How valid is this edge?

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


  1. Well today was the first day that I actually used this method. I went short on 200 shares of DVN and BXP and reached my buy stop on both trades. I just wanted to get input on what others thought of this system and to see if there are ways that I can improve my results and minimize risks.
     
    #21     Jun 16, 2009
  2. achilles28

    achilles28

    I read your original post.

    Your strategy is long-bias. Similar to buy-and-hold, with a shorter duration. As such, you'll experience similar draw-downs in bear markets/pullbacks/chop that long-only investors suffer.

    Its obvious you're relatively new to trading and don't understand the rather flippant and half-baked ideas you're throwing out here.

    First, if there was any merit whatsoever to these edges, they'd be gone by next week since you posted them on a public forum.

    Second, you mention having both long and shortable options for a "downside" or "upside" market.......let me give you some friendly advice: if any trader knew in advance short-term market direction, they'd be billionaires in a few years (and some are). Thats the entire game, man - up, down or sideways. Then to casually mention you've got some indicator or formula to predict an upside or downside market - AS IF that's the easy part!! -- yea, okay. Fund a real account and see if it works.

    Third, you've got no strategy for market timing, hence no reasonable stop loss. Risking 100K to gain 60K, as some other poster mentioned, is suicide with this approach.

    What you're doing is generalizing market mechanics from anecdotal observations made during a rustling of the leaves.

    I can tell you right now, there's no fundamental reason why this strategy should work any better than a buy-and-hold strategy, in a Bull Market.

    And like I said in my original post, the 7 year bull markets of yester-year, are gone. So you're barking up the wrong tree.
     
    #22     Jun 16, 2009
  3. Cutten

    Cutten

    What's wrong with a 100 point stop? Shorting the S&P from the Oct 07 highs down to the March 09 lows required a larger stop than 100 points. Being long from March 2003 until 2007 couldn't be done with a smaller stop.
     
    #23     Jun 16, 2009
  4. Cutten

    Cutten

    What's your risk control? What's your exit strategy if the price does not increase 1.5%? What are the main mistakes you could make with this strategy? Under what market conditions would the strategy be likely to lose lots of money?

    These are a few questions that need answering before you start trading with this approach.
     
    #24     Jun 16, 2009
  5. Worked okay this year, but not a huge edge. And in previous years, just a little better than b/e. You might try it, but I wouldn't risk too much money on it. It probably won't last very long.


    Time: 1 year
    1000 shr positions
    Buy at open Monday, sell at 1.5% PT, or Friday at open (worked a little better than selling Monday at open).
    Note: to avoid any lookahead problems, profit target sales are always applied starting the next day after entry.
    0.01 per share, no slippage.

    Profit: $10,750
    Win %: 86
    Max DD: $6,000 (9/2008)
    PF:1.9



    TRADES (never could get columns to line up on ET)

