STP Algo Trader - Market Insights

The algorithmic trading system we use at Signal Trader Pro is based on our thirty years of market experience and figuring out what REALLY works in the stock market.

The legendary William O'Neill is one of our biggest influences in trading and investing. He founded and published Investor's Business Daily and wrote our favorite investing book of all time – "How to Make Money in Stocks."

If you don’t own it or haven't read it – buy it now!

You can click here. (No, we are not getting paid to recommend it – ha ha!)

In building his CANSLIM system, O'Neill began by looking at the best stocks of all time. He then worked to figure out what they all had in common.

His system is not based on a theory but on real evidence.

This is the same way we developed our "15" point system to score stocks.

One of the points is looking for an oversold stock that has traded below an RSI of 30 and back above that level.

The other 14 points are a combination of both technical and fundamental metrics.

They are all looking for one thing in common – winning.

We want to find stocks that are doing well for companies that are doing well.

Our experience is that if you can buy a materially oversold stock in a stock and company that has been consistently performing well, your chances of making money on the trade are extremely high.

Using our favorite Blackjack analogy, it is walking up to a table where you already know you have two 10’s against a dealer 4. Doesn’t mean you will win every time, but it means the probability is high.

We created Signal Trader Pro to identify those types of opportunities.

Recently, we have been mining our data and beginning to understand our universe of companies better.

When we first designed the system, we only calculated a score for a company when it triggered our RSI "buy" signal levels. With the stock market going up almost daily over the last few weeks, we have generated very few (no) signals. This is normal.

We were curious, though, how many of our stocks would rank in the BULLSEYE category (a core of “12” or above) if they DID trigger the RSI buy signal.

Our total universe of stocks is roughly 1400 companies. These companies in the Russell 3000 have a market capitalization of at least $2 billion and at least six analysts who follow the stock.

We discussed why we screen by these metrics in a recent "The Method" issue, and you can read that here.

Here is the data on how many of our stocks fall into the “12” and above category…

This data shows that about 12% of our universe qualifies in the BULLSEYE category.

Looking at stock market returns, this number makes some sense.

Over time, about 15% of stocks outperform the market by at least 20%. Sometimes there are more and sometimes less, but this is the long-term average.

It is not always the highest quality companies that outperform, but there is a high correlation.

Of particular interest are the “15” score stocks. This category makes up less than 2% of the stocks in our universe.

While hit rates out of our system have declined with the sell-off (and now are recovering), the “15” score stocks performed incredibly.

Here is the data from our system…

Our first observation is that we have seen 21 signals out of this group of stocks. Some of these signals have been on the same stock, so it is not that 80% of them have signaled.

It does speak to the magnitude of the sell-off, though, that so many of these highest quality stocks signaled recently.

We didn't generate any buy signals in this category during the 2nd half of 2024 (after launching the system's latest version in July).

Our second observation is the performance of these positions. An incredible 71.5% success rate during one of the most vicious stock market sell-offs in many years.

This proves our focus on quality in all market environments.

We continue to build out our system functionality and look forward to offering the availability of scores on all the stocks in our universe soon.

In the meantime, watch out for those "14" and "15" signals when we get them, as they are great bets!

We’d love to hear from you! Let us know your thoughts in the comments section online or at [email protected]

Click here for more information and to sign up to Signal Trader Pro, an algorithmic trading platform.