Advice on perfecting this method

Dec 4, 2018
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#1
Hello to all.

I tried day trading back in 1999 and lost a lot of money. Smartened up and invested in mutual funds, which has done well for me.

Now, I'd like to get back into trading with a small amount of cash, but not as before. No rules back then. Lots of them today. I'm doing two kinds of trading, now. Buy and hold and buy to swing trade, both in the same stock.

Been watching videos from all kinds of "experts" and it's clear to me none of them really have a clue. Videos on using charts has convinced me that's also a crap shoot. Most charts show themselves after the fact and anyone can make money on yesterdays trades.

One fellow seemed to make some sense and his technique was basically this: "Buy at a discount and sell when it reaches normal value".

So, my question to all of you is how can a trader determine normal value for a stock? At first I thought normal value has to mean more than just the cost to buy the stock but now I'm not so sure it's all that complicated.

It might just mean the normal price that stock appears to trade at. The stock goes up and it goes down but most of the time it trades at around a certain level, at least if we look at the last 52 weeks or some similar specific time interval.

Looking for your thoughts and ideas and if there is a system or charting program that offers some insight, please add that to the conversation.
 
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tomorton

Well-known member
Feb 28, 2002
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#2
What you seem to be thinking of is a TA approach based on mean reversion - so buy the stock near its 12mth low or sell near its 12mth high. Easy to do a quick test as to whether this would work - open a 24mth chart and see where price was 1 year ago, then tally up how many low prices went higher and how many high prices went lower. I reckon its about 50-50, i.e. random. I don't know that individual stocks have any inherent qualities that make them go up or make them go down. So I am a sceptic.

Add to this further issues -
Basing a strategy on a 12mth price history suggests a lengthy holding period, months rather than days. How long would you wait in a long losing position for price to revert towards its (last year's) mean, when all the time its mean is falling to meet the current price which is getting lower and lower?

Or would you use a stop-loss? But this approach would imply a stop that was massively wide, equivalent to multiple daily ranges. Really?
 
Dec 4, 2018
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#4
"What you seem to be thinking of is a TA approach based on mean reversion - so buy the stock near its 12mth low or sell near its 12mth high"

Thank for the reply but, WADR, I believe you might be over thinking this.

First, I would not want to be holding that portion of the stock too long. This portion is for my swing trading. Perhaps a few days or maybe a week. All depends on the price moves and how much I was trying to get back. I would still have another 1,000 shares for long term hold. One thing I've learned from 1999 is never buy a stock in a company you do not fully understand.

Second, I'm talking about stocks that trade under $10. They've had some high days above, but mostly they stay around the $4 to $7 range. I'm buying 1,000 shares to make this worth my time so hence the reason for the low per/share price. As is common knowledge, stocks trade sideways for much of the trading year.

If you take most any stock like this that tends to move just a couple of dollars over the course of a few weeks to a month you can see sort of pattern over the long term history. It has some higher days, maybe based on good news, and some lower days based on negative news. It needs to be a stock that people are talking about. That is being covered in the trades. Otherwise there will be no real movement to use this method on.

Now, if you can determine what the "normal value" is for that stock and buy it "at a discount" to that price by let's say $.50/share you can expect to sell it back at some point in the not too distant future and make a small profit. At 1,000 shares that's a cool $500.

Wash and repeat.

Seems to me there has to be a program that can compute the normal value or a chart that plots it, no?
 
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tomorton

Well-known member
Feb 28, 2002
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#5
Seems like a risk of deep drawdown after a random entry point for a minor gain.

Plus I don't know that it is common knowledge that stocks trade sideways for much of the trading year. I think what is known is that they only trend about 20-30% of the time, but that doesn't mean they stay in a range for the rest of it. Not in a trend doesn't mean flat.

Still sceptical but still interested enough to watch how this pans out.
 
Dec 4, 2018
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#6
Seems like a risk of deep draw down after a random entry point for a minor gain.
It would not BE random if there is a way to figure out the "normal value" of the stock. It would theoretically be the entry point you'd use each time you made this trade taking your profit when it swung back up to it's "normal value".

This was going to be another post but since you brought it up, I'll go ahead and ask, now.

What do you folks consider a worthwhile gain on a swing trade? Is making a possible $500 for letting your cash sit for one or two days not worth the effort?
 
