Friday, February 20, 2009

Try This Swing Strategy: Reversed MACD Crossover System


Below is the original Trader's Tips article submitted for the just released February issue of Technical Analysis of Stocks & Commodities 

TRADERS’ TIPS

March Issue

I measure what’s going on, and I adopt to it. I try to get my ego out of the way. The market is smarter than I am so I bend.” Martin Zweig

For this month’s Traders’ Tips, we offer an alternative to Donald Pendergast Jr.’s use of Monte Carlo analysis on a simple MACD crossover system.  While we agree that backtesting is a practical way to obtain trading system test results, we differ that it requires thousands of different iterations across years and years of data.  The most credible backtesting methodologies weigh the most recent results greater than those in the past. In the real trading world as a trader I want to know what’s working now – not what worked well in ’00, ’06, or even most of ’08.  Fortunately we present our backtesting tool, The OddsMaker, and show how (given a strategy or system) your set of trading plan rules can generate high probabilities for winning trades in any market – in this case with Mr. Pendergast’s MACD pattern.

The strategy is based of course on the Trade-Ideas inventory of alerts and filters found in our flagship product, Trade-Ideas PRO.  The trading rules are modeled and backtested in its add-on tool, The OddsMaker.

Here is the strategy based on finding over-extended moves in price:

Like Pendergast’s system we look for stocks within the NASDAQ 100 (which we create as a separate symbol list within Trade-Ideas PRO) exhibiting daily-based momentum as triggered by a MACD.  In Trade-Ideas we call this signal the ‘Running Up or Down confirmed’ Alert.  We also do not use a stop loss for this system.  Unlike Pendergast’s system we apply a slightly different set of trading rules to accommodate our’s and The OddsMaker’s preference for results based on recency.  We enter at the time of the signal (vs. waiting until the next day’s open after the buy signal) and hold the trade until the open 3 days OR until we receive a sell signal (vs. waiting until the next day’s open after the sell signal).  The results speak for themselves for the 3 weeks ending 01/06/2009 (though they will test a trader’s risk appetite): a 53% success rate where average winners are almost 2X as large as average losers.

Provided by:

Trade Ideas (copyright © Trade Ideas LLC 2009). All rights reserved. For educational purposes only.  Remember these are sketches meant to give an idea how to model a trading plan. Trade-Ideas.com and all individuals affiliated with this site assume no responsibilities for trading and investment results.

Description:  “LONG MACD Running Up” 

Type this string directly into Trade-Ideas PRO using the “Collaborate” feature (right-click in any strategy window) (spaces represent an underscore if typing): 

http://www.trade-ideas.com/View.php?O=100000_1_0&QRUC=5&MaxDNbbo=0.1&MaxSpread=15&MinPrice=5&MinVol=300000&WN=LONG+MACD+Running+Up+HOLD+3d+Open+-+EXIT+RDC+%285%29+-+No+Trades+60m+B4+Close+-+No+SL&SL=8

This strategy also appears on the Trade Ideas Blog: http://marketmovers.blogspot.com/ 

Where 1 alert and 4 filters are used with the following specific settings:

Running Up (confirmed); with a ratio value of 5

Min Price Filter = 5 ($)

Max Spread = 15 (pennies)

Min Distance from Inside Market Filter = 0.1 (%)

Min Daily Volume Filter = 300,000 (shares/day)

The definitions of these indicators appear here: http://www.trade-ideas.com/Help.html. 

OddsMaker Setup

That’s the strategy, but what about the trading rules?  How should the opportunities the strategy finds be traded?  Here is what The OddsMaker tested for the past 3 weeks ending 1/06/2009 given the following trade rules:

On each alert, buy the symbol – go long (price moves up to be a successful trade)

Schedule an exit for the stocks at the open after 3 days

Exit the position if the same symbol triggers a ‘Running Down (confirmed)’ Alert set at the same ratio of 5

Start trading from the open 

Stop new trades 60 minutes before the end of each day’s close 

The OddsMaker summary provides the evidence of how well this strategy and our trading rules did.  The settings are shown here in Figure 2.

  [Image Temp Removed]

The results (last backtested for the 3-week period ending 01/06/2009) are as follows:

  [Image Temp Removed]

Understand these backtest results from The OddsMaker by reading the User’s Manual:  http://www.trade-ideas.com/OddsMaker/Help.html

-- by David Aferiat, Managing Partner, Trade Ideas LLC

www.trade-ideas.com, david@trade-ideas.com  

UPDATE:

I took the following trade on Mon 3.9.3009 and exited Thurs 3.12.2009:

http://twitter.com/TradeIdeas/status/1316300273


I took the following trade on Wed. 2.24.2009 and exited Fri. 2.26.2009:

Out this AM on $MRVL $7.82 for +.78 from this swing trade begun on Wed: http://twitter.com/TradeIdeas/status/1253703595


Thursday, February 19, 2009

Trade-Ideas in Your Town: NYC


Fresh from the West Coast and a great ski trip in Vail CO, it's time to head east and get to NYC for the annual Traders Expo at the Marriott Marquis in Times Square.

