The original Sincerity-I Trader, launched in 2009 is still the top performing end-of-day (EOD) JSE TOP40 timing model in terms of absolute and risk-adjusted returns since March 2009 and remains our 2nd most popular market timing model after the high-end real-time SwingTrader ULTRA. The performance of this model together with its trading chart were published every weekend in the "TOP40 TIMERS" report of the JBAR 4-pack report, and email/PowerCHAT alerts were posted whenever the strategy opened or closed a new trade. This is the one timing model our welcome emails urged new clients to start with on SATRIX-40, before trading individual shares. The execution of the strategy can be implemented with any instrument that tracks the J200 TOPI Index, namely the SATRIX-40 Exchange Traded Fund (ETF) or even SAFEX ALSI futures contracts or Top-40 warrants.

For 2013, we have introduced major modifications to Sincerity-I which will now be called "Sincerity-II" and will continue to be included as part of the PowerStocks PRO (R2,999 per 6 months) subscription. The improvements are:

  1. Incorporation of J200 TOPI Index
  2. Enhanced trailing stop mechanism
  3. Significant performance enhancement
  4. Optional risk reduction profit targets
  5. Live Trading/Signal "Heads-up-display"
  6. Automated email/SMS alerts

1.Incorporation of J200 TOPI Index
Sincerity has been designed, back-tested and re-calibrated to work directly on the J200 TOPI "TOP40" index (as opposed to the J203 ALSH Index). This allows for easier translation of levels, stops and profit targets displayed on the new Live-Trading Heads-up display (HUD) to the underlying instruments you may be trading to execute the strategy.

2."Ratchet & Clank" Trailing Stop Mechanism
The one problem with Sincerity-I was that often the strategy would sacrifice 3-4% in peak-gains before striking the Donchian end-of-day support-level trailing stop. We have developed a methodology to largely eliminate this issue that significantly increases the performance of Sincerity-I. On the new Sincerity-II live trading chart in the HUD, whenever we initiate a new long trade, you will see 2 thick dotted lines appear called "Ratchet" and "Clank" respectively.

Ratchet : Whenever the J200 index closes above the "Ratchet" target, then the blue dotted line becomes your new stop. Effectively we are "ratcheting up" your stop from the Donchian level to the new higher level to "lock in" profits. You then close your trade if the J200 index closes below the "Ratchet" stop.

Clank : Whenever the J200 index closes above the "Clank" dotted lines, you sell everything and close your trade immediately

Donchian : If you are long and the J200 index closes below the red dotted Donchian stop, you sell everything and close your trade immediately, just like in the old strategy. This could happen if during the course of your long trade  J200 never gets above the "Ratchet" stop or if J200 stays above the "Ratchet" stop for a long period and the Donchian stop "catches up" with it.

The above 3 rules are effectively your 3 EXIT RULES for Sincerity-II. The chart below describes the concept:

In the above chart, we made more gains than the old Sincerity-I strategy that only exited when the blue J200 closed below the red Donchian stop. But more importantly we avoided 13 working days in the market (equivalent to 3 weeks) that the old strategy had to endure before hitting the red stop-line. Thus, we made more money with far less exposure to the gyrations of the JSE which means far superior risk-adjusted returns.

3. Performance Enhancements
The new trailing stop methodology discussed in the prior section significantly boosts the performance of Sincerity-I. Below are side-by-side trading statistics since this bull market commenced in March 2009 of the original Sincerity Strategy and the new "Ratchet & Clank" strategy:



As at 13 May 2013, we see that since March 2009, the standard Sincerity model turned every R1 invested into R1.86 (86% return) versus the J200 buy-and-hold that turned R1 into R2.03 (103% return.) However, the Sincerity-II strategy turned every R1 into R2.47 for a staggering 147% return. What makes this more impressive is that the new strategy was only in the stock market 50.9% of the time. So the new strategy delivered 1.42 times the performance of the buy-and-hold for half the exposure/risk!

Equally impressive is the % of time the 20-day rolling return "% Neg. 20d RR" was negative. This was only 30.7% of the time versus the old strategies' 39.3% of the time and the J200's 42% of the time. So your equity curve growth is subject to far less draw-downs, giving you a "smoother" ride to the top.

Also important is the gain/loss ratio which is the % points we accumulated on the winning trades (Pts Up) divided by the losses we accumulated on the losing trades (Pts Dn). The new model claws back 4.12 % points for every 1% point it loses versus the old model that only claws back 3.14 % for each 1% loss. This may not sound like much, but in the world of high frequency trading models, this is a step-change of sorts.

