A DT Trading System - swing/day trading

DionysusToast

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#1
Not sure where this belongs...

Here’s a winning system for swing longs. It will work for some and not for others because it has both technical and fundamental aspects and requires a dose of discretion. I use this once or twice a week when I have time on my hands to look for items of interest and I usually spend about 1 or 2 hours on it. I only do this in the absence of more interesting things going on.

This is only going to work in an up-trending market. It’s up to you to decide if the current market is up-trending or not. I’m still long for now.

Finding opportunities
To find opportunities, you need a scanner. Here’s what I scan for:

Symbol Universe : all stocks
Close Price : $15-$75
Average Volume > 500,000
Stochastic SlowK <= 30 (adjust down if you get too many opportunities, 30 is OK for now. This finds pullbacks)
Beta > 1.5 (again, adjust down if you get too many opportunities, don’t go below 1 though)
Close Price > 200 period daily MA
Last bar or prior bar – Bullish Engulfing, Bullish Harami, Morning Doji Star, Morning Star, Hammer Or just a higher high.

In summary – looking for relatively volatile stocks with volume that are in an uptrend but pulling back (stochastics)

The last part (candles) is merely looking for a sign of bullishness in the current pullback.

NOTE – DO NOT ENTER BASED ON THESE TECHNICALS. TA is just being used to find pullbacks. Stochastics is a great indicator to find something that pulled back but it is in no way predictive.

Review the list
OK – so the list will throw up some crap, it's not a perfect scan but 20% of the work does 80% of the job. You’ll maybe get 20-30 stocks, throw away those that are going sideways, recently did a double top or otherwise look a bit dodgy.

Take a look at the 15 min chart over the past 5 days – does it still look like it is starting to strengthen? Sometimes that daily bar will look strong but when you look at the day’s action itself – it doesn’t look so hot.

Review the stop loss & target.
Stop loss will be 2c below last swing low or more depending on how much you worry about Market Makers moving the market down to take out the stop loss on your 20 share order. The more cents stop loss,the smaller your position size will be.

Entry will be 2c above the current or prior bar, whichever is higher. Use a bit of discretion here – if the bar 3 bars ago looks to make more sense, then use a breach of that.

Target – well, I use the last swing high, less a few cents as my target. Of course, I expect the stock to blow through that swing high as the stock is in an uptrend. I don’t use that to figure in my calculations though. If the last swing high was $28.10, then probably better to target just below $28.

Calculate Position Size
First figure out your risk per trade. You can do all the 1% risk per trade later. For now, I’d recommend sticking to a max loss of $30 per trade, even on a $25K account.

Position size = Risk Per trade / (entry – stop).

Then figure out potential risk & profit.

Risk = Position Size * (entry – stop)
Profit = Position Size * (target – entry)


I like my potential profit to be at least 1.5 times the potential loss. You can adjust as you see fit.

Now you will be down to a handful of stocks.

Decide which trades to place
Here’s where you need to look at the fundamentals. People will tell you that you do not need to do this for swing trades, that price action alone can be used. I disagree.

Done properly, it should take you about the same time to look at a stock as it would to choose a meal & bottle of wine in a nice restaurant. The way I look at it – if it keeps me out of more bad trades than good – it’s worth doing.

Note – what you are looking for here are REASONS TO NOT TAKE A TRADE. You are not looking for confirmation of the stock that popped up on your scanner; the scanner is dumb. You are looking to find out why this thing has pulled back & if that is actually evidence of something amiss in the stock.

First off – news. I use www.Briefing.com – but that’s only really good for real time snippets. I find that www.finance.aol.com is an excellent source of information and one of the most complete sources of news including SEC filings. Read the news, read the SEC releases and get to know them.

Take a look also at the institutional ownership, insider ownership, insider transactions and the short info.

For insider transactions, www.insidercow.com is good.
For short info, www.shortsqueeze.com is good.

Note that you really need to understand how the insider & short information is collated and how often. The information is not necessarily current. How timely & how relevant this information is requires some work which I’m not going to do for you.

