Please criticize my Stock swing strategy

timsk

Legendary member
7,612 2,383
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

Well-known member
357 209
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

Experienced member
1,193 68
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
 

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NVP

Legendary member
37,787 2,112
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

Legendary member
7,612 2,383
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.
 

barjon

Legendary member
10,705 1,809
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.

Indeed, the direction decision is swapped for the decision as to whether the one is going to outperform (trades relatively strongly) or underperform (trades relatively weakly) the other - doesn't matter whether they are both going up or down. One is outperforming the other if it goes up faster, or if it goes down slower.

It's basically a reversion to mean play - wait for "extreme" diversion (the tricky bit) and then assume a reversion to their "normal" relationship.
 

unid

Newbie
9 0
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...
I would appreciate if you explain this...'Index Tracker".

* you can run your positions for longer and avoid excess comissions

G/L (y)
I am comfortable with my stock selection and do not like to give up the idea of staying Long and Short for most of the time. But I do not know how to utilize that selection to enter the trade but minimize the damage to my Long if market goes down and damage to Short if market goes up in that day. One of the solution I am thinking about is to place order in the evening with the conditions that if S&P future(..or some other index) is x% UP or down enter all long/short accordingly. I am not asking for technical side of execution(I can ask IB about how to place that kind of trade???), but I want to know pros/cons of that. Just because market seems to be trending in the morning that does mean it will close that way. How do I hedge against this situation to minimize risk? Options etc.??? or that's the risk I take.
Thanks,
Dinesh
 

Hakuna Matata

Well-known member
357 209
someone rep this so I can remember to come back to it over the weekend?

P.S. @Steve - I've often that a "marked as unread" option would be good for the forum...
 
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barjon

Legendary member
10,705 1,809
I am comfortable with my stock selection and do not like to give up the idea of staying Long and Short for most of the time. But I do not know how to utilize that selection to enter the trade but minimize the damage to my Long if market goes down and damage to Short if market goes up in that day. One of the solution I am thinking about is to place order in the evening with the conditions that if S&P future(..or some other index) is x% UP or down enter all long/short accordingly. I am not asking for technical side of execution(I can ask IB about how to place that kind of trade???), but I want to know pros/cons of that. Just because market seems to be trending in the morning that does mean it will close that way. How do I hedge against this situation to minimize risk? Options etc.??? or that's the risk I take.
Thanks,
Dinesh

Seems to me that with your long and short stock selection you are already "hedging" and "minimising risk" and I don't see that you can go further than that. You are reliant on the overall net result (ie: the profits on your long trades outstrip the losses on your short trades and vice versa) as your base expectation, with the occasional bonus of some coming good on both sides.

To maximise that net result I guess you will be looking for the stocks in the strongest uptrend (since they will tend to rise faster when the market rises and fall slower when it falls) and vice versa for shorts. When the market is in a strong trend I'd be surprised if you found an equal number of candidates on both sides.

It's usually dangerous to go against market trend - when the water rises all boats float - and I usually only go half position with my equities if I do.
 

unid

Newbie
9 0
Seems to me that with your long and short stock selection you are already "hedging" and "minimising risk" and I don't see that you can go further than that. You are reliant on the overall net result (ie: the profits on your long trades outstrip the losses on your short trades and vice versa) as your base expectation, with the occasional bonus of some coming good on both sides.

To maximise that net result I guess you will be looking for the stocks in the strongest uptrend (since they will tend to rise faster when the market rises and fall slower when it falls) and vice versa for shorts. When the market is in a strong trend I'd be surprised if you found an equal number of candidates on both sides.

It's usually dangerous to go against market trend - when the water rises all boats float - and I usually only go half position with my equities if I do.

Thank you very much. Let me add to my strategy.
With help of FINVIZ.com - Stock Screener, stockcharts, macd histogram, candle, volume, and stoch., I come-up with the list of Long candidates from Uptrend and Short from Uptrend. As I go through this exercise, I end-up with a certain number of longs and shorts.

After this stage I need help. I have few options.

1. Use number of Long and Short as an indicator of next day's(ususally Monday's)
market sentiment.As an example, if my process gives me 10 longs and only 4 shorts than most probably market should have bullish bias. So instead of using any other calculations, I enter all my longs and shorts with dollar equal amount of Long and Short, which is $5000 each since my total capital is $10K(but I do not allocate more than $1000 per equity) and I do not want to use margin yet.
I have done this and I did not loose but did not make any either.