Note how Sincerity Mk-II was in the market for only 50.9% of the time, versus the old strategy that was in the market for 64.2% of the time. This is because it gets out closer to the real peaks and manages to avoid that "curl-over the top" that bedevils all trend-following trading systems.

4. Optional risk reduction ratchet-stop targets
These  targets are a means to reduce risk and increase win ratios. The  idea is that you ratchet up your Donchian trailing stop when J200 strikes certain targets, "locking in" your winnings just in case the trade curls over prematurely and turns into a loss. The deployment of the targets always reduces your overall achievable returns since you preclude the contracts you have just sold if the higher stop should be breached, from taking part in further gains, but if they are intelligently chosen, you can minimise this difference whilst increasing your win rates.

We have 2 optimised ratchet-stop targets available as thin dotted blue lines on the live trading chart, "MAX-WIN" and "ALL_ROUND". These are two strategy options we back-tested for optimal risk-reduction performance. You must chose only one during the course of a trade, you cannot deploy both. Deploying both means you miss a significant portion of those 7-11% wins that ultimately give the strategy its high gain/loss ratio and high returns.

OPTION-1 : By selling your holdings when the J200 index closes below the MAX-WIN target from above, you raise your win rate from 57.6% to 66.7%. This means far fewer losing trades, but comes at the price of long-term absolute performance.

OPTION-2 : By selling your holdings when the J200 index closes below the ALL-ROUND target from above, you raise the consistency (minimise the variance) of your trade winnings considerably. It doesn't help you with win rates but it means far less differences between your highest win and your lowest win. Wins in the Ratchet & Clank strategy have a 4.26% deviation around the mean whereas wins in the ALL-ROUND strategy deviate only 3.35% around the mean.

The two options above are additional rules applied to the Ratchet/Clank/Donchian rules discussed in Section 2. The addition of either one (and only one) of these rules to the trading strategy produces the following trading statistics:


The first table shows a much higher win rate (smaller number of trades are losing trades) but reduces returns somewhat. The second table has a respectable return (slightly above the R2.03 of the  J200 buy and hold) but also has very good gain/loss ratios and much more consistent trade results (the average win divided by the standard deviation of the wins yields a high number.) The "All Rounder" model, which is only invested for 44% of the time provides the best overall risk-adjusted return (hence it is a good "all-rounder.")

If you are a beginner at mechanical trading on the J200 index, it is recommended you start with the "MAX-WIN" model and move on to the "ALL_ROUND" model before settling on the "Ratchet & Clank only" model. This allows you to get used to the system and your trading platform and getting to terms with the emotions surrounding trading that could sabotage your trades. It also builds your confidence. This suggestion is based on the fact that when you are new to anything on the stock market, preservation of capital is more important than return on your capital.

The total return on an initial R1.00 over time since March 2009 of the various strategies are displayed below:


Remember, just because a timing strategy makes less money than the J200 "Buy and Hold" does not necessarily mean it is a worse option - how long the timing strategy was invested in the stock market is also important. So although you may be dismissive of the "All Rounder" strategy you have to remember it made the same returns as the "buy and hold" by only being exposed to stock market risk 44% of the time. The "buy and hold" was in the market 100% of the time. For 56% of the time the "All Rounder" model was safely tucked in the bank earning fixed interest (which we have not included in the above calculations but is likely to improve the returns on all the timing models by a significant margin.)

5. Live Trading Signal "Heads-up display" (HUD)
The trading HUD is available by logging in to your PowerStocks account on Sharenet and clicking on the CHARTS menu ("A") and then the SINCERITY tab "B". It is very similar to the SwingTrader ULTRA HUD but obviously not as sophisticated:


Data is daily and is 15-min delayed. The data shown is timestamped at "G".

Function tabs are at "F". Click on the green "recycle" tab (top right) to refresh data if you have been looking at the screen for longer than a minute and want more up-to-date data to be fetched and displayed. The data will not update itself automatically on your screen. Every time you click this icon, newer data will be fetched but the minimum update period we keep is 1 minute and of course, the data is 15 minute delayed. Click on the "i" info-button for more details and instructions about the specific chart you are looking at. Clicking on the small down-arrow tab in this section removes all the menus at the top of the page so the full chart fits into your iPad/mobile device screen.

The strategy shown is the top-performing RATCHET & CLANK strategy described in Section-3 above. Blue shading shows when the strategy is long and a green or red percentage will appear on the top of each blue shaded area to depict profits or losses in % for the trade. Outside of the blue shaded areas, the strategy is in CASH. The strategy does not short the market. The current trade as at 14 May is showing a 6% profit. When we go long due to the Sincerity Index (black line) rising from 0 to 1 or from 1 to 2 then a vertical thick blue line will be displayed.

