Please note: This article features a summary and transcript of a recent Selfwealth Live: 5 Lessons From 2023’s Top Stocks (And How To Apply Them This Year).

The article serves as a means to provide those who cannot attend a full hour of our lunchtime live sessions with an overview (if you only have a minute) and detailed transcript of the session (if you have time to read).

As content is created using generative AI, and taken from a transcript of an interactive YouTube Live, readers should be aware of possible discrepancies between the spoken and written word. To help for context and to direct to the charts Jason is analysing, regular timestamps are placed throughout the transcript to allow you to jump to the original content. 

Quick Summary

Jason dives in to his real-life Selfwealth portfolio showing his real trades and real results. To illustrate Technical Analysis lessons, he looks through his portfolio to show his best and worst trades from 2023. He emphasises the importance of managing risk and mentions a key feature of Selfwealth, the ability to track portfolio performance against the broader market.

Jason’s portfolio is currently outperforming the ASX 200, but he clarifies that this isn’t always the case. He explains his trend-following strategy and how it performs best during strong upward market phases. He then examines best trade, Duratech (ASX: DUR), and worst Trade: Metal Search (ASX:MMA).

What Jason did with his best trade: Duratech (ASX:DUR) 

• Bought above the 50 and 100-day moving averages and at a 70-day high.

• Initially missed the signal and bought on a pullback.

• Held during a pullback, risking a modest early gain, and was rewarded with a further rally.

• Used a wide trailing stop (ATR-based) to stay in the trade despite volatility.

• Emphasises the importance of letting profits run and not having preconceived ideas about where a stock should be.

Lesson: Be willing to risk a modest early gain to stay on potentially much larger gains. Lesson: Let profits run and don’t try to cap your upside.

What Jason Did with His Worst Trade: Metal Search (ASX:MTC)

• Bought after a breakout above the moving averages and resistance level.

• Momentum didn’t sustain, and the stock fell back below the moving averages.

• Exited at a 35% loss based on an ATR stop loss.

Lesson: It’s better to take a small loss early than a much larger loss later. Don’t hope for recoveries; accept losses and move on.

Other key points:

• Jason uses a time stop to exit positions that haven’t performed within 60 days, even if the loss is small.

• He avoids holding onto dead weight and underscores the importance of capital preservation.

• He acknowledges that fundamental analysis is a valid approach but focuses on technical analysis and trend following in this session.

Transcript: Jasons Best and Worst 2023 Trades

Rather than just talk about hypothetical things, I can discuss real events. Like what’s happened to either myself or our viewers who leave comments on the screen or the members of my Motion Trader service. A good way to do this is to actually go into my Self-Wealth portfolio, my real-life Self-Wealth portfolio with real money. We’re going to look at my best two trades from last year. It’s important when you listen to someone, you want to know that they actually do what they say themselves. There are many who talk a big talk but don’t have the game to follow. So, I want people to know that I do what I say and this is real. This is how it all works. This is my portfolio.

There’s about $850K in open positions at the moment. As I was saying in the ASX 200 section, I think the play here is to be long in the market. I am long in the market. But I’ve got another $460K in cash sitting on the sidelines. We’re below that key resistance point. There is a little caution coming into a key level. So, I have the reserves on the sidelines in case the market pulls back into the range. It’s not an all-in game.

As I say, it’s always about managing risk. One of the interesting things you can do in the Selfwealth portfolio, and many viewers will know this because they’re Selfwealth users, is to go into the ‘My Portfolio’ section and into the performance bit. You can see your portfolio, so that’s mine there. And this line here is the ASX 200. It’s a good measure to see your portfolio against the broader market to see whether you are at market, below market, above market. Over the last year, measuring over 12 months, I’m currently nicely ahead. It’s not always this way. There are periods when I’m below market, particularly after corrections.

I’ll often go below the market when the market bottoms and rebounds. I’ve often sold a lot of my stocks on the way down and the market rebounds while I’m in cash. So the market often outperforms then, and also during sideways periods, I won’t always be outperforming because I’ll get chopped around in the sideways swirl of a consolidation. My strategy, my trend-following strategy, generally does best during strong upward phases of the market.