2. So I changed my strategy and now in the morning, at @ 7AM ET, if '5-minute' glance at Yahoo! says that market will open higher than as you have mentioned, I enter only Long positions with 50%($5000) of total capital and vice versa. If open trend seems neutral, than I execute all of my Long and Short trades.

I exit with signals from MACD hist., candles, volume, previous two day's volume confirmed high/low, or my maximum loss limit of 3% of allocation per that equity. If my position is about 3-4% profitable, than I keep 2% trailing-stop loss limit and do not do any of the technical analysis to exit.

If my all $10,000 are in than my potential risk is $300. As of today I am $100 down after trading about 80-90 stocks with close to 50% loosing trade, but most of my profits came from Short not Long even though market was going up from month to month. This may indicates that my strategy is giving positive bias on short side and I should make 60% short and 40% long as my bench mark and than make adjustments based on that days market.

At this stage, I have ran out of ideas to fine tune. I am even thinking about options or futures, but my thought is, if I can not make this work than how it is going to work with other system.

Honestly, I do not know how to move forward and make some money. So please show me what I am missing.

Again, thanks to all of you for sharing your time and expertise for free. This is called 'priceless' - too valuable to price or at least I can not afford to buy it at this time.
God bless you all.
Unid
 
M

member275544

0 0
Let me add to my strategy.
With help of FINVIZ.com - Stock Screener, stockcharts, macd histogram, candle, volume, and stoch., I come-up with the list of Long candidates from Uptrend and Short from Uptrend. As I go through this exercise, I end-up with a certain number of longs and shorts.

how long is this list exactly?
what analysis have you done on these already that are in today's or tomorrow's lists..trend lines, key swing points, support/resistance levels?

My experience started out with lots of opportunities because they might have filled a certain criteria. But when I narrowed down to a glimpse of a watchlist of just a handful I found I had less trades of course, but the percentage of successful trades started growing. I now just trade 2 consistently, but still have a watchlist of 5-6 that i use for longer term holding (weeks to months)
 

unid

Newbie
9 0
how long is this list exactly?
what analysis have you done on these already that are in today's or tomorrow's lists..trend lines, key swing points, support/resistance levels?

My experience started out with lots of opportunities because they might have filled a certain criteria. But when I narrowed down to a glimpse of a watch list of just a handful I found I had less trades of course, but the percentage of successful trades started growing. I now just trade 2 consistently, but still have a watch list of 5-6 that i use for longer term holding (weeks to months)

I just read the chart without selecting given 'swing points', 'support/R' etc from drop-down menu. But that does not mean I am ignoring. At the end, they are part of my observation. One thing you have mentioned is critical. Many times I end-up with 2-3 long against 10 short and vice-versa. At that time, I was forcing to come-up with at least five L and SS so that I can meet my 10% per equity and about 50/50 Long-Short criteria. Seems like my problem is hiding somewhere here...high probability few trades v/s more trade and probability of success goes little bit down.

Thanks and please give me your input.
Unid.
 
M

member275544

0 0
I just read the chart without selecting given 'swing points', 'support/R' etc from drop-down menu. But that does not mean I am ignoring. At the end, they are part of my observation. One thing you have mentioned is critical. Many times I end-up with 2-3 long against 10 short and vice-versa. At that time, I was forcing to come-up with at least five L and SS so that I can meet my 10% per equity and about 50/50 Long-Short criteria. Seems like my problem is hiding somewhere here...high probability few trades v/s more trade and probability of success goes little bit down.

Thanks and please give me your input.
Unid.

Personally, I would look at having a small watchlist, and backtest your strategy against them. then just trade those. Honestly, I have one stock that has given just one losing trade in nearly 4 years. I have a handpicked list that when a trade comes I know damn well what the outcome is likely to be
 

barjon

Legendary member
10,705 1,809
......................Many times I end-up with 2-3 long against 10 short and vice-versa. At that time, I was forcing to come-up with at least five L and SS so that I can meet my 10% per equity and about 50/50 Long-Short criteria...............

Isn't that just finding trades for the sake of it rather than because they properly meet your criteria? If you've only got 2/3 longs why not just take your "best" 2/3 shorts?
 

D70

Established member
839 195
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

You know that gbp/usd is a pair....?
 
 
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