Thursday, July 23, 2009

200 Day SMA Good Support for a Swing Trade: August TAS&C Traders' Tips


Traders’ Tips

August Issue

"It's not being wrong that kills you, it's staying wrong that kills you." Jeff Macke, Trader

For this month’s Traders’ Tips, we offer a stock trading strategy based, in part, on the position of a stock near its 200 day Moving Average. Specifically this strategy discovers that in today’s market the 200 day SMA offers a good support price for a small swing trade. We asked our event-based backtesting tool, The OddsMaker, to evaluate a strategy that buys new multiday lows.

To recap briefly The OddsMaker doesn't just look at a basket of stocks, à priori, to generate backtest results, it considers any stock that matched a desired pattern in the market, finds that stock, and applies the backtest's rule set before summing up the results into a detailed set of totals: win rate, average winner, average loser, net winnings, confidence factor, See Figure 3.

This strategy owes it’s high percentage win rate, in part, to a decision to set the Days Up/Down in a Row filter to only show us stocks that are down 5 days in a row or more (Max Days Up = -5).

Description: “New Low Right Above the 200 Day SMA”

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.

Type or copy/paste this shortened string directly into a browser then copy/paste the full length link into Trade-Ideas PRO using the “Collaborate” feature (right-click in any strategy window):

http://bit.ly/16eHIM (case sensitive)

Figure 1 below shows the configuration of this strategy:







Where 1 alert and 3 filters are used with the following settings:

· New Low Alert

· Max Up Days = -5 (Days)

· Min Up from 200 Day SMA Filter = 0.01 (%)

· Max Distance from Inside Market Filter = 1.0 (%)

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 that the strategy finds be traded?

In summary these are stocks that are being sold off aggressively right into the 200 day SMA. We evaluated several time frames, but were ultimately led to selling at the open after two days. Note that we did not check the box for setting a profit target or stop loss. The OddsMaker results provide good guidelines, however, using the average winning and average losing trade.

Here is what The OddsMaker tested for the past 30 days ending 6/09/2009 given the following trade rules:

  • On each alert, buy (long) the symbol (price moves up to be a successful trade)
  • Schedule an exit for the stocks at the open after 2 days
  • Trade any time during the market session

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





The results (last backtested for the 30 day period ending 06/09/2009) are as follows:

The summary reads as follows: This strategy generated 49 trades of which 36 were profitable for a win rate of 73%. The average winning trade generated $0.74 in profit and the average loser lost $0.25. The net winnings of using this strategy for 30 trading days generated $23.22 points. If you normally trade in 100 share lots, this strategy would have generated $2322. The z-score or confidence factor that the next set of results will fall within this strategy’s average winner and loser is 100%.



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

-- by Dan Mirkin & David Aferiat, Managing Partners, Trade Ideas LLC

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


Monday, July 13, 2009

Like "Kobe Doin' Work", To Get Great You Gotta Watch the Tape

Here's one in an occasional series of posts highlighting the growing number of our partners who's adding value to the trading community. Today we highlight an educational service that leverages the use of realtime video to provide insight on the decisions of an experienced trader reacting to the market's opportunities.


The educational service is run by two professional traders known to us at Trade Ideas for over 10 years: Steve Gomez and Andy Lindloff. Both can show trading scars since the mid 90s and continue to profit from the experience in any market. That kind of longevity by itself is a testament to their skills. But great traders are not always good educators. Additionally as in sports a player and his/her coaches must appreciate each other's style and method for playing the game. Fortuntately TodayTrader's unique spin on a trading service means you know upfront whether or not this method is for you.



The Method

Traders watch via video as Steve and Andy trade during the day. It's like the process in medical school regarding procedures: see one, do one, teach one.

In my own experience starting out, it was critical to be in a trading group where people made money so that you could watch and see what was working. Learning through imitation. Today good trading floors are hard to find especially if you are not in a big city. That is where TodayTrader really helps the novice. You can log in and watch what Andy and Steve are doing in real-time day to day and learn from their mistakes as well as from their success.

Steve and Andy both use Trade Ideas to help them isolate good trading opportunities. This video channel on YouTube showcases how Steve trades opportunity and uses Trade Ideas to find them.

Watch the video, get familiar with Steve and Andy, and determine if their's is a method of learning from which you can benefit.

Monday, July 06, 2009

Improve Your Trading Plan with a 1-Hour Visit

So the good folks at DTI and Tom Busby invite Trade-Ideas to present during their very popular Live TradeRoom sessions tomorrow, Tuesday, July 7 beginning at 8:15 AM CST.

Note: I will be speaking at 12:00PM CST.

Topic: How to Find a Profitable Strategy in Under 10 Minutes

If you are new to Trade-Ideas or an old hand in need of a fresh pointer or two, please register for this free event by clicking on this link:

Reserve Your Place - Register
I hope to see you there!

Related Articles:

Does Your Trading Plan Benefit from Continuing Education?