A Very Profitable Methodology

Discussion in 'Strategy Development' started by xtraderx, Dec 17, 2005.

  1. xtraderx



    I. Introduction

    I have been developing a trading methodology now for two years and decided, in light of the success I am experiencing, I will pursue this to the next level: professional money management. I decided on an initial release to elite trader as my forum for its broad exposure and the earnest value it provides as I post trades in a journal format it is accepted as actual and not fabricated. Ultimately I will participate in various “farm leagues” where institutions monitor new talent for potential money managers.

    What is intriguing and profitable about my methodology is it identifies where capital is flowing in the market place at the present; here and now. And it does it by numbers not feelings, emotions or conventional wisdom. I want to invest in what is moving and making money now, not what may occur or waiting for a company to turn around. Keeping the time value of money in mind, capital tied up in investments going nowhere is detrimental.

    Furthermore, I believe markets, economies and the world in general moves too fast these days to realize success with historical strategies: buy and hold is a dead strategy. Life span of companies, product cycles and longevity is much shorter now compared to the past: companies and their products appear overnight and disappear overnight. Thusly, new strategies are necessary for profitability. To be successful in the new paradigm of the stock market you need a system that is adaptable: gets in with the best of it and out before the worst of it just as fast as the reality of the marketplace.

    II. Methodology

    My methodology is a quantitative analysis of the entire universe of stocks based upon earnings, sales, growth, valuation and share price action. Further analysis is performed to determine validity of the underlying price behavior based upon its history. I employ about ten different screens typically yielding 100-300 stocks, then perform additional screens to narrow the field and eventually I arrive at a manageable field of about 20 stocks that I can perform rigorous analysis, initially quantitative and then I comb their reports, filings, balance sheets, everything before I buy it. Details of my methodology are of course strictly proprietary; I am looking to manage money or sell my process.

    No stocks are excluded from the initial screen nor are any stocks favored according to sector or size, etc... I prefer keeping the methodology as mechanical as possible to attempt at eliminating human error and emotion from the equation. However, during the time of my research the methodology is favoring small caps as probably no coincidence the market has also been favoring small caps; I imagine as market conditions change it will adapt to again pick companies where capital is flowing whether it be small cap or large cap or growth or value by traditional measures.

    All of my entry and exit strategies are strictly proprietary. However I typically scale in and out, cutting losers and letting winners run. I also size positions as to not overweight a position based on share price.

    I want to be in with the best of it, when action is happening now and all of the market forces are flowing in my favor. Successful investing entails managing micro and macro realities: lining all of these market forces up at the same time is as close to the “holy grail” of investing I have seen in my ten years trading.

    Conversely, maintaining cash positions at critical times when the flow of capital is weak, negative or slow due to cycles or even seasonal attributes maintaining is critical to achieve capital preservation and therefore increase bottom line. My system recognizes “cash is a position too”.

    I hold 0-20 positions typically but average about 10-20 at any given time; I will run my screen once a month and add positions based upon performance of existing positions, strength of potential positions and prevailing market conditions.

    III. Present results

    Despite the project being very part time for me the results are already impressive; I imagine with full time attention and improved software, results could also improve. My current track record over past two years: 32.85% annualized.

    My current positions are:

    Symbol Last Trade Paid Gain

    28.75 22.97 25.16%
    44.83 38.64 16.02%
    36.69 22.61 62.27%
    77.48 43.82 76.81%
    38.05 27.53 38.21%
    25.85 28.08 -7.94%
    35.31 30.2 16.92%
    40.12 31.75 26.36%
    35.4 34.65 2.16%
    42.32 34.16 23.89%

    I have taken partial profits in MTN, HANS, and NTRI. I have also taken partial profit and SWN but as more of a defensive move looking to exit the rest of the position if it trades to my even point. KNDL is also on the chopping block. I will post results for these trades.

    IV. Future development

    I am currently working to apply a neural network application to this method, a venture very costly and intensive and at this time I do not have resources or time to aggressively pursue however it’s a work in progress.

    Feel free to post questions and I will respond when I get a chance.
  2. xtraderx


    All of these trades were bought on October 10th and on December 15th I sold partial lots in:

    HANS: Bought at 43.82 sold at 80.10 +83% gain (A 40 bagger!!!)

    MTN: Bought at 30.20 and sold at 35.71 +18% gain

    SWN: Bought at 34.65 and sold at 36.27 +5% gain

    Remarkable gains and realized in 66 days!!!
  3. Sounds like a plan.

    GMXR was my float turn over profit.
  4. xtraderx


    GMXR rocks! but I am close to taking at least partial profits... I really liek this company and their prospects so this is a co. i dont mind holding a partial lot on longer term as long as i am in the black...
  5. xtraderx


    Just completed a screen... the initial screen yields 46 stocks, a smaller than average universe and a lot of familiar faces. My screens always provide insightful macro observations about the market.

