Trading The Miners

Based on the last post, I put together a layout in StockFinder.


In years of back testing, I found that very rarely can you automate a trading system and beat the market consistently for any particular watchlist. However, when you've identified an anomaly in a particular stock, you can get pretty good results.

I used NUGT as the trading vehicle, although in the short positions you would use DUST, but the returns are nearly identical as they are both leveraged ETFs on miners, just long or short.

Here's what the layout looks like.

Basically I'm looking for short term anomalies between the dollar and the price of oil, you can see I used UUP for the Dollar and USO for oil and applied a 5 day Rate of Change to each since these are not long lasting anomalies. The I created an indicator that identifies the anomaly between the two (in green) and added a 7 bar simple moving average to the indicator to serve as a trade signal. All signals will come at the end of the trading day and the trades are entered on the open of the next trading day, giving you time to identify them after market or work. The strategy works well considering the length of the anomalies and the trading vehicle being an ETF which are well suited to short duration trades.


The Results...

After running the back test from December of last year to yesterday (as NUGT is a new ETF created in December of 2010) the results were very good. The test assumes you start out with $100 and each trade will either add or diminish the equity line. The watchlist Equity line is NUGT only, either long or short and returned +72.45% for the test period. Compared to simple buy and hold of NUGT, you would have taken a 13.2% loss. The performance of the strategy vs. Buy and Hold was nearly 200% better (1.9). Over the same period, the S&P-500 returned 7.96%, the Russell 2000 returned 8.93% vs. the NUGT trade strategy at +72.45%


Here's a breakdown of the trades

12 winners, 10 losers with the average trade netting +2.51%. Also impressive was the maximum draw down for the strategy at -7.74%. There were a total of 22 trades during the period with a winning trade rate of 55% and a gain to loss ratio of +2.3.

Annualized returns were much higher at 610%, but this is not a reliable figure to use to asses the strategy, but it does tell us, the more trades in a given period, the better the performance.

Transaction costs have to factored into the returns so the bigger the portfolio the better the performance.

If you are using StockFinder and would like to use this layout, just email me and I'll send it to you.