ALPHA INSIGHTS: Idea Generator Lab - 3/19/25
Top Actionable Trade Idea of the Week
Greetings!
The latest issue of ALPHA INSIGHTS: Idea Generator Lab is attached for your review.
In last week’s publication (3/12), we had two ideas teed up with “buy stop” orders ready for an expected acceleration in upside price momentum: the junior gold mining and silver mining exchange-traded funds, GDXJ and SIL. Both were executed the next day, and both have experienced decent gains over the subsequent days. Below we present an updated scorecard detailing our current open trade ideas with price targets and stop-loss provisions. Note that we have tightened our stops on some positions (red).
As a reminder, our weekly top actionable trade idea is derived from a proprietary bottom-up, trend following system developed and refined over the course of our 35-year professional career of studying and trading markets. It uses time-tested techniques for identifying high momentum, high relative strength stocks and ETFs, which in our opinion, have the potential to add positive alpha to a portfolio benchmarked to the S&P 500 index.
Our bullish trade set-ups are defined by a confirmed breakout or reversal signal that yields a minimum 3-to-1 positive risk skew to our published target price. Not all signals are favorably resolved, but the system has proven positive expectancy, with a profit factor of 2.9-to-1 since inception (8/1/2018). To quote the legendary speculator George Soros:
“It’s not how often you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”
Our system uses a 1-3 month time horizon as a guideline. We expect to see our trading signals confirmed by significant price action that supports the signal within that time frame, or otherwise canceled via our stop-loss provision. We cut our losses short and let our winners run as long as possible. Initial stop-loss provisions are volatility-based calculations centered upon the average true range of the security. Once the 50-day EMA catches up to our entry price, it then acts as the new trailing stop-loss provision.
Position sizing is another important component of the risk management process. While we typically reference a maximum position size (eg. 5% or 10%), which we deem to be prudent for the average investor, your actual position size should be defined by your own maximum adverse excursion (MAE). This is the maximum loss of capital per trade that you are willing to accept. A practical way to implement this concept would be to define your MAE as a specific dollar amount in advance. Then using the difference between the entry price and the initial stop-loss price, calculate the number of shares that would optimize that constraint for each trade.
This week’s top actionable trade idea is…