Random Walk Journal

Discussion in 'Journals' started by garfangle, Jun 8, 2003.

  1. I am starting this thread to see if I can be a profitable stock picker based on two main criteria:

    1) Initial stock selection picked at random (5 picks + OEX and NDX)

    2) Technically based (w/ just a teeny bit using market fundamentals)

    However, I will not post individual trades per se, just analytical recommendations in these categories:

    Type Recommendation (current status)
    ------ ---------------------
    1 Strong bull (anticipate significant upside near-term)
    2 Weak bull (conditional upside, probable strength)
    3 Neutral (uncertain current outlook, could go either way)
    4 Weak bear (conditional downside, probable fall)
    5 Strong bear (anticipate significant downside near-term)

    Here are the caveats/conditions:
    a) Type 2s often, but not always will turn into 1s; type 4s often, but not always will turn into 5s.
    b) Time is a depreciating factor, meaning that the longer a pick is in a category the greater chance its indications may change. For example, a pick is at risk of greater change if it has been in that position for a time period of X+1 than just a time period of X.

    I will make changes as necessary, but will usually update the picks each Wednesday and Sunday after the market close. So, this selection system is invalid for intraday trading, but might be useful for longer-term investors. Also, note that these picks are just my educated opinions and I am not a registered investment advisor.

    Picks: (closing prices as of 6/6/03)

    Baxter Intl (BAX) 26.09
    intial rating: 1

    Polo Ralph Lauren (RL) 26.14
    initial rating: 1

    Hasbro (HAS) 16.68
    initial rating: 1

    Casual Male Retail Group (CMRG) 4.22
    initial rating: 3

    Rf Microdevices (RFMD) 5.72
    initial rating: 3

    S&P 100 Index (OEX) 495.67
    initial rating: 1

    Nasdaq 100 Index (NDX) 1213.11
    initial rating: 1

    NB: You may have noticed that most of the initial ratings are favorably bullish. That is because I am initiating this system well into the recent market run-up. Some of the 1s could change give the time horizon, but they may also continue to move higher still.

    Feedback will be welcome.

    *with great respect to Burton Gordon Malkiel
     

  2. Given the second sentence (above), how are you going to determine whether you've succeeded at the first sentence?
     
  3. I am taking the simplest approach. That is from the point of a change to the end of a change. Meaning, if a stock is rated a Type 1, when its signal changes to a Type 4/5, that will be its inflection point of determination. Then I will compare the price difference between the two. And vis versa.

    For example, when Baxter, currently a T1, changes to a T4/5, I will compare the price difference between the two points. And hopefully it will be a positive spread.
     
  4. Would you explain this again? How are you picking these stocks? What is the significance of the number? Where does the random aspect come in?
     
  5. Q1: I will try

    Q2: Using technical indicators like MA, Vol, RSI, Support/Resistance.

    Q3: The significance of the number (1 to 5) is an indicator of current prospects of future movement, higher, lower or mixed. It is similar to analyst's BUY, HOLD, SELL, but hopefully more precisent.

    Q4: The random aspect is the way I picked the stocks, by just looking in the NYT paper without prior knowledge or prejudice. Also, I include the OEX/NDX to indicate market movement just so that it can demonstrate that these selection are not fluke successes/failures in the potential results.
     



  6. Oh, let me see if I get it.

    1. The actual stock/s is selected randomly.

    2. Analysis (technical mostly, and some fundamental) is then done on the stock.

    3. Depending on the analysis, a rating from 1-5 is assigned to the stock; 1 being very bullish, 5 being very bearish.

    4. After a period of time, a new analysis is done on the stock at which time its rating may be changed.

    5. If there is a change of rating, the price of the stock at the time of the original rating (ie, the point of entry) is compared to the the price of the stock at the time of the change of rating (ie, the exit).

    6. A profitable stock pick is one in which the the price spread between original and subsequant analyses is positive.

    Right?

