I’ve practiced weekly charts trading on three stocks so far: AMZN, SWN and MU.
AMZN
AMZN’s practice session was on 10 Jan. I used the same indicators as when practicing on a daily chart. Specifically, I used EMA15, EMA50 and EMA150. The results are as follow:
| 8 Mar 10 | Buy | 1 | 6.5225 | 5.69 | 6.54 | 2.10% | |
| 9 Aug 10 | Buy | 1 | 6.4735 | 5.29 | 8.9 | 205.03% | Stop loss was based on a recent low |
| 14 Feb 11 | Buy | 1 | 9.525 | 8.345 | 8.37 | -97.88% | |
| 2 May 11 | Buy | 1 | 9.94 | 8.46 | 9.7 | -16.22% | |
| 30 Apr 12 | Buy | 1 | 11.4845 | 9.14 | 12.23 | 31.80% | |
| 26 Nov 12 | Buy | 1 | 12.05 | 10.909 | 12.76 | 62.23% | Stop loss was based on a recent low |
| 10 Jun 13 | Buy | 1 | 14.055 | 12.65 | 14.31 | 18.15% | |
| 30 Sep 13 | Buy | 1 | 16.0785 | 14.31 | 19.16 | 174.24% | |
| 7 Jul 14 | Buy | 1 | 16.965 | 15.19 | 16.02 | -53.24% | |
| 13 Jul 15 | Buy | 1 | 22.6825 | 18.28 | 23.78 | 24.93% | |
| 14 Sep 15 | Buy | 1 | 26.5975 | 23.78 | 24.67 | -68.41% | |
| 19 Oct 15 | Buy | 1 | 28.647 | 24.67 | 31.11 | 61.93% | |
| 11 Apr 16 | Buy | 1 | 30.262 | 26.66 | 34.82 | 126.54% | |
| 4 Jul 16 | Buy | 1 | 36.5 | 34.106 | 39.86 | 140.35% | Stop loss was based on bar low |
| 9 Jan 17 | Buy | 1 | 40.072 | 37.1 | 41.89 | 61.17% | |
| 3 Apr 17 | Buy | 1 | 44.6175 | 41.675 | 46.96 | 79.61% | Stop loss was based on bar low |
| 30 Oct 17 | Buy | 1 | 55.779 | 46.59 | 72.75 | 184.69% | |
| 23 Apr 18 | Buy | 1 | 78.926 | 67.644 | 93.3 | 127.41% | Stop loss was based on recent low |
| 1 Apr 19 | Buy | 1 | 91.6875 | 79.3 | 90.94 | -6.03% | |
| 17 Jun 19 | Buy | 1 | 94.885 | 83.6 | 95.33 | 3.94% | Stop loss was based on a recent low |
| 6 Jan 20 | Buy | 1 | 95.27 | 86.14 | 91.61 | -40.09% | |
| 3 Feb 20 | Buy | 1 | 103.036 | 90.767 | 90.77 | -99.98% | Stop loss was based on bar low |
| 13 Apr 20 | Buy | 1 | 102.9 | 90.77 | 153.65 | 418.38% | |
| 24 Aug 20 | Buy | 1 | 166.25 | 144.4 | 153.65 | -57.67% | I would take this trade if I missed the 13 Apr trade |
| 12 Oct 20 | Buy | 1 | 164.699 | 153.65 | 153.65 | -100.00% | |
| 25 Jan 21 | Buy | 1 | 167.678 | 154.3 | 159.23 | -63.15% | Stop loss was based on a recent low |
| 12 Apr 21 | Buy | 1 | 168.86 | 147.57 | 158.06 | -50.73% | |
| 14 Jun 21 | Buy | 1 | 168.579 | 156.37 | 170.47 | 15.49% | |
| 19 Sep 22 | Sell | 1 | 120.45 | 146.57 | 96.25 | 92.65% | |
| 11 Sep 23 | Buy | 1 | 143.88 | 123.85 | 130.58 | -66.40% | |
| 6 Nov 23 | Buy | 1 | 139.74 | 123.04 | 143.64 | 23.35% | Open position |
Profittability
There is a large winning trade that I may or may not have taken in real life (more on this later).
If I consider this trade, the final balance is $164,741.40 with a maximum drawdown of -12.18%. If I do not consider the trade, the final balance is $141,308.69 with a maximum drawdown of -16.25%.
Both figures above use a modified Strategy 4 for position sizing. Lot size is reduced as long as the previous 2 trades were losers, regardless of the number of days it took to exit the position, as I was too lazy to count the number of days (need to refer to the daily chart for that).
Using a daily chart, the final balance was $207,375.90, with a maximum drawdown of -17.20%. Hence, the weekly chart resulted in a lower final balance, but has a lower maximum drawdown too.
If I increase the risk per trade for the weekly chart to 7.5% and consider the large winning trade, I get a final balance of $205,123.36 with a maximum drawdown of -17.85%, which is very similar to the results for a daily chart. If I do not consider the large winning trade, the final balance is $164,759.83 with a maximum drawdown of -23.54%, considerably worse than using a daily chart.
Analysis
Cheating
After the tech crash in 2022, I entered two new buy trades before the 3 moving averages cross and move in the correct order. Part of the reason is because I know how the stock behaved in 2023. Hence, I was comfortable entering the trades when only two moving averages cross. This is kind of like cheating. Another place where I cheated was the 13 Apr 2020 trade (the large winning trade mentioned above). I remember how Amazon benefited from the lockdown, and was thus comfortable buying after the COVID crash. Without this knowledge, would I be comfortable buying. Due to the above-mentioned reasons, profitable trades from 2020 onwards should be taken with a pinch of salt.
