Lone Stock Trader - Fred Saffore - Professional Stock Trader
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Lone Stock Trader, a well-known independent trader by the name of Fred Saffore
Fred was a recent competitor in the United States investing championship, where he achieved a very respectable 5th place.
He is also the author of the E-book ‘How I became profitable in the stock market’.
Fred discloses his story of how he became a highly acclaimed full-time stock trader, along with his yearly results.
For those that hang around we disclose how to get Fred’s free eBook and learn directly from him.
Let’s take a look.
We present ‘How I became profitable in the stock market’ by Fred Saffore.
Fred confesses to have taken 5 years before becoming consistently profitable, but unlike the quoted 90% of retail traders that fail, and eventually quit, he pushed through.
In 2009 Fred took to the stock market with funds he acquired from a previously sold business. In that year he managed to lose 70% of his trading account. Like many other new traders’, he made many mistakes, primarily using options and leverage without fully understanding the risks involved.
The biggest loss aided through advice from his broker came from averaging down a Chinese biotech company, purchasing the stock at promisingly lower levels. The stock eventually got delisted and Fred vowed never to invest in the stock market again….
2010 delivered another setback. With a huge desire not to look for a regular job, Fred invested but lost a further $100,000 through a failed business start-up. Back to square one Fred was left without knowing what to do with his life…
Newly married and living a frugal life, Fred’s money slowly dwindled away to the tune of $35,000
The few years that passed and the diminishing pain from previous losses, a newly invigorated Fred decided to enter stock trading again, but this time (once bitten twice shy) he studied all he could reading books like ‘Stock Investing for Dummies’ and ‘The Neatest Little Guide to Stock Market Investing’.
Fred (32 at the time) spent the best part of 3 months reading many other books on trend following, Fibonacci and moving averages amongst many other related topics. He then stumbled upon a book called ‘Insider Buy Superstocks’ by Jesse Stine, an independent trader that made millions in the space of 2 years, he grew huge inspiration from the book and began to create a strategy that he could call his own.
From his newly acquired knowledge, Fred revisited his trading journal from which he logged every single trade from his strategy. His light bulb moment came when he discovered his own discipline was his downfall and had he only followed his strategy to the letter he would have made mind boggling returns.
This moment become life changing for Fred, his mindset completely shifted from focusing on money to focusing only on his strategy and discipline, and by doing so Fred knew the outcome would lead to profits.
Fred says ;-
“Trading has now become quite easy and even boring. And that is exactly what successful trading is about. I just follow my rules, focusing on not deviating from my plan, taking trades and exiting when my strategy tells me to. Money follows”.
Fred finally became a consistent trader and achieved the following returns from 2016 to the end of 2019.
In 2018, Fred identified that he never followed his system with perfect discipline, had he done so his return would have been 37% instead of 9%. Another lesson on the importance of discipline…
These returns gave Fred an average annual return of almost 40% per year.
To give some perspective of how such returns can compound over time, let’s look at how a $10,000 account would grow over a period of 15 years.
If Fred continues to let his (considerably higher trading account) compound over time, his net worth will grow to astonishing levels. But how did Fred develop a strategy that is able to produce such great results, and what does it entail…..
Fred developed his strategy by combining the knowledge of several successful traders, with proven time-tested strategies. And although Fred does not disclose the intricate detail of his strategy, we can lean on our reviews and analysis of the books he combined to identify strong commonalities within each.
These include some form of trend analysis.
A breakout from a particular pattern (often consolidation).
And volume to show conviction from such breakouts.
There is no fluke here, Fred has been able to develop his own strategy based on the expertise shared by other winning traders. But technical factors alone are not enough, to be able to have the necessary discipline and conviction to follow such a strategy requires a certain psychological mindset.
Fred discloses his results for each year on his website, here you can see why mindset is so important to be able to follow a profitable strategy. In 2016 Fred had to endure a 7 month period of drawdown before eventually allowing his edge to play out in the second half of the year, for an overall profit of 39%.
How many traders would be able to see such losses each month and continue to have the conviction to place each trade, before seeing monthly returns of 18 and 20%..... My guess is not many.