    Just to clarify, there are no stops with these stock picks. ie, if it were a trade, the position wouldn't be closed simply because of excessive adverse price movement, only at the point your analysis/rating changes?

    Will you be using the same analysis techniques to change the rating as you used to establish the initial rating? Eg, a stock assigned a 1 on the basis of RSI is later assigned a 5 on the basis of RSI. Or will you base your reassessment of rating on a more discretionary, arbitrary criteria?

    Sounds interesting, I hope you keep the project going and keep us informed of the outcome. Even though success/failure in this exercise would prove nothing more than the efficacy of this method of stock selection (or your own prowess with it), it would interesting see what sort of results you achieve (and the conclusions you draw from them.)
     
  7. Q1: Correct, no stops. Just closing market price on day of change. Hopefully it would be positive. However, for example, a critical price movement would be a change from a T1 to a T4, not a T1 to a T3 (neutral) then back to T1.

    Q2: The criteria will be constant. It's not a rolling/altering process. Same standard throughout.
     
  8. 6/11/03 Update

    Type Recommendation (current status)
    ------ ---------------------
    1 Strong bull (anticipate significant upside near-term)
    2 Weak bull (conditional upside, probable strength)
    3 Neutral (uncertain current outlook, could go either way)
    4 Weak bear (conditional downside, probable fall)
    5 Strong bear (anticipate significant downside near-term)

    Picks: (closing prices as of 6/11/03) /Net change from 6/06/03

    Baxter Intl (BAX) 26.45 /+.31
    new rating: 1
    previous rating: 1

    Polo Ralph Lauren (RL) 26.30 /+.16
    new rating: 1
    previous rating: 1

    Hasbro (HAS) 17.36 /+.68
    new rating: 1
    previous rating: 1

    Casual Male Retail Group (CMRG) 4.31 /+.09
    new rating: 3
    previous rating: 3

    Rf Microdevices (RFMD) 5.26 /-.46
    new rating: 3
    previous rating: 3

    S&P 100 Index (OEX) 501.95 /+6.28
    new rating: 1
    previous rating: 1

    Nasdaq 100 Index (NDX) 1228.24/+15.13
    new rating: 1
    previous rating: 1

    Feedback will be welcome.
     
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  9. 6/13/03 Update

    Type Recommendation (current status)
    ------ ---------------------
    1 Strong bull (anticipate significant upside near-term)
    2 Weak bull (conditional upside, probable strength)
    3 Neutral (uncertain current outlook, could go either way)
    4 Weak bear (conditional downside, probable fall)
    5 Strong bear (anticipate significant downside near-term)

    Picks: (closing prices as of 6/13/03) /Net change from 6/11/03

    Baxter Intl (BAX) 25.03 /-1.43
    new rating: 1
    previous rating: 1

    Polo Ralph Lauren (RL) 25.93 /-.37
    new rating: 1
    previous rating: 1

    Hasbro (HAS) 17.43 /+.07
    new rating: 1
    previous rating: 1

    Casual Male Retail Group (CMRG) 4.51 /+.20
    new rating: 3
    previous rating: 3

    Rf Microdevices (RFMD) 5.08 /-.18
    new rating: 3
    previous rating: 3

    S&P 100 Index (OEX) 497.82 /-4.13
    new rating: 1
    previous rating: 1

    Nasdaq 100 Index (NDX) 1203.91 /-24.33
    new rating: 1
    previous rating: 1

    Feedback will be welcome.
     
  10. 6/16/03 Update

    Type Recommendation (current status)
    ------ ---------------------
    1 Strong bull (anticipate significant upside near-term)
    2 Weak bull (conditional upside, probable strength)
    3 Neutral (uncertain current outlook, could go either way)
    4 Weak bear (conditional downside, probable fall)
    5 Strong bear (anticipate significant downside near-term)

    Picks: (closing prices as of 6/16/03) /Net change from 6/13/03

    Rf Microdevices (RFMD) 5.02 /-.06
    new rating: 5
    previous rating: 3

    Feedback will be welcome.
     
    #10     Jun 16, 2003