaranteed indication of future performance.

The entire backtesting results are here as a Google spreadsheet:

If any readers wish me to do backtesting of a particular stock, just let me know, I will gladly do so now that I set up a system to do it.

To view the video: “The Perfect Portfolio” (click to watch) or just go for the tool (free trial through this link).

Please do your own due dilligence.

[UPDATED 2:40PM : Added 5 stocks]

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