And that’s where I’ve had some good performance over the last few months. We’ve had this upward phase in the market where I get on stocks that are running. That’s where our performance can happen. So let’s actually go in and have a look at some of these holdings. I’m going to rank these by profit and loss. The best ones down to the laggards.

So, up the top, Duratech, that’s my best-performing stock, currently up about 250%. And go down the list, there are six stocks up a hundred percent. This is typical of how a trend-following portfolio would look. You’re going to have, let’s say, about 50 stocks in the portfolio. So there’s about 10% which are up a hundred percent. That’s how trend following works in that a minority of stocks are going to be the main contributors to your performance. Then we come down the list and we get into the high double digits, then the middle tier double digits, the ones which aren’t doing too much. Some of these are relatively new positions, so they’re just getting going. Others have not been very exciting. And that’s going to be probably the bulk of your trades, ones which aren’t very exciting.

And coming down, at the bottom, I’ve got the losses, these ones in the red. You might think that just about everything I buy goes up, but that’s completely not true. It’s because I’m always removing the ones which aren’t performing, taking lots of relatively small losses and keeping the ones that are profitable. You could say I’m a collector of profitable stocks, keeping the ones that are going up.

And I swap out the ones which aren’t performing. So these ones are still here. They haven’t hit their exit points yet. Maybe they’ll come good, maybe they won’t. Time will tell, but there have been plenty of these ones which have hit the exits over the last year. It’s not a case that everything does what these top performers have done. That’s not how it works at all. So what I want to do is go through the top two. Let’s take the top two and see what we can learn from these.

Why are they there? What’s worked? What can we learn from these? Because a good trading process should be repeatable. And this is key. Unless you can actually write down what your process is, it’s probably not repeatable. And if you can’t, if you couldn’t explain your process to somebody in probably 60 seconds to two minutes, you can’t explain your process clearly within a couple of minutes, it’s probably not a process.

And if it’s not a process, it’s not repeatable because it’s relying on the vagaries of the market to do well. You want it to be repeatable. And so let me show, let’s go through and see what’s been repeatable about Duratech and MMA. So let’s start with Duratech. D-U-R is the ticker code.

And this is an interesting stock, Rog. It’s involved in concrete remediation. I’d never heard of it when it turned up in the signals. I can’t remember what the market cap is. It’s a few hundred million dollars. So it’s not like a tiny speculative stock that has 10 million in capital. It’s a substantial company, but it’s not the ASX has a lot of companies in it, so it’s not an ASX 300 stock. So I’d never heard of it, but nonetheless, it came up in the signals. So just having a look at how this all worked out. Hadn’t done, so listed, listed in 2020, didn’t do much over the first few years, was falling as below these moving averages. Not interested, I don’t want to know when it’s below the averages. Then the averages started to turn in July 2022.

Price moves from below the averages to above the averages. So that’s when it becomes, starts becoming interesting. And that’s when, for me, the buy signal happens. So the buy signal for me, stock is above the 50 and the 100 day moving averages. So where this green circle is. And then it trades at a 70 day high. 70 day high is not a magic number, but it’s an extra confirmation that the price is moving upwards. So that, for me, that was an entry signal.

And it, I’ve got this second, I missed it on the, I didn’t buy on the initial signal, I missed it. I missed it for some reason. So this is my entry here. So, and this is one of the things, there’s always another opportunity to get back into a stock. It’s not a case of like, if you miss your first signal, you can’t get into it.

So I missed the first signal, the stock started to pull back. So it was, and this was during 2022. So the signal was in August, 2022, the market bottomed in October, 2022. So you just think about the negativity in the market at the time. And this is why I missed it, I think, because I was focused on, there was just so much gloom in the market and the S&P, the all-orz was heading down.

