Where Wealth Begins

Where Wealth Begins

Learn to Build a Portfolio

PRESENTED BY: DENNIS W. WILBORN

DisclaimerU.S. GOVERNMENT REQUIRED DISCLAIMER – COMMODITY FUTURES TRADING COMMISSION

FUTURES AND OPTIONS TRADING HAS LARGE POTENTIAL REWARDS, BUT ALS O LARGE POTENTIAL

RISK. YOU MUST BE AWARE OF THE RISKS AND BE WILLING TO ACCEPT TH EM IN ORDER TO INVEST

IN THE FUTURES AND OPTIONS MARKETS.

DON’T TRADE WITH MONEY YOU CAN’T AFFORD TO LOSE. THIS IS NEITHER A SOLICITATION NOR AN

OFFER TO BUY/SELL FUTURES OR OPTIONS. NO REPRESENTATION IS BEING MADE THAT ANY

ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED IN

THIS TRAINING. THE PAST PERFORMANCE OF ANY TRADING SYSTEM OR MET HODOLOGY IS NOT

NECESSARILY INDICATIVE OF FUTURE RESULTS.

CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN

LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESU LTS DO NOT

REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN E XECUTED, THE

RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN

MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PRO GRAMS IN

GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF

HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY

TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

ALL MATERIALS PRESENTED ARE FOR TRAINING PURPOSES ONLY . TRADER S SHOULD PAPER

TRADE ANY NEW METHOD PRIOR TO RISK OF PERSONAL CAPITAL.

Where Wealth BeginsLast month Lee Tanner presented his Model Portfolio based on trading IBD Quality Stocks from the IBD 50, Leaderboard, Sector Leaders…

Points Lee Made that Resonated:

1. Stay Fully Invested—100% Margin

2. Trade a Solid System that will take you in and out off the market at the Right Time

3. True Wealth is generated by working a Portfolio Building Plan—Strategy I, and doing it again and again and again!

4. Patience, Persistence, Discipline, Confidence, Compounding

5. Some Stocks Work, Some Don’t—Fire the ones that don’t

Copyright ATTS 2007-2015

Where Wealth Begins

I was convinced that one of my weak spots was the ability to stay with a winner and build a portfolio!

I had the tools but had not spent the time to develop my wisdom in this area!

I wanted to know:o What would be required to build a portfolio

o What should I expect

o What about the rules

o How can I simplify & clarify

What if I applied Lee’s concepts to trading my system on a smaller account? How would it have done in 2015?

The following is what I learned in back testing and applying what was learned.


Where Wealth Begins

Conditions

1. Define Trading Capital

2. What Stocks

3. Define Rules

4. Test

5. Analyze & Refine


Where Wealth Begins

Conditions

1. Define Trading Capital~Bill O’Neil Challenge: $5000 Marginable

In the mid-60’s Mr. O’Neil started with $5000 of saved and borrowed money

at the beginning of a Bull Market and turned it into over $200K in a year.

Can this be duplicated? It provides an good starting point.


Where Wealth Begins

Conditions

2. What Stocks~~IBD 50: First list of 2015

I’ve been studying the 1st IBD 50 (100) list of the year since 2007.

Each year it has outperformed the Indexes by a significant

percentage.

It’s where the Big Fish Swim!

What about 2015?


Where Wealth Begins

Conditions


Preliminary analysis of the first list of 2015 again shows the IBD 50 was the place to

be to find great stock! First two data points.


Guidelines for Picking Stocks –A Start

• Start Picking from the IBD 50, Sector Leaders, or custom MarketSmith screen.

• Annual Earnings Growth +25%,

• Quarterly Earnings Growth +25%, +50% if better, +75% is better, …..

• Quarterly Sales Growth +20%

• Accelerating Earnings and Sales Growth ( Very Attractive)

• Something NEW

• Do and Grade a Stock Checkup, Pick Grade B or better

• Full and Proper Base, describe the base.

