Please criticize my Stock swing strategy

[unid]

I would appreciate your feedback/criticism about my following strategy. Something is wrong but I do not see it.

Strategy: Swing Trading. 2-5 days
My account size: (100%) $10,000
Allocation:
Long Position: 40 to 60% ($4000 to $6000)
Short Position: 60 to 40 % ($6000 to $4000)
Maximum per security: 10% ($1000)
Maximum Loss per security: 3% ($30)
Actual Trailing Stop Loss: High or Low of Previous Day and/or 2% Trailing Stop or major support/resistance within 4-5 previous days as long Maximum loss is still within 3% of entry.

I uses FINVIZ.com - Stock Screener and select a pool of stock in ‘UP Trend’ for long position and
Down trend’ for short position with a volume of 500,000 and up, and price $10 and up.(I do not trade stock near earning release dates.

Then on StockCharts.com - Simply the Web's Best Financial Charts, I use MACD Histo, Candles, Volume, Stoch.,, and Money Flow Index on Daily and Weekly charts to narrow down my Long and short list to about 4-6 stocks for long and short position each.

I put lots weight on Volume, candles, and MACD Hist on daily charts.

I place open at market order on IB for next day morning for all of the Long(about 4-6) and short positions( about 4 to 6).

On Monday morning, I check/glance Yahoo! finance page for about 5 minutes(since I am at work I do not have much time.) and if sentiment is neutral I enter all of my Long and Short positions.

If view is Bearish, I enter all of my short positions and, if view is bullish, I enter all of my short positions.

Actually, since I have placed my order a night before, only thing I have to do is cancel the orders I do not want.

On first day my positions stay unprotected because (1) I am at work during day, and (2) I do not want Pattern Day Trader notice from IB since my account size is below $25,000 and stop-loss can create this situation on a day of the entry.(it has happened once!)

In the evening, I place stop-loss order as explained in the beginning, but if Candles, volume, and price indicates that I am wrong I place market order to exit next day morning.

I keep repeating this process every day till I have taken all of my Long/Short positions with intention to be in cash during weekend, but if selection is good and MACD, Candles, and Volume of daily charts agrees, I stay in the security with stop-loss. Reading chart is the primary way to exit, stop-loss is always there for protection. I saty with my winner with stop-loss.

I do this because of my inability to know which way market is going to move on any given day. I like to stay 50/50 long and short with an assumption that in long market long position will go up more than short will go up and in down market short will fall more than long position, and difference is my gain.

So far, I am doing good with my stock selection, but, market direction is slowing me down. In last 5-6 months I have traded about 100 ( $100000 =$1,000 x 100)securities with 45% win and 55% losing trades, and have lost $150 from a $10,000 account. (Without $1 per trade commission I am about $40 to 50 in profit). For most part(80% of time) I do not use margin. My strategy is not proven to use margin yet.

I have no idea about how to hedge market direction with my account size.

Thanks for reading this long post. Please give me your constructive input so I can see flaws in this system.

I have full time day job and can not trade during day.

Thanks.

 

[Shakone]

It's not really clear why you enter or why you exit. So it's not a strategy.

 

[ducati998]

It's not really clear why you enter or why you exit. So it's not a strategy.

Entries.

I uses FINVIZ.com - Stock Screener and select a pool of stock in ‘UP Trend’ for long position and
Down trend’ for short position with a volume of 500,000 and up, and price $10 and up.(I do not trade stock near earning release dates.

Then on StockCharts.com - Simply the Web's Best Financial Charts, I use MACD Histo, Candles, Volume, Stoch.,, and Money Flow Index on Daily and Weekly charts to narrow down my Long and short list to about 4-6 stocks for long and short position each.

Exits.

I keep repeating this process every day till I have taken all of my Long/Short positions with intention to be in cash during weekend, but if selection is good and MACD, Candles, and Volume of daily charts agrees, I stay in the security with stop-loss. Reading chart is the primary way to exit, stop-loss is always there for protection. I saty with my winner with stop-loss.

jog on
duc

 

[ducati998]

I do this because of my inability to know which way market is going to move on any given day. I like to stay 50/50 long and short with an assumption that in long market long position will go up more than short will go up and in down market short will fall more than long position, and difference is my gain.