I also like to look at the stock relative to its peers – again www.finance.aol.com is good for this – look at the PE in relation to its peers. Stocks with silly PEs like 80+ I generally avoid. Price Earnings, Price Book, Price Sales are really best viewed in relation to the companies’ peers/competitors. Google finance is also good for this. If something is way overpriced in relation to its peers – I’ll pass thanks.

I will get shouted at for this – but you can also look at the message boards on yahoo and raging bull. It’s 99% crap but occasional gems are there. Any info from this source should be checked out elsewhere if possible.

So – now you’ve thrown some more stocks away and you have a list left of things where the pullback isn’t due to a cholera outbreak or the CFO and his secretary running away with all the cash.

For any stock – if you have any doubts at all – take it off your list. Even if it’s just a gut feeling. If on the other hand, your gut has a good feeling about a stock – ignore it. Certainly until you have been in the game a while.

If you don’t like the fundamentals but the stock does appear to have had a good rally day – then look at day trading the day’s action. There will be other people looking at this stock and they will have seen that it’s maybe resuming after a pullback and you may be able to pull a nice little day trade out of it.

Avoiding Market Risk
First of all, you have to remember that opportunities are going to come along most days. You also have to remember that if the market tanks – and I mean TANKS, not just a down day, then all of your positions are likely to go with it.

On the first day you do this – place only 1 trade. Just pick one and put it in. As this goes into profit, you can put in another trade. If you have say – 3 trades on and they are all in profit – add another.

It’s probably best to explain this with an example. Recently there was a big shock in Dubai with the defaults. On that day, the market tanked. On that day you wouldn’t really have know whether the market would bounce back or not. At the start of that day, I had 5 positions on. 3 in profit, 2 in loss. As soon as the market settled down, I got out of all positions, showing a small profit overall. Had I placed 5 trades the day before the Dubai default, I’d have gone well into loss. So – don’t forget market risk. Don’t have too many positions running at a time and don’t put them all on at the same time. A few in profit will help if the market has a slide.

Now – of course, if I’d stayed in all 5 positions across that Dubai default, I’d be well into profit on all within days. The problem is, I don’t have a crystal ball and so I got out at that point.

Placing Your Trades
One way to place your trades is to put in stop market orders the day before. This is a great way to slip 20cents at the open. The markets generally open in a flurry and a stop market order is just a market order that gets sent when the price hits a certain level. That market order goes in a queue and gets filled at whatever the ask is at the time it gets filled. I have slipped 60c on an entry with a stop market order placed for the open. Never again.

Only a limit order guarantees you a price. So, depending on your broker, you can enter a stop limit order (sends a limit order when price hits a stop level) or you can watch the open and then after 3-5 minutes when things settle down, place your orders.

Once the market opens, if the price is still below your entry – a stop order is fine – you may slip a few cents but not too much as we are dealing with liquid stocks. If the open blew past your entry, then put in a limit order to enter when the price comes back down to your entry price. If it doesn’t come back down – just pass on the trade or day trade the momentum. There will be plenty more.

Trade Management
I like to look at 15 minute charts as I can see 5 or 6 days action on 1 screen. You can see intra-day support points that aren’t evident on the daily chart. There’s no mechanical rule for moving your stop up – but if you see the price hit a level on multiple days and kept moving up afterwards, then it’s obvious that there are people who think value lies at that price. Putting a stop just under such a point after it has left that area is something I do.

If the stock goes sideways & I am in profit – I like to bracket the exits around the range – as long as both my stop and target exits are well into profit. If the stock goes sideways and you aren’t in profit or it’s moving sideways around your entry point – I’d scrap it.

You need to watch the news on the stock every day. Get out if the news starts to turn sour or it a big boy like Goldman downgrades the stock. If the stock is going down towards your stop loss, especially on bad news for the stock – get out, no need to wait until you get stopped out.

If the stock gaps down through your stop loss – get out immediately. If you want to wait for it to come back a bit, then you better become the master of tape reading. You should not hold on to a stock that has gapped down through your stop unless you see momentum to the upside (my opinion).

