trading low-volume stocks

Discussion in 'Journals' started by iggy9807, Apr 30, 2011.

  1. iggy9807


    I would like to report my adventures trading low-volume stocks. I've been doing that for about a couple years now. It was easy at first but is getting more difficult now because of lower volatility. My system made 50% in 6 months of 2009 and 75% in 2010. I am up about 17% so far this year which is obviously really good but my account is still rather small so I have to shoot for high returns to be stop working full time :) I've had one loosing month so far in June 2010 when I dabbled in futures in the same account and lost <1%.

    Anyhow, I am still tweaking my system and hopefully will see better results in the future. I also need to adapt as my account grows from the current 51K and I start hitting liquidity limits.

    The idea behind my system is pretty simple. There is a lot of noise in low volume stocks so if you just enter low buy limit orders and then high sell limit orders, there is a good chance you'll make money. About 70% chance with my system, in fact. According to my simulations the average outcome is also pretty good at about 2% per trade. The average holding time is about 5 days. Unfortunately, you can't always trust the simulations due to low liquidity. A lot of times my limit orders don't get hit or I only get a partial fill. I am still thinking about how to incorporate that into my analysis.

    I trade about 400 stocks and submit the same number of buy orders every night (plus a few sell orders for open positions). There is a lot of automation obviously. I use IB's API to submit my orders. They do maintenance work at night and sometimes all my orders get canceled. I hate that. Someday, I hope to have a real-time system, which would let my system trade at a higher frequency - as in, 10-20 trades a day instead of the current 5-10.

    If people are interested, I will post weekly updates about how things are going for me. I would appreciate any suggestions or experiences other people might have had trading low liquidity stocks. I also have a few questions about the US stock market micro-structure.

    Attached, is a chart of one of the stocks I trade. It looks like anyone would make money trading this stock but obviously, it's much harder to find a system that's consistent across the board.
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  2. iggy9807


    Here is another interesting chart showing my equity curve so far this year. Starting with $39K and ending at $51K. The step up in the middle is me adding $5K to the account rather than a mega-leveraged trade :)

    As you can see, even though my system can't find many opportunities to deploy the cash, the equity curve is still trending up pretty nicely. I am currently putting about 3% in each trade but perhaps using 3.5% or more would make more sense. Unfortunately, if I put too much in each trade, I will get full fills when a stock is getting slammed but still only partial fills when a stock just 'wiggles around'. So it's not that simple. But I am open to ideas :)
  3. You got a PM.
  4. NikEy


    Hey! Just discovered this thread. Looks very interesting.
    How has your strategy performed over the last months? You still actively trading it?
  5. Rol


    This journal freaked me out when I first read it because it sounded very similar to one aspect of my strategy, namely the use of limit orders outside of the noise. I currently stick with stocks having a 10 day and 3 month average > 50,000 shares though.