So I got the signal, I was hesitant to take it initially, pull back to the moving averages, then started to rebound off the averages, and I got on board. And got an initial rally, and then we’ve got this pullback. And I think this is the first, first lesson. So just let’s have a look at this pullback. So markets, it’s come back 17%. So this is after a one year decline in the market. I’m up…

I’m up 34%. So 34% gain would often seem pretty good. And we’ve been through a period where the S&P 500, like let’s just have a look. We’ve been through a period where the S&P 500 has just had an awful, awful period and quick 34% gain. The temptation always is to like lock in a gain. Now I think this is lesson one, be willing to risk a modest early gain.

In order to stay on a potentially much larger gain. And that’s one of the things I did. I held on during this period, and this is the key, this is one of the keys to setting up being in this stock now. I risk giving back this modest early gain of 30%. It’s a nice gain, but 30% is still a modest gain, or a moderate, modest to moderate. Willing to give that back, came back to the 50-day moving average, started to rally again.

And lesson two, I think, is to then let profits run. Let profits run, see where they go. Don’t have preconceived ideas on where a stock should be. And I see people falling into trouble with trying to assess what fair value is and having a profit-taking point where they think fair value is, because really, no one knows what the proper value or what the value is going to be. It’s the market that determines it. So for me, it’s about letting profits run and not trying to cap my upside.

And as we can see, this has run quite nicely over the year. From the entry point, risking a modest early gain, letting the trend run. Then the other thing, Rog, is using a wide trailing stop. So you can see off these pullbacks, which you can see along the way. So let’s just measure this pullback out. That’s a 20% pullback. So how do you see off a 20% pullback and stay in these trends?

This is where so many people find it hard to get these 100% plus moves because the market’s constantly shaking people out with these pullbacks. And the answer, I think, the lesson that runs with letting profits run, I think it’s actually stapled to letting profits run, it’s let them run with a wide trailing stop, a stop which will track comfortably below the share price to give it room to move.

So my trailing stop on Duratec now would be around, I don’t have it in front of me, it’s probably around about a $1.18 thereabouts. So it’s still comfortably below where the share price currently is. Yeah, I was just having a look, cause I was on this stock at 85 cents based on similar tactics. I got out at $1.10 just after that previous peak, not the last peak, the previous peak. Round this one here, right?

What would have kept me in this stock? Because I had a 25% stop loss. So I think, yeah. So that was the point that it peaked, then I had a 25% stop loss. So I got out in October at $1.10. Right? Yeah. I was kicking myself, but it’s following the rules, right? So following the rules.

Yeah, like a percentage-based trailing stop is good. It’s easy to calculate and it does work. It can keep you in a stock for a long time. The problem with a percentage-based trailing stock is that it’s generic. It’s not tailored to the specific situation. Some stocks get more volatile than others. So 25% on a property trust is going to be very different to 25% on a small cap like Duratec.

What I prefer to use is an ATR-based trailing stop. And so this isn’t the what I’m showing you now. It’s not the Motion Trader stop because Motion Trader is a little bit different. It’s a trading view trailing stop, which will, it’s a good approximation of what my Motion Trader stop does. And I’m just going to adjust it.

I just got to find the right thing to adjust. I use a multiple of 10. So I measure the, all my algorithms do, they calculate the average trading range of the stock over the last few weeks, and then they multiply it by 10. So that gives you, that’s a pretty wide stop. And some people find that pretty uncomfortable, but there’s a reason for doing that, in that it gives the stock more room to move.

So this is where you got shaken out the 25%. So there’s 25% about there. And let me just mark it in differently. So there’s 25% thereabouts. So a 10 ATR stop gives it a lot more room to move. Now, some people say to me, hey, why are you risking so much? Why are you risking giving back so much? And the reason I do that is because it, helps me stay on these big trends. And this is where my portfolio is making most of its money is from these big trends, which may last for one to two years. After two years, there’s typically a correction which will trigger the trailing stop. I haven’t had too many stocks go past two years, but within one to two years, you can get these big trends, but you’ve got to give them room to move. It’s such an important concept. It’s if you’re gonna get one concept,

It’s give your winners room to move. People like to protect open equity with tight stops. Some people use say a 50-day moving average and that’s pretty good. That can keep you in a stock for quite a while, but it doesn’t adjust to the stock’s volatility so well. And it will trigger an exit 100-day moving average. Yeah, it seemed like it can be a pretty good sort of proxy for a trailing stop. 25% is pretty good. I think ATR is, I think it’s better. I think it’s the best way to capture those big triple-digit gains, it’s that wide trailing stop. And it goes back to lesson one from this trade, be willing to risk a modest or moderate early gain, or in the case of Duratec, be willing to risk a reasonable portion of a big gain.