As I reach my target, I make a call on whether it’s going to make a new swing high or not. Generally speaking though – I’m usually out just below the last swing high. I know most will disagree with this, that I should be entering a pullback with a view to making a new high; I just don’t generally do it.


And that my friends is pretty much it. This is all fairly common knowledge. I can't claim to be really the inventor of anything here. :whistling
 
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DionysusToast

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#2
An example may get you started:

Here is todays scan results:



The chart for MRX:



So - what can we discover about the pullback ?

Well - through finance.aol.com, we get a link to fly on the wall, specifically the following :

http://www.theflyonthewall.com/permalinks/entry.php/MRXid1181556

6th Jan - the day that this pullback started (6th Jan) was the same day the holders got the jitters about their drug Dysport.
7th Jan - Wells Fargo tried a 2 pronged attack at preventing this fall by saying investors misunderstood the news about Dysport and then followed up by upgrading the stock.
13th Jan - Cowen downgraded the stock.

First thing that comes to mind is - why are Wells Fargo so keen to defend the stock ?

Secondly - looks like BlackRock (formerly Merril fund family) made an aquisition on the 8th.



So - we have investors getting bad news at a Goldman Sachs conference which lead to a multi-day sell off. Then a Wells Fargo upgrade, aquisition by BlackRock and a downgrade by Cowen.

Are we now any wiser about this stock ?
Are we in a better position to make an informed decision as to whether to buy/sell this stock ?

What would the punters in the audience do with this one ?

Sit it out ?
Buy - full position size ?
Buy - smaller position size ?
Day trade it ?

Anyone ?



I'll have the beef wellington & a bottle of the 97 Chateau Neuf Du Pape.
 

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DionysusToast

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#3
So - what was the answer ?

For me - MRX looks to have been beaten down with a bit of bad news and had the mandatory sell off. It does appear to have some backers who can defend the price if they choose to do so.

The P/E is pretty high at 55 - but forward P/E is a reasonable 12. This means that growth is expected which is also reflected in the low PEG of .96.

Price/Book lower than peers, Price/Sales lower than peers.

Good peer analysis can be seen here : http://quote.morningstar.com/stock/s.aspx?t=MRX&region=USA

So, my opinion was that this is not overpriced. Earnings are out 22nd Feb, so we should be out by then BUT you cant ignore the overhang of the CEO 'mis-speaking' :rolleyes: at a Goldman Sachs ra-ra event.

Also - the dividend on this stock is averaging 4cents - so announcements relating to dividends aren't going to hit the price much. The next dividend pays out on the 29th Jan. So the company will be worth approx 4c less per share at that point.

So I say - small position size. 3 stocks are in profit and so I'm allowed to add another.

I put in an entry @ 25.15 after the open - got filled a cent higher.



I fully expect that posting this trade publicly will officially 'jinx' it.
 

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DionysusToast

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#4
On the offchance that anyone is wondering where the scanner is. It's in Tradestation.

The workspace and the .ELD are attached.

Todays Shortlist is

BBD Banco Bradesco SA Pfd ADS
CAM Cameron International Corp
CCI Crown Castle Intl
CCJ Cameco Corp
DDS Dillard's Inc'A'
EWZ iShares MSCI Brazil Index Fd
GOL GOL Linhas Aereas Int SA
HRBN Harbin Electric Inc
JWN Nordstrom, Inc
LAMR Lamar Advertising 'A'
MAC Macerich Co
MRVL Marvell Technology Group
OC Owens Corning
PCU Southern Peru Copper
TIN Temple-Inland
UIS Unisys Corp
VECO Veeco Instruments

No fundamentals have been checked on any of these. This is just me filtering out the ones from the scan I didn't like the look of.

PS - T2W gang - you should allow attachment type of TSW - Tradestation workspace on your site if you are allowing ELDs.
 

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Jan 14, 2003
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#5
PS - T2W gang - you should allow attachment type of TSW
I will ask technical if we can allow this.


