How valid is this edge?

Discussion in 'Trading' started by shainadir, Jun 14, 2009.

  1. People are always writing about needing an "edge" to become a successful trader...

    I have come across an edge that I did not create but I do believe it will work.

    There are some stocks (ARO for example) that consistently give a 1-2% spike in price from the opening price on Monday. I'm not saying that from the beginning of the week to the end on Friday that the price increase is 1-2%..What I'm saying is that sometime during the week, the stock will have a 1-2% gain in price from the opening on Monday. For example, during this past week on Monday, ARO opened at finished the week at 35.09 but on Tuesday it reached a high of 37.18. I have gone over the charts on ARO for the past year and in 95% of the weeks this statistic held true.

    My strategy is to buy at the open on Monday and set a sell limit at when the price increases by 1.5%. Is this a legit strategy or am I missing something? All comments will be appreciated.
  2. maybe, maybe not. we all have these sorts of insights, now and then. it's important to backtest them. honesty is key. psychology is key. to be honest with respect to your own trading ideas, your own hard earned dollars, try to test your ideas for free.

    ninjatrader is a free tool for backtesting, you can download it from their site. you may need to get subscription for a paid quote provider, like DTN IQ, if you're looking to test on 1-minute data.
    if you're serious about your trading ideas, it's probably worth the money. better than throwing hard earned dollars at untested ideas.

    we've all been through this. discovery, insights, euphoria, temporary market effects which seem reliable, but then disappear. psychology. psychology, self-control and backtesting. that's key. unleash your inner trading energy. stay detached. you control your mouse. the mouse does not control you.

    i hate stuff that is not free. even so, i've made an effort and subscribed to DTN IQ (about 70 bucks a month, i think for major stock and futures prices). i use it with ninja for backtesting.

    i backtested some of my "discoveries" and decided not to trade them, because most of them turned out to be useless. that saved me some hard earned dollars.

    the most comprehensive study of various market effects and approaches, is, i think, is kaufman's 'new trading strategies and systems'. in fact, it's so comprehensive it's almost unbearable.

    but it's honest, and based on more or less sound statistical principles, and technical analysis stuff that works in appropriate situations. it's not bullet-proof, but it's better than hope and/or euphoria.

    you may want to take a look at what the kaufman has to say about the type of strategies you mention. i think he gives a pretty detailed account of various approaches to up days, down days, their sequences, probabilities etc. historical data on how this played out . . .

    my own feeling from reading that was that it was pretty nuanced. not immediately tradable.

    your idea may or may not have some value, i don't know. you just have to backtest it and read the kaufman, at least the relevant chapter.
  3. bighog

    bighog Guest

    Backtesting is even more overrated than banging the farmers daughter or getting the preachers daughter to 'come out".

    backtesting assumes you always "GET FILLED" and assumes you always "GET FILLED" at the best price.

    You know all the other reasons backtesting is nothing more than a crutch in hopes of finding what works. wanna find out what works? Find out what does NOT work first. :eek:

    PS: where did this broad come from? :D
  4. 37.15 was the high of the week and that was at the open on Wednesday.
  5. academic


    You can always backtest it and take slippage into account in your calculations.

    Sounds like rubbish to me though. I bet the pattern doesn't hold for long and besides, as soon as you put in a stop loss you will see your earnings deteriorate.
  6. bighog

    bighog Guest


    Valid point you state there. BUT

    Alowing for slippage and MISSING a FILL is a totally different situation. We all know most of the profits are made on fewer trades. If you miss even a single fill on one of those then your whole backtesting is bogus.

    Do your backtesting and then redo it by pretending you DID NOT get filled on 2 or 3 of the BEST trades and review your results.

    AND............ do not forget to include your REALISTIC slippage figures.
  7. Ridiculous strategy. It has no risk management component.
  8. Simply wrong. You cannot just pick stocks and expect them to go down or up and then lock in a profit. The market has a huge number of things happening. Your scenario has no compelling reason to occur any more than other scenarios within a probability space. So over a long period of time, you will likely find yourself NOT ahead.

  9. YOU trade 20C ES with 100 pt stop! And you talk about risk management?

    I've been a full time futures trader since 1984. First thing I learned was risk management- playing good defense as Paul Tudor Jones would say. He worried about how much he could lose each day. Figured if it was good enough for him, it was good enough for me. I'm still around 25 yeras later making 7 figures, year in and year out. A 100 pt stop is RIDICULOUS.

    You're risking $100,000 to make $64,000...

    Your timing isn't bad so why take such a risk? You WILL eventually blow out just like the idiots who keep adding to a losing position instead of taking the loss.
  10. Another elite trader multi millionaire heh? If you make 7 figures in 25 YEARS COMBINED, I would eat your shit on a street of your choice in the busiest city of your choice.

    I never seen so many multi-millionaires on elite before. I think your # 10239, congrats!
    #10     Jun 15, 2009