For the past couple of Tuesdays (here and here), we’ve been exploring how our Stock State Indicator (SSI) system has performed against a buy and hold strategy on the Dow Jones Industrial Average (DJIA) during various types of market conditions.
Today I’m going to show you how what I call our “2VQ” strategy of adding to our winners boosts the outperformance even more.
When we left off last week, we were looking at this chart:
This is a chart of the risk-adjusted returns for the DJIA SSI strategy and the DJIA buy and hold strategy. The SSI strategy greatly outperformed the buy and hold strategy on a risk-adjusted basis.
We’ve talked about risk-adjusted returns before. If you want a more in-depth review you can find it here. The simple idea, however, is how many units of reward did you get for every unit risked. If you can get higher reward for lower risk, you should do it.
Our 2VQ strategy is also known as doubling up on your winners. If you want, you can review the full strategy here. Bottom line … by investing more money as a stock is moving higher, we have the opportunity to increase our profits as the momentum continues to climb.
Here is how our SSI + 2VQ strategy performed against the buy and hold and SSI only strategies:
The “adding to winners” strategy even further increased the rewards gained for the risks taken beyond the gains that the SSI strategy achieved alone. What I particularly love to see is that the outperformance was consistent and enduring. Once the 2VQ strategy pulled ahead, it never relinquished its lead.
It’s great confirmation that our core risk management strategies outperform buy and hold in different market conditions over an extended period of time.
It’s hard to believe that adding to your winners can actually lower your risk but when you look at it the right way, it clearly does.
Make more … risk less. That’s the TradeStops way,
Richard Smith, PhD
CEO & Founder, TradeStops