Q. I’ve noticed the signals summary icon above each chart and would like to know what the summary actually shows and the relevance of that information. Eg, How important is it that I understand that information?
A. The signal summary is divided into 3 sections/tabs.
The first tab contains all the entry and exit signal as per the SPA3ETF rules starting from when the stock/ETF first listed on the market.
The second tab lists the entry price and date and also the exit price and date. The final column of this tab expresses the outcome of the position taken as a percentage.
The final tab sums all things up, by providing a statistical overview of all the results.
A positive outcome is called an “Edge”, and consists of two important sets of data, those being “Win rate” and “Profit Ratio”.
Understanding this last tab is really very worthwhile for a number of reasons. Firstly, it provides evidence of the SPA3 Investor edge in a historical and current context, and allows you to see how rules based investing works and the possible outcomes.
For a more detailed explanation of how the SPA3 Investor edge works please watch this video.
It also helps you to develop a mindset that is supportive of your investing because once you understand the numbers it alleviates any subliminal doubts you might have regarding the SPA3 Investor processes and your longer-term investing outcomes. That’s also one of the reasons we run a number of live public portfolios. So, what do the numbers mean?
The “Win Rate” tells you how often the strategy has a winning outcome as a percentage, that way it makes it easy to compare the win rate for each stock or ETF within the SPA3 Investor system. Many people wrongly think that you have to see a high win rate to be successful. This is not true, because the final outcome is not just related to win rate, but also to how much is “won” when the win occurs and how much is “lost” when a loss occurs. You can still easily go broke by having lots of small wins and just a few big losses. That’s why it’s so important to cut losses short and to let profits run as per the SPA3 Investor timing signals.
Where a system really starts to show its strength and robustness is when its strike rate is accompanied with a high “Profit Ratio”. The Profit Ratio is, how many times larger the wins are, compared to the losses.
For example, a profit ratio of 2 means that “on average” the profits from “winning” outcomes are twice the size of the losses from “losing” outcomes. Again, on its own Profit ratio doesn’t guarantee longer term success because whilst your profits may be larger than your losses, it won’t do much good if your strike rate is low. However, if you are fortunate enough to have a system with both a high strike rate AND a high Profit ratio (SPA3 investor) then it just becomes a matter of being consistent and unwavering in its application.
Success over the longer term is achieved by keeping things simple and following the rules. By curating a portfolio of a sufficiently large sample size (150 trades as a minimum), the edge will manifest itself in your portfolio.