Idea with Potential?

Discussion in 'Trading' started by jr07, May 21, 2009.

  1. jr07


    So I had an idea the other night...

    what if you entered long positions near the close in the stocks that are down the most with the highest volume on any particular day and did the inverse for ones that are up the most? And close them at the open the next day benefiting from a bounce post oversold/overbought.

    I paper traded this idea for a few weeks and noticed some potential. Then I started with small 2k positions on each and after a week I was feeling pretty confident! Particularly on May 6th when my positions in ACAS and DPTR opened 10% gapped up! They were down the previous day 32% and 21% respectively.

    Then I got burned with DRYS which was down on May 8th 21% and opened up down ANOTHER 14% the following day without looking back. Similar thing with LEA and UCBH a few days later.

    I then noticed that if the general market context is in a certain direction, it doesnt matter whether they were down or up extreme levels, i.e. if the market in general opens gapped down, even stocks that were already down 30%-40% the previuos day can open at lower levels and continue going down.

    So I'm not sure now on the idea, although perhaps with a bit of tweaking there may be something.

    Anyone tried this in the past? I've been thinking lately if the market in general is up then go with shorting the stocks that were up the most and if the general market is down do the opposite (go long the ones that were down the most)

    I used the ones with voume above 10Ms, and stocks below 5$ (most of the ones on the list any day) can't be shorted.

  2. Arnie


    Try filtering with just NYSE stocks.
  3. Why don't you backtest it? Load a couple years worth of backtested daily stock data into Excel and report back with the results.
  4. gasy


    LOL sounds like you ordered him

    hey kid here is 5 bucks go buy me cigarettes :p
  5. irniger



    Did you find out and make a statistic of the possible reasons for these gaps? In there are news listed for the companies in question. In there might be hints for a continuation or reverse of the gap the next day.

    I will follow the next few days. Felix
  6. spinn


    Why not just go to Atlantic City and bet $1 million on one hand of blackjack every morning?

    Was this a serious question?
  7. jr07



    Are you saying that a stock that drops 30% in one day isn't necesarily considered oversold and therefore ripe for purchasing?
  8. yeah man, backtest the hell out of it and if it don't work out, try another 227+ ideas that may come to you about possible strategies.
    be as a blind man whose eyes have been sealed closed by being burned with acid 18 years ago and has just had them delicately sliced opened. sure the light of a dimly lit room may be a bit much at first but...
    even if you have been trading profitably for 20 years, you gotta keep looking for new edges.
  9. i would say also it is kinda dependent upon why it is down, like bear sterns got the beat down some sick amount, i dunno was it 50% to the mid 30s and then next day it was...uh...a $.37 cent morsel for Jamie Dimon to eat on a bagel.
    well, not really $.37 cents but like another 90%+ drop so good to keep up on the news of whatever it is you are looking into.
    however, seems like there is some merit to it in the same way that bottom fishing would work (look for the gigantenormous volume print on that). overbought and oversold is a real phenom but then, just because it has been hammered doesn't mean it can't go deeper into the cesspool and vice versa.
  10. spinn


    its a gamble at best and doing exactly the opposite would probably work better
    #10     May 22, 2009