You can’t get through these pullbacks unless you have a decently wide trailing stop. It doesn’t mean having no trailing stop and risking it all coming back to zero. It does get you out, but your gains will come from those few that go a really long way. And this is how you do it. Yeah, very good.

I think I might have to rethink the 25%. I like the ATR. So I’m likely to rewrite my trading plan again. Thanks, Jason. Instead of focusing on the winners, let’s look at the losers because we learn more from the losing ones than the winning ones. Let’s look at one of the losers. Yeah. Okay. That’s a good idea.

It’s not just those other five stocks that jump over 100%. They’re the minority of a profitable portfolio, especially in a trend-following one. They’re a very important part, but typically a minority. You’re going to get a lot more losing trades.

I’ll show you my worst trade from last year. It was a company called MTC, Metal Search. Let’s start with how it all looked. This stock had a big high in October 21, 2023, then a big decline, and it went through a period where it seemed to be building a sequence of higher highs and higher lows.

The moving averages turned up, there seemed to be the makings of a launching pad for another big run. It had a nice rally off the moving averages, triggering a signal. Above the 50 and 100-day averages, 70-day high, broke out above some classic overhead resistance.

You could also call this a big consolidation band. We’ve had a boom, a bust, an initial rally, a sideways period, which looked like it could be forming a big platform for another strong rally. Maybe it could hit back up to these previous highs. So where that green circle is, that’s where I got the entry signal, that’s where I bought.

But the momentum didn’t sustain. It wasn’t long, just a couple of weeks, it came back to the moving averages, rebounded. It still looked like it was in place. So at this point, it was just coming back to the breakout point, back to the old resistance, which is now support, rallied off that, still looking encouraging, but then from there, it started to fall apart below the moving averages. Across the green circles where my stop loss was.

It triggered the stop loss and I was out. Now, I think the big lesson in this is that it’s better to take a relatively small loss early than take a much larger loss later. And I think this is a mistake a lot of people make is that they become hesitant. They don’t want to lock in a loss.

Like I hear people say, look, it’s not a loss until you take it. And I think that’s completely wrong. Your stock’s worth what someone’s prepared to pay for it today. And if it reaches your exit point, that’s a loss. It’s a loss, whether you’ve realised it or not. It’s a loss. So this got to the point. It’s, um, I think it was 30%. It’s, um, just measure it out. So that’s.

35%, so it’s based on the stock’s volatility. It was an ATR-based stop loss. So 35% was the correct measure for this type of stock. The upside from this stock was, it’s one of those ones which could have gone 100 or more percent to the upside. So it was asymmetric, it was the right. It was following the rules. The entry point was right. And I said earlier, a loss can be a good outcome. And this was a good outcome because I followed the rules.

I got in at the breakout, I got out at the exit point. It would have been nice to make a profit, of course, but the outcome was fine, because some are going to be this. And what made it a good outcome was because if I’d held and hoped for a recovery, well, you can see it continues to fall away. And this is where I think a lot of people go wrong, Rog. They find it hard to accept being wrong early, and they let a small loss get out of control.

So this is what you saw in my portfolio. I didn’t have a whole lot of dead wood sitting at, you know, minus 50%, minus 60%. I’m turfing them out. I’m constantly culling them. I’m getting rid of them. You know, 35%, that’s one of my larger losses because often they’re out before that. I also use a time stop. So if something hasn’t performed within 60 trading days and it’s showing a loss, might only be down 5%, I’ll kick it out.