Last year's event featured a great presentation by one of our customers-turned-evangelists, Dave Mabe of StockTickr fame. Here is Dave himself talking about his presentation: http://blog.stocktickr.com/2008/02/08/presentation-on-automation-at-traders-expo/

This year there are even more presenters who will directly or indirectly discuss how Trade-Ideas powers their idea generation and market scanning capabilities:
I'm looking forward to catching up with many at the Expo and around town.  I'll be particularly interested in seeing:
  • Michael Bellafiore, SMB Capital (wine buddy and Trade-Ideas fan) (Expo schedule)
  • Brian Shannon - whose book, Technical Analysis: Using Multiple Timeframes, is my current read (Expo schedule)
  • Andrew Actman, Lightspeed Trading (Expo schedule)
Around town I'm drinking with old and new faces.  This includes Aaron Task from Yahoo's Tech Ticker - (if you're not watching this daily, you're missing great perspective on the financial markets in a tight, quick package) as well as the guys from StockTwits.

If you are in the area, dear reader, leave a comment or Twitter me and let's meet up. We take these offers seriously. 

UPDATE: Come to the Stocktwits meetup Sat., 2/21/2009 5pm @ NY Trader Expo, Marriott Marquis Atrium Lounge RSVP @JasonRaznick (on Twitter) you can come!

Friday, February 06, 2009

Add a Service: Who to Bring into the Fold

At the San Diego meetings I pitched that Trade-Ideas could add a partner's service that would appear as an additional alert offering within Trade-Ideas PRO.

This got a positive reception and now it's something I want to pursue.

However as partnerships go, some partners start and stop themselves, so in an effort to keep the ball rolling, I have an idea.

Why not make it an open question and ask what other service or services you'd like to see as an alert through Trade-Ideas?

Taking names.

Thursday, February 05, 2009

How to Short $BAC All Over Again. Watch History Repeat.

The headlines sound an omnious alarm:

"Bank of America tumbles on nationalization worries" (Reuters, February 4, 2009)

BAC continues to take it on the chin: teetering on bankruptcy, government bail out yada yada yada.  If you shorted this ride - congratulations.  But is the ride over? Maybe there is more opportunity yet to find in this stock by being a student of the very recent history that befell WAMU.

Most people aren’t aware, but BAC offers 10 classes of preferred stock.  Prices below are as of the closing February 4, 2009:
What Stands Out

All these issues descended to the $5 and $10 level - all but BAC-L which is still at $360 as of the close today. 

Back before WAMU collapsed a few preferred issues traded at the $1200 level that went the way of the dodo.  Will history repeat itself? 

Bottom line: all the other issues are down to $5 and $10. Why is BAC-L, which gives shareholders the right to purchase the common at $18.50, still so high?

I can't explain it but with this lesson in history, my trading compatriots and I will be closely monitoring this today.  We'll take the above issues and create our symbol list in Trade-Ideas and throw every alert at it and see what happens.

Good luck trading!

Jamie Hodge, Director of Trader Education, greatly contributed to this post.

Related Links

How to Create a Symbol List: Video

UPDATE:

One of our Austin trader friends reported in on this trade:
I took 30 points out of BAC-L this am
Nice!

Here is the chart of BAC-L:




Wednesday, February 04, 2009

Trade Your Ideas on the Changes We're Making to Website and Blog


Why?

One of the themes from our Annual Partners' Meeting in San Diego focused on the need to get out of our customer's way in their pursuit to find, subscribe, and download their way to better trading decisions.  This is especially true of the customers who aren't "touched" by any of us physically or verbally via support or email - rather someone who hears about us via a trading buddy or via our social web presence (e.g., YouTube or Twitter @TradeIdeas).

We can only leverage our support resources and appearances so many times, so it's important customers - who perceive the need to better identify profitable trading patterns - come to our site, understand the benefits they receive, subscribe to Trade-Ideas, and experience value all in as few steps and with as few obstacles as possible.

So we're going to tiddy up the halls a bit and we hope things become so much clearer as a result. Change, after all, is in the air.

I'm asking for your help in evaluating some of the changes.
A few weeks ago I pulled out of the closet a video in draft form that seeks to explain Trade-Ideas and our technology: http://72.32.209.91/tradeideas/video.php

Here's another closet item that I'll dust off: http://www.trade-ideas.com/Samples/Brad/OM-Tiger.html
I welcome any comments about these messages and others you think about when you use Trade-Ideas technology.  That's about it from the closet.  We've put the project into some professional hands who will be helping us, so your input will be used!

