On Monday, June 27th, the second day of the Brexit sell-off, I was stopped out of my position in MCD. Being stopped out MCD does have a brightside however.
As you can see in the chart below, my stop was just tripped by a hair … and I’ve had to watch MCD immediately bounce right back up and soar $4 per share in the past three days since I was barely stopped out.
Nope. I’m lovin’ it. Let me tell you why.
The SSI Stop price on MCD was $116.38. On June 27th, MCD closed at $116.30 – just 8 cents below my stop! The next morning, I sold my shares in MCD for $118.15 per share. I was happy to be able to sell at a higher price than where my stop was. As of Friday, July 1, MCD closed at $120.40.
Now that we’ve got all our current numbers noted, let’s take a look at the bigger picture.
MCD has a very low Volatility Quotient. The VQ% has been between 10% and 11% since the beginning of 2015. The low VQ% allowed me to put more money into this trade than I would have been able to with a more volatile stock.
In the period of time that I held the MCD stock, the volatility of the overall market increased. There were two periods of time that the market dropped by 10%, yet my boring, defensive MCD continued to move higher.
The high on MCD occurred on May 10, 2016. Nobody knew that was going to be the near-term high on MCD, but it began moving lower after that. The SSI Stop signal was finally triggered last week.
I made over 26% on this trade, including the dividends … and with a larger position size because I knew that MCD was a very safe low volatility stock. The S&P 500 over the same period of time is essentially flat.
So I made money … good money … and I beat the market. But that’s not why I’m happy that I was stopped out of the trade.
I’m happy to have been stopped out because I had the goal to sell when my stop was hit and I did it. I’m happy because I formulated a sound strategy and I executed it … and, yes, I’m happy that it worked out so well.
I learned long ago that it’s a fool’s errand to be happy because of what I won or lost on a trade. I judge success or failure by how well I formulated and executed my plan. You should too.
Did I leave some money on the table with MCD? Quite possibly. Do I regret it? Not a chance.
And in case you, or I, need any reminders of what can come from not following our stops, let me share with you a little Brexit related study I did on widely traded stocks from the London Stock Exchange.
A well-known financial publisher in London asked me to analyze some of the most actively traded stocks on the LSE to see how TradeStops might have helped British investors with Brexit.
What I found even surprised me.
Of the 28 actively traded stocks that we analyzed, fully 19 of them had been stopped out by the TradeStops SSI system well before Brexit. Of the remaining 9 stocks, 4 of them were stopped during the two-day selloff in the immediate aftermath of Brexit.
As of last Friday’s close (including the big rally), the average return after having stopped out for these 23 stocks is -15.6%! The average gain from the SSI entry signal to the SSI stop loss for these same stocks was 89.2%.
Now those are inspiring numbers … and the only way you put the odds in your favor of achieving those kinds of rewards won and disasters averted is by following a disciplined investing system – like the TradeStops system of the Stock State Indicator and equal-risk position sizing.
Make a plan. Turn off the telly. Execute your plan. I’m lovin it!
Richard M. Smith, PhD
CEO & Founder, TradeStops