TradeStops X-Rays AAPL

Today we’re going to attempt a tough sell. We’re going to explain why a 420% gain is better than an 1100% gain using possibly the most recognizable stock in the world – Apple Inc. (AAPL).

It’s no secret that Apple Inc. (AAPL) has held the public’s imagination for years.

And without digging into the numbers, it’s a pretty safe bet a great number of TradeStops members currently own AAPL, have owned AAPL, or are interested in owning AAPL.

Let’s take a close look at AAPL through the lens of the website and get a feel for where the stock is at this point in time.

Looking at the Stop Loss Analyzer under the Research Tab, the default chart for AAPL looks like this:

This shows a rather bleak picture of a stock that is trending down… and has been for almost a year.

AAPL moved higher during the market’s climb from February through April – triggering an Entry Signal on April 13, 2016. But it hit the SSI Stop a month later on May 12, 2016.

The stock did go ex-dividend during this time which helped a bit. The entry price was $112.10, the dividend was $0.57 on 5/7/2016, and the SSI stop price was $90.52. The price dropped $21.01 over this period of time which was a loss of 18.84%.

But this is not the whole picture. One trade does not tell you everything as to how the TradeStops SSI system has performed with AAPL.

Let’s take a look at the TradeStops SSI Entry Signals going back 10 years. Here’s the picture:

In the ten-year period of time, we see a completely different picture. To make this easier to see, the green areas circled represent the SSI Entry Signals triggered and the red areas circled represent the SSI Stop Signals triggered.

As you can see, investing in AAPL using the SSI Entry Rule and the SSI Exit Rule resulted in a gain of over 420%. Here are the statistics. The TradeStops SSI Entry Zone was triggered 5 times. Three times, AAPL stopped out with a gain. Two times, AAPL stopped out with a loss. The average gain for the three trades was 156.72%. The average loss for the two trades was 23.53%. The average gain across all five trades was 84.62%.

This looks really easy, doesn’t it? Why not just buy AAPL and hold it? The return would have been better. The 10 year return on AAPL using buy and hold was over 1100%!

Here’s where it’s smart to pay attention to the science of behavioral investing.

Because while most of us like to think we would have held on throughout AAPL’s many downturns, the behaviorists tell us otherwise.

We spend all that time researching a stock before we buy, but we hardly spend any before we sell. Why is that?

As we’ve written about before, the kind of loss aversion that contributes to our survival as a species doesn’t work when it comes to investing.

Once a winning stock reaches a certain psychological level, we’re almost compelled to lock in our gains.

And of course, if we see the stock moving higher after we’ve sold, we’re extremely likely to get back in at or close to the top.

So even if the stock drops well below even our original purchase price, our aversion to loss will cause us to ride the stock all the way to the bottom.

The average Volatility Quotient over the ten-year period was about 26%. Would you have held onto the stock knowing that the normal volatility had been violated by 50% to 100%? Or would your emotions have gotten you out at exactly the wrong time?

It’s easy to look back and play Monday Morning Quarterback, but you don’t get to do that when investing with real money. That’s why it’s so important to have a plan. A plan based on historically-proven methodologies…

A plan like investing using the TradeStops SSI Signals.

These signals were developed by TradeSmith to give you conservative Entry and Exit Signals. To differentiate between a temporary move higher and when an uptrend has actually been initiated. To show you the difference between normal “noise” in a stock and when the trend has changed.

And the most important thing to keep in mind is that the SSI indicators help us overcome the million years of programming that screams “Sell!” and starts the downward spiral of over trading.

If you still own AAPL, do you have an exit strategy? How much more could you lose before you’re stopped out? If you don’t know what you are going to do, now would be a good time to answer these questions.

If you don’t own AAPL and would like to, you might have to show some patience before reinvesting in APPL. The stock continues to move lower and the SSI Trend Line is still moving lower as well. The stock has dropped almost 20% at the same time that the S&P 500 has dropped about 5%. If the S&P drops another 10%, the price of AAPL could drop even more. It will take a while before AAPL generates a new SSI Entry Signal.

But it’s OK, patience is usually rewarded on Wall Street. And getting into AAPL when the SSI Entry Signal is triggered, with the stock and trend both moving higher, could offer you the best chance for a profitable trade.

The SSI Signals are available for our Plus, Premium, and Lifetime members. Consider upgrading to one of these levels to help you improve your investment results.