Tuesday, February 03, 2009

Try the Market's Lunch Special: SHORT – Lunch Time Fade Strategy


Below is the original Trader's Tips article submitted for the just released February issue of Technical Analysis of Stocks & Commodities 

TRADERS’ TIPS

February Issue

There is always plenty of capital for those who can create practical plans for using it.” Napoleon Hill (Author, Think and Grow Rich, 1883 – 1970)

For this month’s Traders’ Tips, we’ve provided a strategy whose benefit derives more from when it’s used versus what’s traded.  We discovered this strategy, like finding a hidden gem, in a place most people don’t consider.  Have you ever thought that some of the better odds in trading could be happening right over the market lunch hour (EST)?  Using Trade-Ideas OddsMaker we found some amazing results right at the time when most people are not paying attention.

The strategy is based of course on the Trade-Ideas inventory of alerts and filters and backtested with trading rules modeled in The OddsMaker.

Here is the strategy based on finding over-extended moves in price:

We look for stocks making new highs whose stock price ranges from 5 to 25 dollars.  We watch for a specific spread situation where the stocks have at least a 10 cent spread.  Additionally the stock’s new high must occur with at least a 65 cent rise over the last 5 minutes to create our interpretation of the over-extended move.  The new high trigger is our indication to throw out offers to get short.  The results speak for themselves for the 3 weeks ending 12/09/2008: a 76% success rate where average winners are almost 3X as large as average losers.

Provided by:

Trade Ideas (copyright © Trade Ideas LLC 2008). All rights reserved. For educational purposes only.  Remember these are sketches meant to give an idea how to model a trading plan. Trade-Ideas.com and all individuals affiliated with this site assume no responsibilities for trading and investment results.

Description:  SHORT – Lunch Time Fade

From the browser address bar copy this string directly into Trade-Ideas PRO using the “Collaborate” feature (right-click in any strategy window)

Figure 1.0 below shows the configuration of this strategy:

Where 1 alert and 8 filters are used with the following specific settings:

           New High Alert (of the day)

           Min Price Filter = 5 ($)

           Max Price Filter = 25 ($)

           Min Spread Filter = 10 (pennies)

           Max Spread Filter = 100 (pennies)

           Min Distance from Inside Market Filter = 0.01 (%)

           Min Daily Volume Filter = 50,000 (shares/day)

           Max Daily Volume Filter = 2,000,000 (shares/day)

           Min Up 5 Minute Candle Filter = 0.65 ($)

The definitions of these indicators appear here: http://www.trade-ideas.com/Help.html.

That’s the strategy, but what about the trading rules?  How should the opportunities the strategy finds be traded?  Here is what The OddsMaker tested for the past 3 weeks ending 12/09/2008 given the following trade rules:

           On each alert, sell short (price moves down to be a successful trade)

           Buy back the stock if price moves up $1.50

           Otherwise hold the stocks for no more than 15 minutes after entry

           Start trading 1 hour and 30 minutes after the market open

           Stop new trades 3 hours before the end of the market close

As we mentioned earlier, The OddsMaker summary provides the evidence of how well this strategy and our trading rules did in Figure 2.0.

 

 

 

 



The results (last backtested for the 3-week period ending 12/09/2008) are as follows:

 

 

 

 

Understand these backtest results from The OddsMaker by reading the User’s Manual:  http://www.trade-ideas.com/OddsMaker/Help.html

-- by Dan Mirkin, Senior Managing Partner, Trade Ideas LLC

www.trade-ideas.com, dan@trade-ideas.com

 

Monday, February 02, 2009

2 Key Tactics to Know When Making Any Trading Transition

Avoid Getting Lost in Translation

It is very easy to get excited about systems test results. We have fallen victim to that problem ourselves as we spend more time working with traders who have gone to automation. What happens and more importantly what do you do when your system is not performing as well as you would expect?

It is important to keep things in perspective. No matter how good you think the set up is in terms of back testing real live trading will be different. One danger that we have identified is the tendency for the human mind to attribute a lot cause it fairly random things. "Oh these numbers came out today and that's what happened", or something else. As people we really want to know the reason for everything.

Small & Less Aggressive Shall Inherit the Profits

However that is part of the problem. Sometimes there simply is no reason. Take a step back. The easiest way to get on solid ground and maintain your footing is to get smaller and less aggressive. If you are trading 300 share lots in a system go to 200 or 100 share lots. That way you are minimizing your impact while letting the system do what it does. Additionally you can simply get less aggressive on entry orders. If you find that you are having a bit trouble, let the market come to you more. What does that mean? Well if you are doing limit orders as entry bid below the market and same for offering short.

The most important thing in trading whether you are doing it in automated or manual mode is to keep losses to a minimum until things straighten themselves out. There is not better way to keep losses small than to be smaller is size and less aggressive in entry.

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