Boring old HON is not as boring as you think

19 wrz

HON happens to be oversold. But I didn't choose it for that reason. I chose it mostly to teach a couple of lessons about trading. I won't probably be updating this idea daily though, because I'm not trading it and I have too many other things to keep track of already. I will try to check in on it once a week or so.

So why did I choose HON? If you asked 100 traders to pick a stock to trade, I'd bet tons of money ZERO would pick HON. It's as sexy as a nun in a parka. For years all it did was go up every day and paid dividends. Yawn.

For the last 45 months it has done nothing from a buy and hold perspective. Literally. It has gone down exactly 23 CENTS. Its 5 year Beta is 1.03. Boringggggg.

In this case boring is perfect, though. This is a great stock to trade. Sideways choppiness is a dream for what I do. Drawdowns tend to be small and not last very long, so I don't need to deploy lots of capital, and the zig-zags = 🤑. The buy and holders make nothing on a stock like this over this time frame and the trend-followers lose a TON in this situation with all the whipsaws stopping them out with a loss.

But this boring company that makes thermostats, fire suppression equipment and PPE would have afforded me 119 trade opportunities in 45 months and outperformed the AAPL backtest I just posted the other day. More on the backtest results for HON later.

The other reason I love unsexy stocks (and so should you if you trade) is that they can be profitable and offer relative safety when tech, or the market in general, is floundering. The more tools in your toolbox (in this case stocks in your trading universe), the easier it is to make money trading. There is a place for boring stocks that just go sideways in my toolbox, and when you see the results you'll find out why it's a very special place.

I honestly didn't expect the results to be all that good. It was going to be a lesson about how lots of small very boring wins add up. And they were mostly small and boring. Almost 1 in 3 trades during this 45 month span made less than 1% and ZERO trades even made it to 10%.

That doesn't scream profits. But there is huge value in what I do, in the consistency it offered. With relatively short and infrequent capital-hungry drawdowns, coupled with lots of trading opportunities, the annualized profit ended up beating out AAPL. Imagine if I said HON > AAPL to most traders on this site. I'd get crucified. It's just not sexy enough for what most people here do, which is try to hit home runs. But just ask Ichiro what lots of singles can do. Sorry for the baseball reference for all you non-fans.

Trades: 119
Closed wins: 117
Open "wins": 1
Open "losers": 0 (hypothetical trade opened at the end of the day today)

That's technically a 100% win rate over 45 months. I will fight anyone who wouldn't take that.

Average gain per trade = +2.3%
Median gain per trade = +2.2%

Average holding period = 20.4 days
Median hold period = 13 days
Most common hold period = 5 days

Those average gain numbers are NOT special. Most would turn their noses up at a trade that takes a month and only makes 2.3%. Not me. Here's why.

Max number of lots held = 13

That allows capital to be freed up to work elsewhere.

Return per lot per day held = +.112%
Annualized return per lot per day held = 28.2%

I will take that return for ever and ever and ever. And you should too when you trade. 28% per year doubles your money in 2.5 years and over 10 years increases your original money 16x if it happens consistently. I'll always take better returns, but there's a lot to be said for CONSISTENT returns that keep you in the game, keep you motivated and to grow your trading capital. Hunting big wins comes with the inherent risk of big losses. A few of those losses strung together and you're looking for a second (or third) job.

Learn to love small but very consistent wins and you will be in this game for a long time.

So let's pretend I opened 1 lot at 201.64 at today's close and see where that takes us. I'm guessing up.

21 wrz

Uwaga

OK so this has become a much more popular idea than I had ever anticipated. I guess you all think HON is sexy too. Thanks to everyone for that, and special thanks to zAngus for helping put it on the radar for so many people!

So as a result of its popularity, even though it's not in my actual trading portfolio and I'm also working on a new short system, I'll keep it updated as if I was trading it. I'll give updates on lots "added" or "sold" and maybe some commentary if anything interesting happens along the way regarding the "trades". I'll certainly add some final thoughts once the "position" fully closes.

