Well, there are a lot of variables that can be tested. The general idea summarized: "if today was a down day (new X day lowest close, -X% daily change, RSI(X)<##, etc) then buy tomorrow using a limit order at some point lower than today's close (-3%, -5%, -7%, etc). Then you need to come up with an exit (X day high close, X days after entry, once RSI(X)>##, etc). I have conducted thousands of tests, and the best result came from the following: Universe: All stocks Closing price > $1 Average volume(20) > 250,000 ADX(5) > 20 Today's % change <= -14% Buy tomorrow on a limit order -14% below today's close Exit on the open following a 2 day highest close Max portfolio size: 5 stock positions Reinvest all profits Has delivered 78% annualized with a -17% worst drawdown over the last 20 years. Yeah, that book and other work that he put out.
Yes, those are the optimized values.....but there are a wide variety of parameters that work. If you take S&P 500 and Nasdaq 100 stocks only, and today is a big plunge down, and set a limit order to buy on a big plunge down tomorrow, there is a very positive expectancy......and if you are worried about bankruptcy risk, you can add a filter that the stock has to be above it's XX-day moving average. That has been a money maker for years as well.....if you don't like single-stock risk, this strategy works on stock etfs as well. With the old caveat that past results are not indicative of future returns.
That's the one I was reading. I see that he's written quite a lot about trading. Can any of you suggest what you think are his top 2 or 3 books? I definitely want to see more.
Well, I’m not trading stocks (mainly options now) because I’ve tested too many millions of strategies and kept adjusting them till no end, until I stopped believing in any such strategies. Though I was also aiming too high by discarding strategies with losing years, and those that seemed weak, overfit, or not making money fast enough This type of strategy discussed here actually does look similar to those that had a chance of working and I’d put it in the overnight alpha category that was discussed on ET recently. Meaning buying on large dips, holding overnight, and selling at Nth positive open. (even though usually the overnight strategy assumes simply buying at close and selling at the next open) I just wouldn’t trust that the overnight market or specific stock gains will continue, but I’d use similar strategies mixed with others if I really wanted to settle on trading stocks. And many stock traders who make money should be more qualified to comment. I’d only say that this strategy is simple enough to probably already have been coded and available on Quantopian or QuantConnect. Or any similar strategy can be easily copied and adapted there to test it thoroughly. Just keep in mind that Quantopian and QuantConnect aren’t famous for generating alpha despite hundreds of thousands of strategy developers testing everything possible there, which confirms my skepticism as well.
One more thing I'd like to ask you guys if I could. Regarding dynamic exit strategies that are based on moving average or RSI or whatever you might use as a trigger to exit other than a preset target. If the condition is met, for example, a moving average crosses, do you close the trade when the cross happens? Or do you go with an MOC order or even close the trade on the next day's open?
That's what I'm trying to do. I have had some success with closing trades when two TEMAs cross. When it happens, the order is triggered and the trade is closed immediately. I was just curious if others tend to wait for the close of the day or the next open, etc.