Paul
 

GladiatorX

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Jun 7, 2009
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#6
When i have more time to study something closely i'll definately be giving this a thorough read, looks really interesting :)

Cheers

:medieval:
 

DionysusToast

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#7
Thanks Gladiator - I know it's a bit long & I don't expect too many people to play here. :smart:

Now, anyone trading will know that yesterday was a pretty bad day for the markets. These days are interesting because:

1 - It shows you if you picked good stocks and a decent stop loss. If I pick a poor stock, I am usually out of it by the end of one of these days.
2 - If the scanner throws up a stock today that has signs of strength in the face of yesterdays action and there is real strength there, it should do quite well on the next up day.

Saying that - if the day looks like it's going to be poor again I probably wont enter a trade today - but I will see if there's a stock.

The usual suspects are checked for strength - Asia & Europe (the main page of www.cnbc.com is as good as any place) and the 3 main US futures markets. If they are all up and the 8:30 announcements didn't turn them down, it probably means it won't be a down day.

So - MRX - how did we do ?



We can see how the DOW did and MRX did roughly the same thing, although less pronounced on MRX. We can see it weathered the down move on the 15th better than it did yesterday but I really don't see anything here from which to draw any conclusions.

You can see here why Ilike 15 min charts - it shows you the action across a number of days.

In terms of what the scanner has thrown up - mostly hammers & inside days which you'd expect. The hammers are most likely the result of what the market did and not the stock itself but I will have a look.

Whilst I haven't reviewed the list at this point, one does stand out from a quick glance - ARW. Which fit the scan and managed to have a strong day after initially gapping down.



Like I said - at this point, I have not had chance to review them - but ARW will be my starting point.
 

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Dec 3, 2007
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#8
Hey, the system looks great, thanks for sharing it! One quick question, you say:

"Beta > 1.5 (again, adjust down if you get too many opportunities, don’t go below 1 though)"


Do you mean Beta < 1.5? Because of course, if it was > 1.5 and you lowered it, you would get more opportunities, not less.

Cheers,
snap
 

DionysusToast

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#9
You are correct - I should have said "adjust down if you DON'T get many opportunities".

Many thanks Sir Snap. Ten out of ten for observation too !

I have had occasion to go down to 1.0 Beta but never bothered going lower. I also never needed to raise the threshold - 1.5 seems to be the sweet spot right now
 

GladiatorX

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Jun 7, 2009
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#10
You are correct - I should have said "adjust down if you DON'T get many opportunities".

Many thanks Sir Snap. Ten out of ten for observation too !

I have had occasion to go down to 1.0 Beta but never bothered going lower. I also never needed to raise the threshold - 1.5 seems to be the sweet spot right now
First of all; i'd like to say, don't judge me for being on at 1.30am.

I read it and i found it very interesting, i already swing trade and buy the pullbacks - in a different manor but same concept, But what i particularly liked is the extra fundamental background check on each individual stock and looking at the individual days comparison against the news rather than just looking at the slowly updated numbers.

I'm going to give this a proper go in addition to my other swing/eod strategies because i think looking at them fundamentals would be educationally great and using a scanner/fundamentals in swing trading will prepare me for my scan-based stock day trading.

So thanks very much for sharing and i'll tell you how i get on :)

Maybe we could open a thread to discuss this particular strategy and our trades perhaps ?

... :smart:

Thanks, i'll send you the code tommorow when i'm on my computer.
 

DionysusToast

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#11
Gladiator - Keep us posted - here or another thread. I'm not sure I want to post all my trades - but I will join to some extent.

Right - MARKET RISK - I think the following is a good example:



When this happens - it's going to pull most things down. DD hit my stop - which was already in profit. As I mentioned, if a stock moves sideways & I'm well in profit, I'll bracket the exit orders around the range. CEG hit a break even stop loss.

Now I have MRX and HCP sitting at a loss but not stopped out. In both cases, the stop loss is not in profit or break even, these will be losers. I'll not close them now as it's more the market than the stock doing this & I have no idea if the market will continue down or have a nice bounce.

