August 30, 2007
Stock Du Jour (SCON) & Random Observations
Buying from the get-go, very strong, solid day not unlike August 8 … not as strong as August 17 but still accelerated buying all afternoon with a strong close.
Notable New Highs: Sigma Designs (SIGM), Onyx Pharma (ONXX), Nokia (NOK), and Superconductor Tech (SCON) continues to continue.
Notable New Lows: Progressive (PGR), Triad Guaranty (TGIC), and SourceForge (LNUX).
I’ll feature an hourly chart of Superconductor Tech (SCON) since it began its run around seven days ago. SCON’s float is only 12.4 million shares so crazy moves can happen.
Cat: | Time: 7:56 am (utc+8)
August 30th, 2007 at 8:25 am
this is one weird stock. it showed up on my breakout screen on the 26th, so i placed a buy-stop above the high for the 27th.
i was few minutes late getting to my computer in the morning, i found out that i had gotten filled right at the open. By the time i got to my screen I was already up something like 80%, so i just got out at market the minute i saw what happened.
Probably my best day-trade ever and it happened inadvertently while looking for a longer term setup.
August 30th, 2007 at 9:23 am
Born2Code -
What software do you use for your stock screening analyzer?
August 30th, 2007 at 9:39 am
Tradestation. though i am sure you can do the same with Worden’s Telechart, stockfetcher, wealth lab and others.
I simply wrote some code that searches for a breakout based on a multiple of the average true range for X previous days, multiple of volume for y previous days, break out above high of Z previous days.
I use couple of moving averages to confirm an uptrend, so that i do not catch dead-cat bounces.
I spent several weeks backtesting combinations of parameters till i found something i like.
Every night i run it against a list of around 3000 stocks. I place a stop-buy order about 1% above the high of the day. I predefine my stop loss and size my position based on the distance between the potential entry and the potential stop loss exit.
If i get numerous matches — like tonight — then i use a relative-strength function that I wrote to pick the strongest stocks to enter.
sometimes the stock breaks down the next day and i do not get a fill. sometimes the market makers run up the stock, take out my stops and then the stock fades.
every now and then i get to catch a good run that makes it all worthwhile.
August 30th, 2007 at 9:41 am
Born2: Did you place a stop limit order or just a buy stop? And may I ask which broker you used?
August 30th, 2007 at 9:59 am
Tradestation was the broker. I learned the hard way to always place stop-limit orders, which i did. i use a spread of $0.04 to $0.12 depending on the stock price and liquidity.
I got heart so many times by those criminals, er. i mean Specialists and Market makers, that i never place an order for the next open unless it is a limit order.
That hurts sometimes, as i’ve had occasions where the stock would gap up at just pennies above my limit and run away from me.
But i am willing to miss out on those, that’s better than having a big gap, a fill and then an immediate breakdown as often happens at the open with those breakout plays.
August 30th, 2007 at 10:10 am
i went back to my trade records to get the exact numbers. I was off slightly.
Tradestation shows that i got filled at 8:30:01 a.m. (central time) at $3.58. I sold at 9:17:18 a.m. at $6.12. So it was closer to a 71% gain and not 80% gain and I was more than few minutes late getting to my computer in the morning.
of course, i would have a bigger gain if i am still holding the stock… but i am content.
August 30th, 2007 at 10:13 am
Born2: Thanks for the details (I love the details).
August 30th, 2007 at 10:23 am
Born2Code,
I’m a programmer too so I would be interested to learn more about your code. Are you using C,Java, ..? Would you be willing to discuss outside of this blog?
TIA
August 30th, 2007 at 10:27 am
CM-
Also I’m asking to talk outside of this blog just so I don’t flood your blog with developer talk…don’t mean to cause offense.
August 30th, 2007 at 11:06 am
It is called Easy Language, which is TradeStation’s programming language. The code itself is pretty straight forward, as i said the idea is to try to catch breakouts that precede trends. Similar to what Howard does when buying new 52 week highs. I based the strategy on a variation of ideas discussed in Curtis Faith’s book: http://wayoftheturtle.com/
Initially the strategy was to buy a breakout of 4% or more on higher than average volume. I buy next day above the high to avoid blow-off tops, short squeezes, and one-day news reactions.