• A/D Rating C or Better

• EPS Rating ≥ 95

• RS Rating ≥ 95

• RS Line headed up and making a new high.

• Composite Rating ≥ 95

• U/D Volume Ration ≥ 0.9

• ROE ≥ 17%

• PTM ≥ 18%

• ROE + PTM ≥ 30%, 40% or even ≥ 50%

• Read IBD articles, particularly New America.

• Visit the company website

• Concisely state the company business and what is “new” that is driving growth

Lee Tanner Presentation to BAMM Nov 20159

Where Wealth Begins

Conditions


By limiting candidates to only the 1st IBD 50 of the year, it

also limited some of the other big winners that showed up

on Leaderboard, MarketSmith or Sector Leaders.

But this limitation also helped to reduce the potential of

“Cherry Picking” great stocks after the fact!


Where Wealth Begins

Conditions

3. Define Rules~~Both Trading and Stock Picking to assure no cherry

picking!

Rules covered three areas:

1. What to Buy – Candidates from the 1st IBD 50 of 2015

2. How much to Buy—Determined by $5000 Account

3. When and how to Buy—ATTS Rules

4. When to Sell—Lee’s rules with some modifications


Where Wealth Begins

Conditions—Defining Rules

2. How much to Buy—Determined by $5000 Account


Where Wealth BeginsConditions—Defining Rules

3. When and how to Buy—ATTS Rules

Trigger: Close above 8 day EMA

Entry: Pullback Approaching the 8 day EMA within 0.25-0.50 cents

Buy ½ position of full margin rounded down to full position ending with zero or five—Preferably ending in zero makes the math easier!

Add 2/3 of remaining shares when up 2.5% from Entry Price

Add last 1/3 of remaining shares when up 4.5% from Entry Price

Do Not Buy and Hold the Week Before Earnings!



1/8/15: Close above 8 day EMA

1/9/15: Pullback intraday approaching 8

day EMA: Enter at 72.74 with a

conditional order

1/9/15: Adds Start at 74.55

Where Wealth BeginsConditions—When to Enter Examples

2014 2015

SWKS


Questions?



4. When to Sell—Lee’s rules with some modifications

o Sell Rules fell into three categories

a. Hard Sell Rules to Protect Capital

b. Hard Sell Rules to Protect Profit

c. Guidelines and Rules of Thumb


Where Wealth BeginsConditions—Defining Rules: When to Sell

Protective Sell Rules:

• Sell -4% below entry price. Why not 7-8%?

• If -4% failure three times stop buying and study.

• If portfolio is down 4% for the week (no margin) to 8% (full margin), sell weak stocks

to reduce exposure. Generally sell at least one full position to cut risk.

• Sell if a breakout did not happen or stalled out, but mostly don’t use this rule unless

you are sure. (Failed Breakout Sell Rules)



Profit Protection Sell Rules

• Take gains +20% to +25% above buy point, unless within the first 8 weeks. (Profit Goal Sell Rule.)

• Stocks surging up past the sell goal may be held using the 8-day or 8-week EMA as a selling guide.

(Short tern gain extension)

• When profitable 6%-11% use 10%-12% cushion. Adjustable Trailing Stop (Decline from the peak

sell rule)

• Sell on Close below the 8 week EMA

• Sell if it plunges below the 50-day on huge volume.

• Sell if it gaps down on huge volume. (Big Gap Down on Huge Volume)



Guideline and Clarification

• Sell only if written sell rule is triggered.

• Select a few stocks to hold for longer term, larger gains

• Keep a 3 to 1 profit to loss plan. (Profit-to-Loss Ratio Rule)

• If up ≥ 20% in ≤ 3 weeks hold 8 full weeks. (Certain-teed hold rule)

• Don’t sell for profit taking for the first 8 weeks. During this time sell only if a protective sell rule is triggered. This is like the 25% profit goal, #2. Hold until you reach 8 weeks, and +25%. In a few cases you might hold a stock for 13 weeks before concluding it is not going to perform. (Time Goal Sell Rule)

• If closes a week up 60% from IP then use big cushion sell rules. (Big cushion sell rules)

• Probably sell if a breakout on good volume stalls and goes negative within a day or two. (Failing Breakout sell rule.)