Fortunately, through the many thousands of back tested trades analysed by Fred he knew that he only needed the conviction to stick with his strategy, he was rewarded again by his results in 2017 with his yearly return touching 50%.
Fred also suggests the need to be realistic, trading is not a sprint it’s a marathon, small gains can soon accumulate to huge gains.
Here we see numerous small negative and positive returns, but over the course of a year we have a very meaningful return.
Similar mental fortitude was required here in 2018 too, however Fred identified that his lack of discipline regarding his strategy rules, led to this decline. Had he followed them perfectly, he would have returned 37% for the year.
2019 led to an impressive return of 35% overall, but again we can see the importance of discipline and patience. From February there were many ups and downs before returning to the same level in November. So many emotions would have been experienced by a new trader, and many would have thrown the towel in.
Fred on the other hand knew his edge would play out in the longer term and seen a 16% increase in the final 3 months of the year.
Fred is widely known for the regular analysis of his trades through his own journal, and later used the information to further optimize his strategy. The summary of 2015 to 2018 had been published in his blog some time ago. Let’s look at these numbers to see what a professional traders stat’s look like…
The figures are based on Fred’s 1% risk per trade.
Here we have the number of trades taken each year. Here we have the number of wins and the number of losses.
The win rate percentage is seen here. Notice how in 2017 Fred only won 38.67% of his trades yet still made exceptional returns that year. This was attributed to the commonly used statement of ‘cut your losers short and let your winners run’. Ultimately resulting in a positive profit to loss ratio which we can see here.
The maximum drawdown of the trading account can be seen here.
And finally, the maximum winning and losing streaks can be seen here.
Let’s put some of this data into our Monte Carlo simulator to see how realistic and sustainable the results are.
We will use this 2015 data and simulate the 82 trades over 100 simulations.
We add in his win rate of 65.9% here and the average win and average loss here.
For the purpose of this simulation we converted the percentages into dollars, for example, Fred’s average loss of 4.10 % has been converted into $410 dollars and the same for the average win.
We run the simulation 100 times.
The results are presented here.
Over 82 trades, the maximum profit would have been $96,000, and the lowest amount of profit over the 82 trades would have been $54,000.
Notice here, the maximum win streak of 16 trades and the maximum losing streak of 7 trades.
In either scenario the trend lines are stable without too much volatility, as you might expect from a win probability of 65.9% and a good win to loss ratio.
The interesting year is 2017 here, with a 38.7% win rate.
Again, Let’s see how these results look in the simulator.
We put the 38.7% win rate here and the average win and loss amounts here.
This is how the equity curves now look after 100 simulations.
We can now see the maximum profit of the 75 trades taken is $65,000 and the minimum profit is just under $18,000. A wider range of variability due to the lower strike rate, but with a great win to loss ratio there is still likely to be a healthy profit at the end of the year.
Notice here the maximum losing streak was 14 losing trades in a row, coincidently this appeared at the start of the year before seeing an upward trajectory.
Discipline to stay with the strategy would again have paid dividends
The lesson within this exercise shows that even with a low win rate Fred is still able to return solid results on an annual basis. The key metric is the win to loss ratio and the key message that Fred reiterates is to keep the losses small and let the winners run.
Fred teaches his strategy which he calls the ‘EGM strategy’ and has been kind enough to give a discount to those interested in the link below.
So, what are the key takeaways from Fred’s book and strategy that took him to fifth place in the 2019 US championship.
In no particular order I have concluded the following.
Read all you can on strategies that suit your personality, In Fred’s case, longer term charts with some form of consolidation or breakout similarities.
Back test trades over a large sample to confirm an edge and stay disciplined in order for the edge to materialise.
Keep a journal of all your trades and analyse the results of a large sample and optimise where necessary.
Risk no more than 1% of your trading account.
Cut your losses short and let your winners run.
Only trade individual stocks where you can gain an edge, stay away from ETF’s and Forex etc.
Finally, focus on your rules not the returns.
In summary, Fred Saffore’s E-book provides some basic principles, but perhaps more importantly great inspiration of what can be achieved. I rate the E-book 3 stars, but the calibre of the individual and the teaching he offers through his website and associated blog warrants no less than 5 stars.