    Code:
    Positn Symbol	Shares	Entry Date	Entry Price	Exit Date	Exit Price	% Change	Net Profit	Bars Held	Profit/Bar	Entry Signal	Exit Signal	Cum Profit	MAE %	MFE %	
    Long	ARO	1,000	7/21/2008	32.29	7/22/2008	32.77	1.44	464.35	1	464.35	Buy on Monday Open	Profit Target	464.35	-3.41	1.95
    Long	ARO	1,000	7/28/2008	31.23	7/29/2008	31.70	1.44	448.45	1	448.45	Buy on Monday Open	Profit Target	912.80	-2.82	1.50
    Long	ARO	1,000	8/4/2008	31.73	8/5/2008	32.21	1.44	455.95	1	455.95	Buy on Monday Open	Profit Target	1,368.75	-4.10	1.50
    Long	ARO	1,000	8/11/2008	34.40	8/12/2008	35.00	1.69	580.00	1	580.00	Buy on Monday Open	Profit Target	1,948.75	-1.22	8.72
    Long	ARO	1,000	8/18/2008	35.73	8/22/2008	33.90	-5.18	-1,850.00	4	-462.50	Buy on Monday Open	Time-Based	98.75	-9.43	0.64
    Long	ARO	1,000	8/25/2008	33.65	8/27/2008	34.15	1.44	484.75	2	242.37	Buy on Monday Open	Profit Target	583.50	-3.92	1.50
    Long	ARO	1,000	9/8/2008	36.51	9/12/2008	34.95	-4.33	-1,580.00	4	-395.00	Buy on Monday Open	Time-Based	-996.50	-6.38	1.94
    Long	ARO	1,000	9/15/2008	33.49	9/16/2008	33.99	1.44	482.35	1	482.35	Buy on Monday Open	Profit Target	-514.15	-0.24	5.97
    Long	ARO	1,000	9/22/2008	32.59	9/26/2008	30.27	-7.18	-2,340.00	4	-585.00	Buy on Monday Open	Time-Based	-2,854.15	-8.56	1.47
    Long	ARO	1,000	9/29/2008	30.96	9/30/2008	31.42	1.44	444.40	1	444.40	Buy on Monday Open	Profit Target	-2,409.75	-2.75	3.59
    Long	ARO	1,000	10/6/2008	26.96	10/7/2008	28.64	6.16	1,660.00	1	1,660.00	Buy on Monday Open	Profit Target	-749.75	-4.38	6.23
    Long	ARO	1,000	10/13/2008	27.52	10/14/2008	28.59	3.82	1,050.00	1	1,050.00	Buy on Monday Open	Profit Target	300.25	-8.50	3.89
    Long	ARO	1,000	10/20/2008	24.50	10/21/2008	25.30	3.18	780.00	1	780.00	Buy on Monday Open	Profit Target	1,080.25	-1.02	5.31
    Long	ARO	1,000	10/27/2008	20.49	10/28/2008	21.63	5.47	1,120.00	1	1,120.00	Buy on Monday Open	Profit Target	2,200.25	-0.93	8.54
    Long	ARO	1,000	11/3/2008	24.18	11/4/2008	24.54	1.42	342.70	1	342.70	Buy on Monday Open	Profit Target	2,542.95	-5.09	4.05
    Long	ARO	1,000	11/10/2008	19.17	11/14/2008	17.43	-9.18	-1,760.00	4	-440.00	Buy on Monday Open	Time-Based	782.95	-22.85	3.39
    Long	ARO	1,000	11/17/2008	16.00	11/21/2008	13.18	-17.75	-2,840.00	4	-710.00	Buy on Monday Open	Time-Based	-2,057.05	-18.25	2.81
    Long	ARO	1,000	11/24/2008	14.00	11/25/2008	15.25	8.79	1,230.00	1	1,230.00	Buy on Monday Open	Profit Target	-827.05	-2.29	8.93
    Long	ARO	1,000	12/1/2008	14.56	12/3/2008	14.78	1.36	198.40	2	99.20	Buy on Monday Open	Profit Target	-628.65	-14.01	1.50
    Long	ARO	1,000	12/8/2008	17.70	12/9/2008	17.99	1.53	270.00	1	270.00	Buy on Monday Open	Profit Target	-358.65	-7.74	3.79
    Long	ARO	1,000	12/15/2008	15.54	12/16/2008	15.77	1.37	213.10	1	213.10	Buy on Monday Open	Profit Target	-145.55	-3.09	1.80
    Long	ARO	1,000	12/22/2008	17.61	12/29/2008	16.23	-7.95	-1,400.00	4	-350.00	Buy on Monday Open	Time-Based	-1,545.55	-12.78	2.39
    Long	ARO	1,000	12/29/2008	16.23	12/31/2008	16.47	1.38	223.45	2	111.73	Buy on Monday Open	Profit Target	-1,322.10	-5.11	1.50
    Long	ARO	1,000	1/5/2009	17.93	1/6/2009	18.63	3.79	680.00	1	680.00	Buy on Monday Open	Profit Target	-642.11	-0.22	4.85
    Long	ARO	1,000	1/12/2009	19.81	1/15/2009	20.11	1.40	277.15	3	92.38	Buy on Monday Open	Profit Target	-364.96	-6.76	1.50
    Long	ARO	1,000	1/26/2009	20.48	1/27/2009	20.89	1.90	390.00	1	390.00	Buy on Monday Open	Profit Target	25.04	-1.76	4.69
    Long	ARO	1,000	2/2/2009	20.80	2/3/2009	21.13	1.49	310.00	1	310.00	Buy on Monday Open	Profit Target	335.04	-2.50	3.37
    Long	ARO	1,000	2/9/2009	23.35	2/10/2009	23.70	1.41	330.25	1	330.25	Buy on Monday Open	Profit Target	665.29	-6.12	1.50
    Long	ARO	1,000	2/23/2009	22.74	2/24/2009	23.08	1.41	321.10	1	321.10	Buy on Monday Open	Profit Target	986.39	-5.19	1.50
    Long	ARO	1,000	3/2/2009	23.47	3/3/2009	24.26	3.28	770.00	1	770.00	Buy on Monday Open	Profit Target	1,756.40	-4.52	3.37
    Long	ARO	1,000	3/9/2009	22.45	3/10/2009	23.24	3.43	770.00	1	770.00	Buy on Monday Open	Profit Target	2,526.39	-2.32	4.10
    Long	ARO	1,000	3/16/2009	25.55	3/18/2009	25.93	1.42	363.25	2	181.62	Buy on Monday Open	Profit Target	2,889.64	-4.93	1.68
    Long	ARO	1,000	3/23/2009	25.15	3/24/2009	25.53	1.42	357.25	1	357.25	Buy on Monday Open	Profit Target	3,246.89	-3.30	2.47
    Long	ARO	1,000	3/30/2009	25.93	3/31/2009	26.40	1.74	450.00	1	450.00	Buy on Monday Open	Profit Target	3,696.89	-2.47	1.93
    Long	ARO	1,000	4/6/2009	27.99	4/9/2009	28.50	1.75	490.00	3	163.33	Buy on Monday Open	Profit Target	4,186.89	-10.33	1.82
    Long	ARO	1,000	4/13/2009	30.24	4/16/2009	30.69	1.43	433.60	3	144.53	Buy on Monday Open	Profit Target	4,620.49	-4.10	1.50
    Long	ARO	1,000	4/20/2009	30.20	4/21/2009	30.65	1.43	433.00	1	433.00	Buy on Monday Open	Profit Target	5,053.49	-3.84	1.50
    Long	ARO	1,000	4/27/2009	32.49	4/28/2009	32.98	1.44	467.35	1	467.35	Buy on Monday Open	Profit Target	5,520.84	-1.48	3.85
    Long	ARO	1,000	5/4/2009	33.56	5/5/2009	35.34	5.24	1,760.00	1	1,760.00	Buy on Monday Open	Profit Target	7,280.84	-0.51	5.93
    Long	ARO	1,000	5/11/2009	33.38	5/12/2009	34.02	1.86	620.00	1	620.00	Buy on Monday Open	Profit Target	7,900.84	-2.13	4.19
    Long	ARO	1,000	5/18/2009	31.26	5/19/2009	32.44	3.71	1,160.00	1	1,160.00	Buy on Monday Open	Profit Target	9,060.84	0.00	3.87
    Long	ARO	1,000	6/1/2009	35.06	6/2/2009	36.07	2.82	990.00	1	990.00	Buy on Monday Open	Profit Target	10,050.84	-0.31	3.94
    Long	ARO	1,000	6/8/2009	36.16	6/9/2009	36.70	1.44	522.40	1	522.40	Buy on Monday Open	Profit Target	10,573.24	-1.02	1.50
    Long	ARO	1,000	6/15/2009	34.60	Open	Open	0.52	180.00	1	180.00	Buy on Monday Open		10,753.24	-1.16	0.78
    