Guideline and Clarification

• Assess risk and sell if needed before earnings, but hold if possible for the earnings report. (Earnings Release Hold Rule)

• Generally hold stocks that are going sideways for 13 weeks (one quarter) before dumping it, but the least performers may be sold to feed winners or buy new opportunities.

• If market corrects you may sell lagging positions to reduce exposure.

• May sell is if a stock is persistently weak after owning it for eight week.

• Plunged significantly (4%-5%) on huge volume (+100% or more).

• Sell all of a stock in a climax top. If in doubt you can scale-out.

• Usually sell all of a stock that has a takeover offer.

• Sell all or part of stock if afraid or confused.


Where Wealth Begins

Break Back in 15 Minutes


Where Wealth BeginsConditions— 4. Back Testing

Process of picking stocks

• Start 1st week in January

• Go stock by stock and pick the first stock that provides a valid entry

• When the number of stocks are full, stop searching and manage each week

• Use Sell Rules & Guidelines


Where Wealth BeginsConditions—Testing Criteria & Tools—Week 1


Where Wealth BeginsConditions—Testing Criteria & Tools—Week 1


BITA

1/2/15: Close above 8 day EMA

1/6/15: Pullback intraday

approaching 8 day EMA

1/9/15: Spikes up over 20%

1/12: Falls > 12% from high

Important to note: Must do home

work daily/nightly to reset

tracking spread sheet

1/9

1/6

1/12

Where Wealth BeginsConditions—Defining Rules: End of Jan


Where Wealth BeginsConditions—Defining Rules: End of Feb


Where Wealth BeginsConditions—Defining Rules: End of March


Where Wealth BeginsConditions—Defining Rules: End of April


Where Wealth BeginsConditions—Defining Rules: End of May


Where Wealth BeginsConditions—Defining Rules: End of June


Where Wealth BeginsConditions—Defining Rules: End of July


Where Wealth BeginsConditions—Defining Rules: End of Aug


Where Wealth BeginsConditions—Defining Rules: What Happened in August


8/21100% Out of the Market!

Where Wealth BeginsConditions—Defining Rules: End of Sept


Where Wealth BeginsConditions—Defining Rules: End of Oct


Where Wealth BeginsConditions—Defining Rules: End of Nov


Where Wealth BeginsConditions—Total Gained from $5000 Start


Where Wealth BeginsConditions—% Invested


Where Wealth BeginsConditions— S&P Correlation


Where Wealth BeginsConditions—Analysis & Refinements

• Total Stocks Traded in 11 months = 11 (BITA, SWKS, NXPI x 2, AFSI x 2, NOAH, AMBA, FB, ADS, TSM x 2, AKRX, WAL)

• Average Hold Period = 49 Days

• Average Return on Sold Positions = 14.3%

• Highest Return = 46.3% AMBA

• Lowest Return = -6.8% WAL

• Portfolio up 327.8% by end of November

This exercise is a Model Portfolio—Returns simulate perfect trading conditions. This is not a promise of similar returns. The market has a mind of it’s own!


Summary• Challenge: After getting up to $10K much harder to stay fully invested

• Go to next higher level of stock the week after new $ Thresholds are achieved

• Surprises: How well system sized portfolio to match market conditions almost automatically. The Rules automatically sold at the right time so capital was available for the next upswing

• Managing even a small number of stocks requires diligence, patience, discipline & desire!

• The IBD Stock Lists are a great place to start the search

• Staying fully invested when its appropriate works!

• Focus for ATTS Strategy 1 going forward


Where Wealth Begins

Questions?


Where Wealth Begins

Documents

Transcript of Where Wealth Begins