Aug 15, 2018
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#7
It is not always possible to find out where disount to normal value are. One of the best trades on today`s markets are based on cchangong fundamentals (positive quater results, news). The idea is to catch the moment, when the fundamental situation has repidly changed, but the price is still "as before". Some trades can also be based on market overreaction on the catalyst. In such case, you need to trade mostly using TA.
 
Dec 4, 2018
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#8
If you have the normal value then discount should be easy to spot. Any entry point below normal value is discount.

I'm working with a single stock at the moment. One I have long for 1,000 shares and also I'm trying this method on for another 1,000 shares. The way I have tried to find normal value is by looking at the life of this stock, which in this case is around three years. It did not start showing any real volume until Nov. 2017 so I start my search from there. It started to do modest trading at $3 and then quickly moved up to between $4 and $7. It hit $12 in Jan. 2018 and again the first of Dec. 2018. It dipped to $4 on Aug. 13, 2018. Most of the time it was trading between $6 and $7. I'll suggest the normal value is around $6.50

So, if this theory holds any entry point below $6.50 should give me some profit in a weeks time or less on a swing trade. Average daily trading volume of late is around 10 million shares peaking at around 40 million on occasion. That bodes well for plenty of intra-day movement as well as great liquidity.

I made my entry buy yesterday (12/4/18) at $5.65. I have a GTC limit order to sell all 1,000 shares at $5.95 taking .50/per share profit.

Let's see how this works out. I'll post back with an update.
 
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Dec 4, 2018
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#9
I was able to make some progress on this. You can download historical data for this stock from the NASDAQ web site. I took the entire history so you can clearly see the early year or so before it seemed to get going and traded up past $4 for the rest of its life, so far. I imported the data into Excel so it would appear as a spreadsheet I could work with.

Then, I applied a formula in Excel to subtract the daily low from the daily high, divide that result by two and add it back to the low. That gave me the average daily price. I then told Excel to plot those results on a graph, as you can see here. Now, it's quite easy to look at the chart and see a point where this stock seemed to find support most often. What we will now call the normal value for this stock.

Now, to my old eyes that would seem to be right around the $6 level (the left side shows price in US dollars). If you can accept that, then buying below this level can be considered a discount. You are more likely than not to see a gain over time (again this is a swing trade) if you were to make your entry point at this level.


chart.jpg
 

dbphoenix

Well-known member
Aug 24, 2003
6,908
1,150
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#10
You're on the right track. "Value" will most likely be found at that level at which serious money repeatedly supports the price and stops and reverses moves downward (that's what "support" is all about). However, in order for you to be able to rely on this, you have to determine whether or not serious money is interested in this stock in the first place. While is it unlikely that serious money would be interested in a stock priced this low, there are exceptions. Look at the float and the average daily volume: you don't want to be yanked around by a bunch of kids who are able to send price here and there just to show that they can. Nor do you want to park your money in something that's just going to sit there unmoved for weeks and months at a time (this as you may know is called "opportunity cost"). Has serious money ever wanted this stock? Is it in a temporary slump? Or are its prospects not especially attractive (you'll most likely have to delve into the fundamentals for answers to these sorts of questions)? Will it pay dividends while you're waiting?

Db
 
Dec 4, 2018
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#11
...However, in order for you to be able to rely on this, you have to determine whether or not serious money is interested in this stock in the first place. While is it unlikely that serious money would be interested in a stock priced this low, there are exceptions...."Db
Many thanks for your support and reply. Yes, this stock does appear to be a contender for serious money. I say that due to (what appears to me to be) the high daily volume. As I stated prior, it does an average of 10 million shares traded per day and has been as high as 40 million.

I don't know how that compares to others expectations but it seems quite high to me. Not likely to get stuck with this if one needs to get out soon.
 
Dec 4, 2018
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#12
Sold today for a $300 profit.

My initial attempt to grab $500 was too greedy IMHO so I lowered my expectations and sold. Now, I go back in at my original entry level and try this all over again.
 

hatemypips

Active member
Nov 11, 2014
210
2
28
#13
Hello to all.

I tried day trading back in 1999 and lost a lot of money. Smartened up and invested in mutual funds, which has done well for me.

Now, I'd like to get back into trading with a small amount of cash, but not as before. No rules back then. Lots of them today. I'm doing two kinds of trading, now. Buy and hold and buy to swing trade, both in the same stock.

