A simply, 3 step system--- does this really work??

Discussion in 'Strategy Development' started by charlie daniels, Mar 30, 2010.

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  1. Is it really this easy? These guys say they tested this system on 10000's of trades with strong results. Does this make sense?? I always thought and was taught to buy new highs not this method. Something seems odd about this, any thoughts?

    Practically, how can one trade this massive bull move? The same short term stock picking principles are in play regardless of the state of the underlying market. The axiom of buying the selling and selling the buying rings true in all conditions. We have quantified this short term stock picking method into an easy to use, three step system.

    The first and most critical step is to only look at stocks trading above their 200-day Simple Moving Average. This assures that a strong, long term up trend is in place, increasing the odds that you are not buying into a falling knife or catching a stock in a death spiral.

    The second step is to drill deeper into the list locating stocks that have fallen 5 or more days in a row or experienced 5 plus consecutive lower lows. Yes, you heard me right, fallen 5 or more days in a row.<b> I know this is counter-intuitive of conventional wisdom of buying stocks as they climb higher. However, our studies have clearly proven that stocks are more likely to increase in value after a period of down days than after a period of up days.</b>

    The third and final step is a combination of whittling the list down even further by looking for names whose 2-Period RSI (RSI)2 is less than 2 (for additional information on this proven indicator click here) and the Stock PowerRating is 8 or higher.

    The Stock PowerRatings are a statistically based tool that is built upon 14 years of studies into the inner nature of stock prices. It ranks stocks on a scale of 1 to 10 with one being the most volatile and least likely for short term gains and 10 proven to be the most probable for gains over the next 5 days. In fact, 10 rated stocks have shown to have a 14.7 to 1 margin of outperforming the average stock in the short term.
     
  2. No.Heat

    No.Heat

    No it does not make sense, so shills or the owner themselves post public posts on public forums using very obvious new accounts with low posts to draw attention.
     
  3. Sorry, I nocomprehend! What doesn't make sense? The buying the selling?

    I want to know what the testing was and if it was done properly to prove that it makes more sense to buy stocks after falling than after climbing.
     
  4. The translation of the three steps mentioned by the OP vendor are as follows:

    Step 1 sort for quality. Most EPS and RS stocks of high value (combined as in AND'ing) have this characteristic. 200 days is the five times in 6 months aspect of proving in reliability and repeatability. A cycling stock that stays above the 200ma has to be improving its reliability or it will intercept the 200ma.

    Step 2. is close and will lead the a possible occasional screw up. This 5 day limit will work when the 2B of a R2R 2B 2R pattern is an IBGS that has a brief 2B and the 2R gets under way early in the day. Otherwise the trade is missed when the stock does come out of DU on the 2B of B2B of the long part of the cycle.

    Step 3. As trader666 has pointed out (read further in his citations which begin before the breakthrough of fisher (Harvard)) this was the indicator (RSI) combined with volume. RSI is a good trigger signal when it comes out of a minimum volume DU situation. Step three is more a timing sort than a criteria sort.

    For advanced beginner level this could work @ 50% a quarter which is 500% a year by compounding. The adjustment to make is to use the R2R 2B 2R pattern on a 30 minute chart in step 2 and to use the unusual volume chart for step three. In step 3 this includes using peaking voume for the exit and NOT the trader666 type 5 day time out which is statistically insignificant at a little less than BE trading.
     
  5. Interesting, Mr. Jack.

    If I break through your Scientific language--- Are you saying that the simple 3 step system works? Can you provide any backtests for this supposed simple 3 step system.

    I guess trading really is easy once you crack the code...

    Thank you
     
  6. It looks good to me and there are some caveats.

    The entry and exit are not defined as well as the sorting of stocks into a universe.

    The chosen universe will make a greater return as stated by buying after a retrace (see step 2). Step two has a couple of flaws and they need to be explained thoroughly somehow somewhere.

    A complete retrace (short trend) has three parts and you are missing the middle part. That makes it possible for the reader to go into a position just before the 200 day moving avrage gets broken and thus throwing the stock off of the list.

    That could be explained as a false BO trade so an exit is taken as a wash type exit.

    To make the system trade and make money more detail has to be put into exits rather than just sorting and entries.

    Exits require more timing expertise than entries.

    You are entering at the end of a retrace (almost) and this is a little early in a cycle. It is better to enter at the end of a trend when a "reversal" is occurring.


    Anyway, the three steps are workable and you can add a simple stop system that includes an initial stop and trailing stops that are volatility adjusted to preclude early exits on the @R of a long B2B 2R 2B pattern.
     
  7. jim c

    jim c

    I have a couple of the authors books. (Connors) It works. I have backtested almost every strat in the latest book. I got very high profit factors for alot of the stuff. It works really well on ETFs. The more backtesting I do the more I find that the counter-intuitve stuff works the best. Find a setup you really love...one that looks like the best buy signal you could ever get...then fade it. Im very serious. Good luck Jim
     
  8. If you define the exits and do not use a fime out exit, there are a few people on ET who will backtest itto death.

    They has a great incentive to do their first backtest successfully.

    All I did was look at any stock that meets a different sorting criteria and I noticed where the 200ma is on that sort (step one).

    If you want good backtesting you should post your universe to be backtested and give the times when the Universe applies in the past. Universe change all the time. some of the dumber back testing on ET has use listed over as long as 5 years. No quality stock makes the list for that long.

    The list of stocks making 250 to 500 percent a year going forward are vary short, for example. This is buy and hold investing in a passive way. you are doing "position" trading where making 50% a quarter is equal to 500% a year. Many more stocks fit into the position trading universe. But to backtest it the universe has to be defined during the testing period by breaking up the period.

    Lo did this in a research paper on patterns. He was stupid to use a five year period and he was satisfied with trades of 30 to 40 days that happened on average 7 times in five years.

    He had pattern evaluators from big firms who approved his approach and results. What this proved was that Lo and his evaluators had their heads up their asses.
     
  9. thanks for the clear response, Jim. Maybe I have finally found a system that actually works. Do you have a favorite Connors system or are they all basically the same idea of the 3 steps in the article?

    thanks again, Charlie
     
  10. Jesus, we got Jack talking to a shill account. Nude pics of Jessica Alba making out with Angelina Jolie couldn't save this train wreck..
     
    #10     Mar 30, 2010
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