So I’ve got lots of these relatively small losses. Well, actually, a lot of them are actually just small, 5%, 6%, whatever. 35% is still, yeah, it’s still relatively small compared to the upside, which I can get, which is triple digits. But that’s the big lesson, big lesson. Don’t hope they’re going to come back because what you’ve got to ask yourself is, if it comes back, well, that’s great, but what if it doesn’t?

What if it keeps spiralling? Then you got a portfolio full of a whole lot of rubbish, which is just going to mentally wear you down. It’s going to take away your capital. It’s going to make things really tough. Another example is a stock called QHL, Quick Steps Holdings. And it’s a very, very similar sort of situation in that had a decline, looked like there’s a basing structure in place.

Moving averages cross prices were staying the trend nicely look like could be in the early stages of a big decline I got in I probably got in on the day the stock made a high and that’s going to happen, too It’s a bit frustrating when you look at going on cheese if only you had waited a day. But it happens so many times I bought at the home sold below. It’s just it just happens. And some people say oh just my luck. It’s not bad luck It’s just it’s just the way the markets are you buy with the momentum sometimes the momentum doesn’t follow through.

The stock came back to the averages, initially started to hold, but then quickly gave way, cut the position, and hasn’t fallen away as much as the other one, but it certainly hasn’t done anything. And in the meantime, that capital has either gone into other stocks or it’s earning interest in the bank and that cash component I’ve got. Instead of sitting here being a dead weight, me hoping that it’s going to bounce and not turn lower again.

So I think the lesson here is, a bad situation can get worse. And the mistake I see so many people do is they either, maybe they double up. They say, look, I’ve double up and it’s only got to get halfway back and I can sell on, I’ll get out at evens. So it’s get out at event is sort of thing. You’ve got to get out at evens. So many people think you don’t need to get out at even. You just got to protect your capital. That’s what you got to do.

And I think trying to get out at even or doubling up, it really compounds a situation which isn’t working and it can make that situation a whole lot worse. Yeah, sure, sometimes you will get out at even, but more often than not, if you’re fighting the market’s trend, it ends really badly. I’ll just quickly show you the worst stock last year. I looked up the ASX 300 in just over the last 12 months.

This is a worst stock. It’s a company called, actually I won’t use, I’ll use the second worst stock because everyone knows this one. It’s Star Group. You can look up the worst stock yourself, APM, and the same things I’m going to say about Star Group will apply to it. So it’s SGR and that is the casino operator, Star. Star Entertainment Group. And this is down about 70%, same as the other stock which I could have spoken about.

And now there is absolutely no reason anyone should currently, if you study charts and you study trends, there’s no reason anyone should currently have this stock in their portfolio. And it’s really simple stuff. Look at the 50 and the 100 day moving averages since November, 2021. So that’s for over two years.

This stock has spent almost all of its time below declining moving averages. There has been not one buy signal based on my buying criteria in over two years. So this is a completely and totally avoidable disaster. Even if you bought it on this high point, so using my criteria, the moving averages had crossed the stock made a 70 day high.

Even if you came in and bought it on the actual high and you put a stop loss, say you use 25%, this here, there’s your exit point. The exit point, the star, if you bought it at the high, should have been about a one week lower, 25% loss, move on to other things. But how many people do you think have been holding and hoping and are now down another 85% from that point, the point where there could have been a calculated exit? People often double up, thinking they only need to get halfway back to sell at even, but it compounds the situation. It often ends badly if you’re fighting the market’s trend.

It’s crucial not to have too many capital destroyers in your portfolio, as they will cause underperformance. Our performance comes from cherry-picking stocks breaking higher, letting them run, and avoiding stocks like Star Group, which pull the index lower. It’s not about having a crystal ball; it’s about playing momentum, managing risk, and having a clear process.

The key is to understand the winners and losers and how avoidable and achievable they are. Even if you’re a fundamental investor and hold stocks like Star Group due to personal reasons, remember this is general financial advice. Some people are strictly fundamental investors, looking for value, which is a completely viable strategy.