Been watching videos from all kinds of "experts" and it's clear to me none of them really have a clue. Videos on using charts has convinced me that's also a crap shoot. Most charts show themselves after the fact and anyone can make money on yesterdays trades.

One fellow seemed to make some sense and his technique was basically this: "Buy at a discount and sell when it reaches normal value".

So, my question to all of you is how can a trader determine normal value for a stock? At first I thought normal value has to mean more than just the cost to buy the stock but now I'm not so sure it's all that complicated.

It might just mean the normal price that stock appears to trade at. The stock goes up and it goes down but most of the time it trades at around a certain level, at least if we look at the last 52 weeks or some similar specific time interval.

Looking for your thoughts and ideas and if there is a system or charting program that offers some insight, please add that to the conversation.
You can't estimate true fundamental value of a stock this its being approximated by the market by price. Considering following experiment. You know that in the economy there is currently good demand for apples. Apples have consumer value currently and it's high since people want to consume apples, which in turn gives them intrinsic value. This value is expressed in price - 10 bucks per kg. But then people shift to pears and apple consumption drops. What's their intrinsic value currently? Did it existed before?

It's of course rhetorical question and for example you can approach this question from the side of costs which were incurred to produce apples. As with bitcoin if we burned thousands of Kwt then it should worth something. But the problem is that concept of value exists only in our head.
 
Dec 4, 2018
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#14
I agree with you about fundamental value not being based on price but this is not fundamental value I'm talking about.

I AM looking at the price since that's what will govern my entry and exit point. All I'm trying to do is find the entry point that is most likely to always give me some moderate upside in a short period of time (hopefully just days) so I can exit the stock and start all over again. This is all about persistence and patience.

Now, for that long position I have in this same stock then, yes, I want there to be more to the stock than just price or my money will sit there for ever and not do much of anything.
 
Dec 15, 2018
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#15
I agree with you about fundamental value not being based on price but this is not fundamental value I'm talking about.

I AM looking at the price since that's what will govern my entry and exit point. All I'm trying to do is find the entry point that is most likely to always give me some moderate upside in a short period of time (hopefully just days) so I can exit the stock and start all over again. This is all about persistence and patience.

Now, for that long position I have in this same stock then, yes, I want there to be more to the stock than just price or my money will sit there for ever and not do much of anything.
And how much you win with that method?
 

NVP

Well-known member
Jun 21, 2004
35,598
1,710
223
fxcorrelator.com
#17
Hello to all.

I tried day trading back in 1999 and lost a lot of money. Smartened up and invested in mutual funds, which has done well for me.

Now, I'd like to get back into trading with a small amount of cash, but not as before. No rules back then. Lots of them today. I'm doing two kinds of trading, now. Buy and hold and buy to swing trade, both in the same stock.

Been watching videos from all kinds of "experts" and it's clear to me none of them really have a clue. Videos on using charts has convinced me that's also a crap shoot. Most charts show themselves after the fact and anyone can make money on yesterdays trades.

One fellow seemed to make some sense and his technique was basically this: "Buy at a discount and sell when it reaches normal value".

So, my question to all of you is how can a trader determine normal value for a stock? At first I thought normal value has to mean more than just the cost to buy the stock but now I'm not so sure it's all that complicated.

It might just mean the normal price that stock appears to trade at. The stock goes up and it goes down but most of the time it trades at around a certain level, at least if we look at the last 52 weeks or some similar specific time interval.

Looking for your thoughts and ideas and if there is a system or charting program that offers some insight, please add that to the conversation.

based on your comments i would suggest you look at market profile ......i have a mate who teaches it but that would be advertising so i cant reveal that here ......

plenty online if you google

N
 
Dec 4, 2018
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#18
Very interesting.

Frankly, I cannot understand much of this (watched several videos on Youtube) and it seems to be more geared to intra-day trading than the swing trading I'm mostly doing right now. I did go to my trading platform and looked to see if it included market profile as one of the studies. It does not.

However, I found something called TPO Profile or Time Price Opportunity Profile which is actually a major part of market profile. I applied that study to several of the stocks I had already computed the normal price for on a six month and year to date chart and wha-lah. They were identical save for a few cents one way or the other. So, thanks to you, I now have a quick and simple way to find the entry point of any stock I wish to trade.

Thanks much : )
 
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