     
    #25     Jun 16, 2009
  6. academic

    academic

    You should listen to what people are saying here.

    (1) You have no edge. Your strategy makes trades on a weekly basis but you are only looking at 52 weeks of historical data.

    (2) You have no risk management. Adding to a losing position is not risk management.

    I want to encourage you, but you need to listen. You should backtest your idea with real risk management. Maybe you have something, but you will only know for sure if you test it objectively.
     
    #26     Jun 16, 2009
  7. plyka

    plyka

    What you're trading is an ugly cousin of the martingale strategy. Martingale has you average down at set intervals. For instance you buy X at $50 and you double your position after every 10% decline. Then you simply wait until the investment bounces back and you make X% on your total investment. No stop is present (unless you qualify account implosion as a stop).

    Your "edge" is similar in the sense that there is no stop, limited upside and unlimited downside.

    There are many issues with this strategy:

    1) The largest is that you're using the worst possible investment vehicle: equities. Futures/Currencies are much better suited for this type of strategy as opposed to equities. Of course this is a relative statement since i think the strategy sucks ass and that no matter what you trade you will lose money.

    2) No stop, limited gain. This is the exact opposite of cutting your losses short and letting your profits run. In fact, a much better strategy would be to buy X stocks, set a 1.5% sell stop underneath the market, and close out your position at the end of the week.

    3) You sight no real proof of a historical pattern. Personal anecdotal "evidence" is not the same as back-tested proof. For instance, over the last 5000 weeks, investment vehicle X has increased by 2% above its Monday opening price 4777 times, or over 95%. This is no proof that it will happen in the future, but it is better than "it seems to happen 95% of the time, from my looking at it for a few weeks."

    4) Even if your 95% number is correct, it is meaningless. You must know how much you make on your wins (if it is 95%, then you will make 1.5% on your equity on 95% of your trades), vs how much you lose on your losers (5% of trades do not go your way, how much will you lose on these?).





     
    #27     Jun 16, 2009
  8. ER9

    ER9

    i'm no expert but i agree. i think statistically when testing anything...aren't you supposed to throw out the highest and lowest readings for discrepancies?
     
    #28     Jun 16, 2009
  9. K.I.S.S. --- simply fade S&R on a daily basis, using the ATR to determine the feasibility of the trade. Risk about 2% of capital per trade. Have an even or slightly positive r:r

    Walt
     
    #29     Jun 16, 2009
  10. Well, I'd go for it and buy a Put, maybe a LEAP, / contract to protect myself against any dramatic drop. If this pattern holds, you should come out ahead over the next 26 weeks. You've done the most difficult part, identifying a repeating pattern. If not, sell both the put and stock and take the loss.
     
    #30     Jun 17, 2009