Slower Reaction
Using a weekly chart means I will be slower to react to a change in trend. In the case of AMZN, a Stage 2 uptrend was well underway when I started testing in 2010. Losing trades tend to occur when a trend ends and consolidation or reversal happens. Will a weekly chart catch a reversal too slowly?
Somehow, on a weekly chart, I did not see mid 2020 to end 2021 as a choppy period and ended up with a string of losses. On hindsight, the stock was obviously in Stage 3 during that period, but it did not look too choppy and I kept interpreting that as a stage 2 pullback.
Pros and Cons
The pros for using a weekly chart are as follows:
- The 4 stages can be seen more clearly, although I did misinterpret Stage 3 as a Stage 2 pullback.
- The chart is less choppy and I tend not to be stopped out as frequently due to a slightly breach of the stop loss.
- Transaction cost is lower as the number of trades is lower (31 on a weekly chart vs 72 on a daily chart).
The cons are as follows:
- Using a weekly chart means I will be slower to react to a change in stage.
- Weekly charts tend to have larger stop loss, which can reduce the reward to risk ratio.
- Missing one large trend is more costly as good trades occur less frequently and the profit represents a higher percentage of the total profit.
- Trades on a weekly chart take longer to exit, and may not be suitable when using options.
SWN and MU
Both practice sessions for SWN and MU were done on 11 Jan. I altered the rules and only used two EMAs, EMA10 and EMA30. I was hoping to catch a trend earlier and not be too late to the party.
In addition, I decided to be more stringent with my entry and only look for Stage 2 or Stage 4 trades (more on this in the next post).
Here are the results:
SWN
| 2 Mar 15 | Sell | 1 | 24.8 | 28.02 | 25.81 | -31.37% | Stop loss was based on a recent low |
| 6 Jul 15 | Sell | 1 | 21.72 | 25.88 | 7.37 | 344.95% | |
| 22 Feb 16 | Sell | 1 | 6.91 | 9.9 | 9.09 | -72.91% | Stop loss was based on a recent high |
| 17 Apr 17 | Sell | 1 | 7.37 | 8.83 | 5.85 | 104.11% | |
| 11 Dec 17 | Sell | 1 | 5.38 | 6.72 | 4.64 | 55.22% | |
| 23 Sep 19 | Sell | 1 | 1.95 | 2.58 | 2.22 | -42.86% | Stop loss was based on a recent high |
MU
| 2 Aug 10 | Sell | 1 | 7.21 | 10.09 | 7.45 | -8.33% | |
| 8 Aug 11 | Sell | 1 | 6.04 | 8.45 | 6.54 | -20.75% | |
| 26 Sep 11 | Sell | 1 | 6.17 | 7.42 | 6.74 | -45.60% | Stop loss was based on a recent high |
| 13 May 13 | Buy | 1 | 10.95 | 9.06 | 12.46 | 79.89% | |
| 12 Aug 13 | Buy | 1 | 14.57 | 12.46 | 16.23 | 78.67% | |
| 4 Nov 13 | Buy | 1 | 17.96 | 16.23 | 22.65 | 271.10% | |
| 25 Aug 14 | Buy | 1 | 33.55 | 31.16 | 31.16 | -100.00% | |
| 11 May 15 | Sell | 1 | 26.66 | 29.78 | 17.97 | 278.53% | Stop loss was based on a recent high |
| 14 Dec 15 | Sell | 1 | 13.94 | 18.05 | 11.57 | 57.66% | |
| 21 Nov 16 | Buy | 1 | 19.39 | 16.17 | 28.56 | 284.78% | |
| 4 Sep 17 | Buy | 1 | 32.98 | 28.56 | 40.68 | 174.21% | |
| 26 Feb 18 | Buy | 1 | 46.9 | 41.19 | 48.72 | 31.87% | |
| 15 Oct 18 | Sell | 1 | 41.22 | 52.3 | 36.61 | 41.61% | |
| 16 Dec 19 | Buy | 1 | 52.76 | 43.92 | 52.66 | -1.13% | |
| 4 Jan 21 | Buy | 1 | 76.48 | 63.58 | 81.3 | 37.36% | |
| 11 Apr 22 | Sell | 1 | 70.63 | 94.07 | 60.96 | 41.25% |
Profitability
For SWN, using 7.5% risk per trade and a starting balance of $100,000, the final balance is $126,256.64, with a maximum drawdown of -5.47%. Pretty impressive.
On a daily chart, using 5% risk and strategy 4 for position sizing, the final balance was $114,660.12 with a maximum drawdown of -27.73%.
For MU, using 7.5% risk per trade and a starting balance of $100,000, the final balance is $225,356.15 with a maximum drawdown of -7.50%. Once again, an impressive performance compared to the previous results.
For MU, I practiced using a sector filter on the daily chart. The final balance ranged from $226,072.15 to $305,896.56, with a maximum drawdown that ranged from -16.53% to -33.66% (depending on whether I vary the lot size and whether I use a EMA filter as well).
For a similar final balance of $226,072.15, the maximum drawdown was -17.74%. Hence, the weekly chart performance is the winner here with a much smaller drawdown.
Combined Analysis
Trading on the weekly chart appears to have a higher risk-adjusted profitability, at least for SWN and MU. However, the difference may also be because I was more stringent with my entry criteria.
One of my biggest concern with using a weekly chart is the cost of missing a good trade. One good trade can make a much bigger difference to the final result on a weekly chart, and less of a difference on a daily chart. Also, weekly charts may work well now given that the stock market has generally been on a nice and smoothly uptrend since 2010. Perhaps one day, the market may become choppy, even on a weekly chart.
Moving forward, I need to test more weekly charts and improve on my entry. Learn to identify only Stage 2 and 4 trades and be disciplined to only take those trades.
Leave a Reply