You are essentially trading a pairs strategy, without any implicit or explicit correlations. It is the correlations that provide the 'edge' in a pairs strategy. Usually a pairs strategy requires a longer time frame than 1 week, although you can scalp them on a day trader basis.

Some examples of pairs used: TGT/WMT, GLD/GDX, SLV/SIL, XOM/GLD. I have traded these pairs many times in the past and they are reasonably robust. The tricky part is deciding on the correct time frame in which to place the trade.

jog on
duc

 

[Shakone]

Entries.



Exits.



jog on
duc

Well I suppose...if you call this an entry

I use MACD Histo, Candles, Volume, Stoch.,, and Money Flow Index on Daily and Weekly charts.

May as well just say, I use a chart, a broker and a computer to decide to go long or short.

 

[Atilla]

Well I suppose...if you call this an entry


May as well just say, I use a chart, a broker and a computer to decide to go long or short.

Heads or Tails would be a more precise system of entry and exits imho.

Consistency is the name of the game

 

[Hakuna Matata]

hi!

Great - great! - 1st, 2nd or 3rd post. Better than 95% of the sh1t on here by people with 000's of posts behind them.

Tell me - are you excel-savvy at all? Or, even better, do you have access to something like MATLAB?

What you've described so far is, I must say, pretty vague. I decide on X, Y and Z doesn't really tell us much - it would be great if you could tell us more so we can chime in with our inflated opinions and put the world to rights

Unfortunately I can't tell you why you're strategy isn't making any money. Even worse - nobody else can either. The only people that can do that are people that understand it implicitly, intimately, from top to bottom. And, if you have to ask on an internet forum, that guy can't be you, which rules out it being any of us either (well, ish).

Off the top of my head, some things for you to think about are:

* choosing long/short candidates in the same sector (say Nike vs Adidas), and then...
* picking your trade sizes to account for volatility.
* firming up your selection criteria into some sort of flow-chart, yes/no affair.
* netting out any mkt exposure (beta) by going long/short an index tracker, so that...
* you can run your positions for longer and avoid excess comissions

G/L

 

[unid]

Thanks for the insight. I am beginning to see holes in Swiss cheese. Please...please...keep-up with solutions/advise.
Thank you very much.
Unid

 

[Hakuna Matata]

You are essentially trading a pairs strategy, without any implicit or explicit correlations. It is the correlations that provide the 'edge' in a pairs strategy. Usually a pairs strategy requires a longer time frame than 1 week, although you can scalp them on a day trader basis.

Some examples of pairs used: TGT/WMT, GLD/GDX, SLV/SIL, XOM/GLD. I have traded these pairs many times in the past and they are reasonably robust. The tricky part is deciding on the correct time frame in which to place the trade.

jog on
duc

Until we know more about the stock selection, we can't say whether it's a stat-arb or long/short approach.

I would be surpised if he's pairs trading, given that he mentions MACD etc. I'd be equally surprised if it's some sort of long/short strategy, given there's no mention of industry, company outlook, etc.

My hunch is that he's going long on "bullish technicals" and short on "bearish technicals" and just churning his account as a consequence.

So, room for improvement!

 

[unid]

Let me read and digest the various responses, do some home work and formulate questions to ask to help you to help me efficiently. Meanwhile, few pointers, they are not bragging rights, but part of holes in cheese.
I am good at Excel, but I am not using it that much.
I am not using any Software/system other than those free sites mentioned.
This is the first time I read about 'pair's strategy'.
My initial strategy was to start somewhere and not to loose lots of money, now it seems like I may have to take a brake to understand the connection between forest and trees.
If I do not respond to particular questions, than I am not ignoring you, but I am learning to respond.
Again, thanks for your support.
Unid

 

[unid]

Until we know more about the stock selection, we can't say whether it's a stat-arb or long/short approach.

I would be surpised if he's pairs trading, given that he mentions MACD etc. I'd be equally surprised if it's some sort of long/short strategy, given there's no mention of industry, company outlook, etc.

My hunch is that he's going long on "bullish technicals" and short on "bearish technicals" and just churning his account as a consequence.

So, room for improvement!

You are absolutely right about analysis/breakdown of my thought process and actions.
Thanks you.

 

[unid]

I am not using any paid system/sites etc., because at this time I do not know enough to select the right system. I see the paid system as a 'tool' to improve the efficiency but it will not teach me anything. At the same time, I have not used any paid software/system to say much about it though.
Thanks

 

[unid]

Well I suppose...if you call this an entry


May as well just say, I use a chart, a broker and a computer to decide to go long or short.