The red dotted line is your standard Sincerity Donchian support stop. Its an end-of-day stop meaning you base your decisions on what you think the candle is going to close at (above or below the red dotted line). Therefore it is best you leave trading decisions to 4:30pm onwards.

Section "C" shows an equity curve with a R10,000 starting account precisely 18 months ago. It will move up and down daily as the trade makes profits or losses.

Section "D" is a scrollbar that allows you to go inspect trades up to 18 months back. It also has grab handles on either side where you can zoom in/out the view on the screen. Alternatively you can click on the tabs in "E" for default 1-month, 3-month, 6-month, YTD, 1-year and 18-month (All) views we have set up for you.

Holding your mouse pointer over any point on the chart will reveal a pop-out box with the various data points highlighted for the day in question. The example below is for the current day (extreme right-most candle)


The two risk-reducers "BEST WIN" and "ALL-ROUND" are the thin dotted lines on the bottom, and the stop ratchet "RATCHET" and the exit target "CLANK" are the thicker dotted lines higher up on the chart. J200 values are displayed so you can use them to program in stops or limit orders on your trading platform. EQUITY refers to the size of the hypothetical R10,000 starting account since exactly 18 months ago. This value may change from day to day even if the J200 does not move, as this is a rolling 18-month return.

6. Automated email/SMS alerts
We are developing a control panel in the ACCOUNTS section where you can at any time go select all the timing models that interest you and if you wish to receive email and/or SMS alerts whenever these strategies hit targets/stops or place new trades. This will be available around 3rd quarter 2013. For now you will have to keep relying on looking at the chart daily yourself or monitoring the PowerCHAT TOP40-Timing topics or receiving the email/SMS alerts we currently send you for ALL the timing models.

QUICK DUMMY GUIDE
All of the following guidelines are valid, high-performing robust TOP40 trading strategies using the Sincerity Trader framework. We start with the lowest risk (lowest return) strategies and progress to the higher-return (but higher risk) strategies.

1.BEGINNERS - Start with the MAX-WIN model
Open a long trade with Sincerity trader with SATRIX40 ETF shares (JSE code STX40)
Sell everything if J200 closes under BEST WIN target from above (lowest thin dotted line)
Sell everything if J200 closes under RATCHET target from above (1st thick dotted line)
Sell everything if J200 closes above CLANK target from below (sell immediately)
Sell everything if J200 closes below the red dotted DONCHIAN trailing stop

2.INTERMEDIATE - progress to the ALL_ROUND model
Open a long trade with Sincerity trader with SATRIX40 ETF shares (JSE code STX40)
Sell everything if J200 closes under ALL ROUND target from above (2nd thin dotted line)
Sell everything if J200 closes under RATCHET target from above (1st thick dotted line)
Sell everything if J200 closes above CLANK target from below (sell immediately)
Sell everything if J200 closes below the red dotted DONCHIAN trailing stop

3.CAPABLE- progress to the RATCHET & CLANK model
Open a long trade with Sincerity trader with SATRIX40 ETF shares, Single Stock Futures or SAFEX ALSI future contracts
Sell everything if J200 closes under RATCHET target from above (1st thick dotted line)
Sell everything if J200 closes above CLANK target from below (sell immediately)
Sell everything if J200 closes below the red dotted DONCHIAN trailing stop

4.EXPERIENCED- progress to the RATCHET & CLANK model with 2x your position sizing budget
Open a long trade with Sincerity trader with SATRIX40 Single Stock Futures or SAFEX ALSI/ALMI future contracts
Sell 50% of positions if J200 crosses under BEST WIN target from above (lowest thin dotted line)
Sell balance if J200 closes under RATCHET target from above (1st thick dotted line)
Sell balance if J200 closes above CLANK target from below (sell immediately)
Sell balance if J200 closes below the red dotted DONCHIAN trailing stop

5.THE GURU- progress to the RATCHET & CLANK model with 2x your position sizing budget
Open a long trade with Sincerity trader with SATRIX40 Single Stock Futures or SAFEX ALSI/ALMI future contracts
Sell 50% of positions if J200 closes under ALL ROUND target from above (2nd thin dotted line)
Sell balance if J200 closes under RATCHET target from above (1st thick dotted line)
Sell balance if J200 closes above CLANK target from below (sell immediately)
Sell balance if J200 closes below the red dotted DONCHIAN trailing stop.

Like this strategy? For even double this performance, and much higher frequency of trades with real-time profit targets (as opposed to end-of day decision making), try our SwingTrader ULTRA offering. It is R949 per month over and above your PowerStocks PRO subscription. You can subscribe to ULTRA here.
 
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