    Today’s screen tells me market leadership hasn’t changed much and the pace of capital flow and growth is slower and broad based.

    Here is my screen narrowed down after two of four phases; I will not publish the final phase of my screens but will post the trades shortly after they are executed... stay tuned...

    AX Archipelago Holdings, Inc.
    BBD Banco Bradesco S.A. (ADR)
    BBSI Barrett Business Services, Inc.
    CMCO Columbus McKinnon Corp.
    DVN Devon Energy Corporation
    FWLT Foster Wheeler Ltd.
    FTO Frontier Oil Corporation
    HITK Hi-Tech Pharmacal Co.
    LUFK Lufkin Industries, Inc.
    PHLY Philadelphia Consolidated Holding Corp.
    RTSX Radiation Therapy Services, Inc.
    SNDK SanDisk Corporation
    TALX TALX Corporation
    GAP The Great Atlantic & Pacific Tea Company
    TIE Titanium Metals Corporation
    VLO Valero Energy Corp.
    VPHM ViroPharma Incorporated
    WLS William Lyon Homes
    WF Woori Finance Holdings Co., Ltd. (ADR)
  6. xtraderx


    December 19, 2005

    Initiated new positions today in TALX at 43.09 and RTSX at 34.25, both small and I am looking to add in the near future

    Weakness today in RTSX, I would have loved to buy this stock on weakness but it looks like this was dilution. Maybe not fully diluted, but in a strong stock I am not waiting around for charity either.

    I really like TALX as a company and as a capex story going into next year. Corporate America is flush with cash now and as capex expenditures look to increase, TALX is poised to benefit.

    These new positions were funded by idle cash and proceeds from taking profits in other names and cutting a couple of losers.

    Today I sold KNDL, I am glad to be rid of that loser which was my worst performer of the last bunch -9.54 over 3 months. Good riddance, my 275 shares can go tease someone else. Not that this stock my not go higher, maybe even soon but I am not in the habit of holding onto losers.

    Sold off the rest of MTN, I am sure glad I trimmed that last week ahead of today. It really pays to stay on top of your positions and sell when things aren’t looking good.

    I also closed out SWN, running out of patience on this flat position and wanted to stay ahead of any sell off. Many stocks as the market itself are looking “tired” like they may roll over so I am trimming and keeping a close watch on the shop.

    I took more profits in HANS and only have a very small position open which I will hold onto indefinitely, maybe even adding more if the oppurtunity arises. When you find a real strong stock like HANS I have learned it pays to keep holding it and not sell entirely even when it doesn’t look like there is anyway it could go higher.

    I will post numbers for these trades soon.
  7. xtraderx


    Date Symbol SHARES BUY SHARES SELL % P/L Days Held
    10-Oct-05 HANS 180 43.82
    12/15/2005 100.00 80.1
    12/20/2005 50.00 78.7
    82.00% 68

    10/10/2005 SWN 200 34.65
    12/15/2005 100.00 36.27
    12/20/2005 100.00 34.99
    2.80% 68

    10/10/2005 MTN 200 30.20
    12/15/2005 100.00 35.71
    12/20/2005 100.00 33.49
    14.56% 68

    10/10/2005 NTRI 300 31.75
    12/15/2005 150 39.20
    23.46% 66

    10/10/2005 KNDL 28.08
    12/20/2005 275 275.00 25.4 66
  8. xtraderx


    my spreadsheet gets jumbled when i post but the bottom line % is the return... if you were interested you could copy and paste to an excel spread sheet and it would read normally...

    this brings my average trade up to 11.23% per trade, holding for an average of 48 days and a mind blowing 85.39% annualized.
  9. dac8555


    If i follow you, sounds like your approach is mostly fundamental with a strong "increase in volume element". not a bad way to go. I dont care to know your exact methodology...for obvious reasons that it didnt come from my breain....but what screening program are you using please?

    If i may ask, despite being mechanical, do you have at least any macroeconomic element? I noticed WLS on your list which is a luxury homebuilder i follow....i have to say it is bound to take a significant hit in the years to come simply due to its profle.
  10. xtraderx


    I used weakness in ARD to add to my position but just a small amount... strong stocks typically dont give you many buying oppurtunities so you must take what you can get at times... by the same token you dont want to catch the proverbial knife either so i just nibble

    My current positions are now:

    Symbol Paid Gain Trade Date
    23.40875 +13.63% -
    38.64 +12.22% 10-Oct-05
    22.61 +61.21% 10-Oct-05
    43.82 +90.51% 10-Oct-05
    27.53 +36.80% 10-Oct-05
    31.75 +30.43% 25-Oct-05
    34.25 +5.23% 19-Dec-05
    43.09 +1.37% 19-Dec-05
    34.16 +19.09% 17-Oct-05
    #10     Dec 20, 2005