Tracking MSFT

Discussion in 'Journals' started by BinaryMan, Jul 18, 2008.

  1. I am testing out a new trading method using a long-term statistical volume distribution. In the attached Excel file, I plotted this for the last 5 years. While finding a "good" price is subjective, here I am using a strategy where the upper/lower 25% of the distribution is my trigger price. The instrument of choice here is LEAP options (long-term options) to avoid time decay; using options it is easier to synthesize both a long or short position as needed.

    The buy trigger at 25% is $23.25.
    The sell trigger at 75% is $28.00.
    The 50% point is at $25.25.
    The current price is around $25.50.

    The idea here is simply to choose a price near the top/bottom of the distribution without trying to find the exact top/bottom, since generally no two cycles will be the same. This strategy can also be implemented as mirroring the distribution; 100% long at the bottom, 50% long at 25%, neutral at 50%, 50% short at 75%, and 100% short at the top (in this case long means buying call options and short means buying put options, where the number of options should be controlled by a risk management rule such as 3-5% max of account value).

    Recently I had predicted the price to either bounce off or fall through the $25 price point; there was a temporary rally almost to $28 but this did not quite reach my trigger. It may rally again but I believe large investors are still creating a negative trade imbalance so I expect it to soon fall towards my buy trigger around $23 before making a real recovery.
     
  2. [Excel file won't post for some reason]