By the way, I never mentioned how I trade in my original idea because it wasn't intended for that purpose, but just so you know the premise I'll summarize it quickly here. I purchase my initial lot when the stock is oversold. How I decide a stock is "oversold" differs from conventional notions of oversold. How I actually determine overbought and oversold is my "secret sauce", so I'm not gonna reveal all the details of that. Sorry.

The initial lot is always a small portion of my trading capital (usually around 0.1%). I have reasons for that number and comment below if you're interested in knowing why that is the number I decided on. If the stock continues to be or returns to being oversold later, I'll purchase 1 more lot every day it is oversold. Many refer to this as dollar cost averaging or DCA. The important thing is that the lots are always equal DOLLAR amounts, NOT equal # of shares. If anyone wants to know why I do it that way, comment below and I'll explain.

Selling each lot is an individual decision that has to reach 2 benchmarks - the stock must be "overbought" AND that particular lot must be profitable at that price. Any profit will do, I'm not greedy, so there's no target I set for that. If BOTH criteria are met, the lot is sold, and if not, I continue holding it. This results in almost always selling the most recent lots first and the original lot last. Each lot is considered its own trade. So that's the basics of what I do with HON and all the stocks I trade long. Again, if you have any questions, comment and I'll do my best to answer them thoroughly and completely to the best of my knowledge.

Thanks for the interest and all of you who followed as a result!! Happy (profitable) trading!

26 wrz

Transakcja zamknięta: osiągnięto wyznaczony cel

If I was actually trading it, I would have closed the HON trade today for a +2.7% gain in 6 trading days. That's a fairly normal gain for this ticker, but about 50% quicker than norrmal. Again, the absolute return doesn't seem like much but when that capital can get right back to work and do the same or better on a per day basis over and over again throughout the year, that's when that small gain adds up. If every 6 trading days, that same lot of money just freed up by closing this trade makes another 2.7%, at the end of a year that 1 lot of capital will have generated a +113.4% return. Small wins add up even though HON produces smaller ones than most.

Recycling capital works, and is especially good when you don't have a large block of capital to start with. These are very high probability trades - 119-0 (100%) in the last 45 months on HON, so it's not nearly as risky as trying to ride a trade "to the moon" or win big (or lose big) trading weekly options.

Wise use of capital, especially when you're first starting, gives you the opportunity to stay in the game longer, and build wealth more effectively than gambling on moon shot, low probability trades. Save those for when you need an adrenaline rush once you've got so much money you won't miss some when you lose it. Trade SMART everyone! If you do, you won't need luck (but always accept it when it comes). Maybe I'll come back to it another time, but that's all for HON for now!

26 wrz

Uwaga

Hypothetical trade results summary (for my records)

Wins 1 Losses 0
+2.7% in 6 days
Avg gain = +2.7%
Avg hold = 6 trading days
Gain per day per lot traded = .45%
Per lot per day held annualized return = +113%

31 paź

Uwaga

HON is a nice defensive name that is still on sale, despite being up a little bit today. It's had an awful run into and since earnings, even with a top and bottom line beat (another example of why I trade a LOT less during earnings season). But heading into election week and the very real possibility of violence associated with that is something the markets are sure to worry about, regardless of Magnificent Seven earnings hits or misses.

Names like HON are perfect for these times, if you're inclined to go long. Especially so after already dropping as much as it has. I won't partake this time due to the aforementioned election uncertainty, however. For most of the last 2 weeks I've been primarily selling off winners as they've become overbought and letting my cash sit in t-bill ETFs earning 5.2% yields. Being paid not to take unnecessary risk is a welcome change from the COVID era. There will always be more opportunities, remember that. If you must trade right now, my recommendation is boring stocks like this one. Good luck out there and remember, nobody ever went broke taking a profit. Being out of a stock when it drops is just as good as being in it when it rises.

7 lis

Uwaga

Up 6% in 4+ trading days since my last update. It's overbought now and I'd get out if I was in. There will always be another entry point...

3 dni temu

Uwaga

I'm not trading this, my portfolio is full right now, but just FYI - HON is on sale again!

przedwczoraj

Uwaga

I would have sold it just before the close for a +1.2% gain in two days if I was actually trading it.