How We Turned around Swing Trader's Performance

Apurva Sheth
A few weeks back, I shared with you a letter from a subscriber. I received this letter in the first half of November. This was when Swing Trader, our short-term stock recommendation service, was going through a period of bad performance. The poor performance sparked doubts about technical analysis and trading in the mind of this subscriber.

I responded to him in three parts (part 1, part 2, and part 3). I tried to ease his doubts to the best of my ability. I also mentioned that we'd made changes to our process and were working on some more.

We introduced those additional changes to our systems and processes by the end of November. And I am very happy to share with you that these changes have helped us turn around Swing Trader's performance.

One of the changes was additional entry and exit rules. These rules ensured that we do not miss an entry opportunity after spotting the right stock. The exit rules ensured that we got out of the stock if it wasn't moving as per our expectation.

When markets are choppy, stocks often hit stoplosses and then go on to move higher. We tried to minimise this using volatility-based stoplosses along with the traditional stops. I started using Average True Range (ATR) alongside traditional stoplosses in my recommendations.

One of the most important changes to our recommendation process was that we started picking up trades with lower profit potential. When broader markets are in a downtrend, as they have been for the past few months, stocks tend to make smaller moves on the upside and larger moves on the downside. This drastically reduces the number of opportunities with the ideal risk-reward ratio of 1:2 and leaves us with few stocks to trade on the long side. Therefore, we started to look for trades with a risk-reward ratio of 1:1.5.

This change helped us boost our performance, as we took many trades with small profit potential and closed them in short intervals. This helped us improve our profitability and sustain in the rough market environment of the last three months.

When boundaries are hard to come by, a batsman focuses on taking singles and doubles. This keeps the scoreboard ticking and the batting side very much in the game. Similarly, by focusing on trades with smaller profit potential, we have kept ourselves in the game when many traders have been wiped out.

I would also like to mention that, though we started looking for trades with a lower risk-reward ratio, never did we compromise on trades that were giving us bigger rewards for similar risk. Not only did we take singles and doubles, we hit a few boundaries as well. Some of our trades delivered solid returns, even in the bad market conditions.

These changes have resulted in a solid strategy that can be employed in any market condition. And we have already seen the benefits of it trickle down in our performance.

The chart below tells the story of our turnaround.

Our Equity Curve & Nifty since 3rd March 2015

This chart shows the equity curve of our portfolio returns vis-a-vis the Nifty's returns since we started Swing Trader on 3 March 2015. The blue line is our yearly percentage portfolio returns and the orange line is Nifty's percentage returns. You can see that both lines were trending lower until they began to diverge in December. That was when the changes to our system kicked in.

The Nifty has made lower lows in 2016 while we have hit higher highs. We have seen a remarkable turnaround in our performance so far this year. In January, when the equity markets in India crashed, we ended the month in positive territory.

February has been even worse than January for the markets, but our position hasn't changed much. And our recent trades have helped us recoup most of the losses we incurred earlier in the month.

Overall, our portfolio is yielding a positive return for the year. You know how markets have behaved since the start of this year. Compared to that, our performance has been very strong. And with the new, improved process in place, I am confident that going forward we will do even better.

What strategies did you adopt to survive during the recent market crash? Share your views in the Club or share your comments here.

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2 Responses to "How We Turned around Swing Trader's Performance"
NIkesh
18 Feb, 2016
Thanks for sharing valuable information, indeed analysis.Like 
S Surendranath
18 Feb, 2016
A Tall Claim.. It is one year and you have to give the performance from the beginning upto date and honestly announce the losses that your system has caused... don't forget your statements of giving 20% return when this was introduced... Substituting '%'in the place of absolute figures, of targets/stoplosses, loudly announcing 'decent' gains when occasionally a scrip goes up.. these gimmicks won't prove the result.. Apurva,- sorry to say this, - you have proved to be a good academician to be a teacher in classes, but not a smart trader.. may be that is not there in you.. anyway, all the best..Like (1)
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