Evaluation Overview
Back Testing and Paper Trading are two activities that will help you evaluate the effectiveness of the Most Excellent Investor watch lists before you trade with them using real money. A suggested five day evaluation method is outlined below.
Suggested Evaluation Method
Trading Days 1 - 2. Back test* to get familiar with how the watch lists work and their accuracy during the day. At the end of a trading day look at stocks in Most Excellent Investor watch lists and compare the approximate trade times given with what happened on the intraday chart for the same stock from that time going forward in the trading day.
Trading Days 2 - 3. Paper trade** to gain confidence in using the Most Excellent Investor watch lists. Use the watch lists to find stock trades as if you were making actual stock trades using the watch list - but don't take actual positions with real money yet. At the end of the day check the intraday chart for the selected stocks and see how you would have done.
Trading Days 4-5 - If your confidence in the watch lists has been confirmed by your back testing and paper trades, then take real trade positions that you are comfortable with using your desired stock pick(s) from the watch list. Close the position at your preference. Never risk more than you can afford to lose. At the end-of-day evaluate:
- Did you make a profit? Great!
- Did your stock position lose money? If so, what was the reason? Did the entire market (DJIA,NASDAQ, S&P 500) have a bad day, if so how did your loss compare?
- Can you see a way to improve your technique of using the watch list(s)?
For instance, did you hold a profitable position for too long and the stock price retraced into losing territory after an initial gain? When trying to establish an opening position did you chase the price up so that you paid too high of an entry price? (Please note: There is no need to chase a stock with a price that rises above your desired entry point before you can execute your buy transaction. There will always be another opportunity with another stock at a desirable entry point that you will be able to buy into. The U.S. stock market is very fluid and Most Excellent Investor watch lists spotlight multiple opportunities per hour.)
Get Membership Access . . . Sign-Up Here!
*Back Testing Evaluation
1. How many stocks from the watch list made a profit by the end of the day after a trading position would have been taken within the approximate time frames of the hourly watch list?
2. How large was the profit percentage?
3. What was the ratio of winners to losers (winners / losers)?
**Paper Trading Evaluation
1. Were your paper trading positions profitable by the end of the day? How profitable?
2. Were your paper trading positions profitable at any point during the intraday? Usually the day's high price is reached intraday before the market closes, so a long position that is closed out intraday can usually yield a greater return.
Get Membership Access . . . Sign-Up Here!
Disclaimer: Past results may not be indicative of future performance. Trading stocks involves risks. You should never risk more than you can afford to lose.