I do not risk 1% per trade - much less than that. If I had 5 or 6 of these trades on - that would be about 1% risk. Perhaps I should risk more to make more but right now, I am not the slightest bit bothered if these 2 stop out and that is the way I'd prefer it to be.

Today the scan has thrown up

ABB ABB Ltd
CRZO Carrizo Oil & Gas
EXPE Expedia Inc
WSM Williams-Sonoma

Mostly because of stochastics & hammers. Of these, only WSM looks interesting in terms of the chart. If you zoom down to the days action, you can see it did well.

News says that WSM had a good Christmas sales period but they've been banging that drum in the news since the 15th Jan : http://finance.aol.com/quotes/williams-sonoma-inc/wsm/nys

It does have a P/E of 2,053 :eek: or 54 depending on which website you use, and a forward P/E of 21.
Last years Revenues were $3.7 Billion and Earnings were $30 million. Seriously - put the money in a pillow or under the bed.
Return on Equity - also poor.

So - I wouldn't swing trade this right now - but it is on the list for day trading tomorrow.

Now - what is also interesting is they have been continually putting in earnings suprises. So maybe they'll do the same again next time. Something to make note of for later.

Have you ever thought about those earnings estimates ?

Take a company like General Electric with it's hundreds of thousands of employees, in different divisions in different countries, with different market conditions.

How is it that a company that complex, with so many factors affecting it - how can they be consistently within 10cents of their earnings estimates each quarter ?

Also - look at 'First Call' - who they are, what they do and the fact they publish non-GAAP earnings as the norm.

Manipulated ?

Probably ;)
 

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DionysusToast

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#12
Right - so now we've had a 3 day 'fire sale' followed by a rather lethargic up day. MRX got stopped out as I expected but no major damage was done because this technique only holds 5 or 6 positions and doesn't add all of them at once but rather waits until a few are in profit.

My opinion is that simply adding different shares in the same market (especially for the same reason) isn't really giving you diversification. Now - if there were 6 shares in on this technique and at the same time I was buying into a company spinoff, that would be different.

So for now - we know what the scanner is going to throw up today, right ? Well - if you think about it, the market itself has made the same kind of move we are scanning for. Uptrend - as loosely defined by being above 200MA, a pullback, then an up day. Obviously there are different types of 'up day' but basically, that's what it finds. So - we know that it's going to throw up a lot of stocks.

Indeed - on running it, it gives 109 stocks. For me - I'll pass on this. There is the chance of a nice bounce back up going but for me - the solar & mining companies look better in that respect. Basically, I am far too lazy to look through 109 charts. Plus I'd much rather buy a stock that is pulling back on it's own merits and not the markets. That's probably the reason I can't pile into too many stocks at once.

The scan based on Fridays action is more interesting :

GNK Genco Shipping & Trading Ltd
IBN Icici Bank ADS
TPX Tempur-Pedic Intl
YZC Yanzhou Coal Mining ADS

Stocks that had a good day when the market had a bad one may be a good bet. TPX and YZC both look interesting but we may have missed the boat on them somewhat. On the list for day trading tonight if I don't get back to this later.
 

fgp

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#13
seems like you are putting a lot of work behind this stretagy as well as sharing with this forum. Just wanted to say keep up the exellent work and good trading to you. and thanks for letting us see.

Are you still doing this type of trading?
 

DionysusToast

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#14
I am indeed fgp - but I now only look on a weekly basis as day trading is already sucking enough time from me on a daily basis.

Since April 16th, I have not had any long term trades on. We were long overdue a pullback at that point and it seems we are getting one now (albeit not very healthy)
 
May 28, 2010
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#15
I like the blend of ta and fundamentals...interesting work indeed. Curious as to how you time/trigger the entries, adjust/manage the size, and exit, i.e. is there a rules-based entry and exit once the name you're going to trade has been found, that sort of thing.

Good stuff, keep up the posts!

I am indeed fgp - but I now only look on a weekly basis as day trading is already sucking enough time from me on a daily basis.

Since April 16th, I have not had any long term trades on. We were long overdue a pullback at that point and it seems we are getting one now (albeit not very healthy)