Yes. You are correct.

 

[Shakone]

Perhaps go into a bit more detail about what you are doing, and why it is failing. For instance, what do you mean when you say 'something is wrong'? Everyone has losses or trades that are losing for some time. The more detail you give, the better the feedback (hopefully )

 

[ducati998]

Until we know more about the stock selection, we can't say whether it's a stat-arb or long/short approach.

I would be surpised if he's pairs trading, given that he mentions MACD etc. I'd be equally surprised if it's some sort of long/short strategy, given there's no mention of industry, company outlook, etc.

My hunch is that he's going long on "bullish technicals" and short on "bearish technicals" and just churning his account as a consequence.

So, room for improvement!

Clearly he is not trading a 'pairs' strategy. Just as clearly he is not trading any form of arb, and just as clearly that is what I said.

What he is doing is, intuitively, he is trying to create a market neutral strategy. While a pairs strategy is not market neutral, it is a step in the right direction. As a trader of market neutral strategies, it stands out quite clearly to me as being such.

True market neutral strategies are about as close to the holy grail as one is likely to get, so I commend his insight or intuition.

jog on
duc

 

[timsk]

Hi Unid,
I know you've been a T2W member for a while - but you've not posted much - so welcome to the dragons den!

I'm loathed to direct anyone away from T2W but, just occasionally, there are threads on other forums on specific topics that are covered in greater detail than they are here. If you decide to research pair trading further, then this thread on Elite Trader might be of interest: Pair Trading Strategy Journal

Contributors to the thread make repeated reference to this piece of software: Pairtrade Finder It's a while since I looked into this in any depth but, from memory, I found the trial software difficult to use and the alternatives were either pretty poor or very expensive. But don't let that put you off; those that know more about this topic than me may say it's possible to get by without using any expensive software.

Lastly, if you want a book on the subject, although I've not read it myself, this one is frequently recommended by those who have: Pairs Trading: Quantitative Methods and Analysis by Ganapathy Vidyamurthy. (Perhaps ducati998 or one of the other subscribers to the thread can comment on it?)
Tim.

 

[Hakuna Matata]

a gentler introduction is "Quantitative trading" by ernest chan. He's got a blog too I think. The pairs trading one jumps straight into the maths of it (got both).

 

[ducati998]

Contributors to the thread make repeated reference to this piece of software: Pairtrade Finder It's a while since I looked into this in any depth but, from memory, I found the trial software difficult to use and the alternatives were either pretty poor or very expensive. But don't let that put you off; those that know more about this topic than me may say it's possible to get by without using any expensive software.

Indeed you can. I have looked at 'pairtrader' in the past, rubbish.

Lastly, if you want a book on the subject, although I've not read it myself, this one is frequently recommended by those who have: Pairs Trading: Quantitative Methods and Analysis by Ganapathy Vidyamurthy. (Perhaps ducati998 or one of the other subscribers to the thread can comment on it?)
Tim.

Never read it.

Pair trading is ok. It is not risk free, it is not truly market neutral. You can lose on both legs of the trade. It does however throw up interesting trades from time-to-time, or even day trades to scalp.

The issue is always the time frame. Here for example are a few time frames for XOM/CVX, which is a well correlated trade, or, has been in the past. The best trades are where all the various time frames essentially agree, which I have to say is pretty rare.

If you are going to day trade the pair [any pair] the best time is at the open. Very often at the open you get a divergence which, almost always, trades back to the mean. The gap may reopen during the day and grow wider, or not, but the open is where your best opportunity lies.

Having said all of that, as indicated, pairs are not a market neutral strategy, although superficially they resemble one. They are still directional. A true market neutral strategy, say gamma scalping, is actually trading something other than nominal price, viz, IV's [although you can argue that is also a nominal price] and requires a very different analysis, which provides for its neutrality.

jog on
duc

 

[NVP]

Ive looked at pairs Trading before but doesnt appeal to me ...........

Why add more layers of complexity to deciding if something is going up or down ?

N

 

[timsk]

Why add more layers of complexity to deciding if something is going up or down ?

Well NVP, my (limited) understanding of pairs trading is that the complexity of deciding if something is going up or down is the very thing that gets removed!

Tim.