From there I started experimenting with the percentage of the breakout, the volume level and the length of the period prior to the breakout.
As I am more interested in smaller cap stocks, i picked a universe of about 300 stocks and started to run simulations going back 15 years on each of the stocks. I then would tabulate the profit/loss for trading each of those stocks for a set of parameters. I kept toying with the parameters till I got tired and took what i perceived to be the best combination.
I do not really think the actual numbers matter that much. The numbers in Curtis’ book seem to be better than my own results so it maybe smarter to just go with his numbers.
I truly believe, at this stage of my life, that money management is what makes or breaks the system. You need to decide how to size your risk and your position and when to exit.
Other than days when i get a 70% return in 45 minutes I do not typically exit on a profit target :).
Rather i let the trade run till it hits my stop loss.
My stop loss, these days, is based on a cross under a moving average. Once that happens I place a stop order about 1% below the low. Sometimes i get stopped the next day, other times the stock runs again for a while. So i keep trailing with every cross under the Moving Average. I use the 80 day MA but there is nothing magical about that number.
August 30th, 2007 at 11:16 am
B2C - Thanks for the sage advice. You are definitely a cadre.
August 30th, 2007 at 12:10 pm
B2C,
I express to you thanks for your observations. I have the book by Mr. Curtis and enjoying it very much. Will you be so kind as to relate the page number for Mr. Faith’s strategy mentioned above? Also, I had made an intensive study of Toby Crabel’s famous book in 1993. It helped me tremendously. As to Fisher’s book ‘Logical Trader’ only so-so. The point I try to make is that everyone I know in the trading world is saturated with OBR strategies that I’m amazed they still work. I liked them with futures back a few years ago, but not now. I find that the individual equities provide better opportunities to select better profit potential/risk reward candidates. It was easier for me to construct trading systems with futures then, but the edge for me is gone. Probably my blind spots! I would sincerely welcome your comments as well as the chairman and other friendly readers. thanks, s
August 30th, 2007 at 12:28 pm
What are OBR strategies?
August 30th, 2007 at 12:56 pm
Amir: I think senoregne means ORB (Opening Range Breakout) … I enjoy the developer talk so please feel free to yack away within the comments section … I have nothing intelligent to add on the topic, as usual, but I’m happy to listen. ;-)
August 30th, 2007 at 9:16 pm
senoregne, i am not day trading, except for the occasional inadvertent trade taken because my stop gets hit right away or i get a crazy profit due to pure luck.
my goal is to ride the trend for ever and never sell. realistically speaking perfect setups would run for months and not so perfect would be few days.
I use a 30 day breakout range, and a multiple of recent historical ATR and a multiple of recent historical average volume to try to eliminate false breakouts and such.
My goal is to get as FEW signals as possible and to ride them for as long as possible.
for example, SCON gave only four signals over the last year. One was on 10/16/06. That would have resulted in initial profit but by my system would’ve exited with a loss in mid December.
The three other signals all came in the last 9 days and all would still be profitable according to my system if i were still in them.
I missed the first two because SCON was not in the list of stocks i monitor (i keep adding to the list daily).
August 30th, 2007 at 10:47 pm
Chairman,
Quite right! ORB
B2C,
I thank you for your comments. My success with ORB’s in the 1990’s (short-long time frame) had a higher consistency. Although I trade discretionarily I must rely on firm objective principles ( daily-weekly pivot points, expansion vs. contraction in price and volume)to execute manually. I know the quants have tried to meta-microscope the minute fractional movements into profitability (sorry my english!). For me it sounds like heresy, but I enjoy better quality setups and consistent profits when the markets atr, volatily is low. B2c, I have been told many times by a very old trader that all trading approaches boil down to 3 types: Breakout, Trend, Contratrend. To ride a trend in these markets is brave I would say (earnings surprises, etc) Are there sectors, markets you avoid? Does one of your signals involve a particular day volume range (20, 30, etc?) The only trend I’m riding and it is been extremely difficult is SIGM. I purchased last fall on technicals, but is scaring crap out of me. I am nostalgic by nature and perhaps possess melsncholic strain. Right now I work on time machine to take me back only for few days to 1907, 1929, 1932, especially and 1982 august, 1987 october, 2000 march. You may reveal blueprints for such machine anytime!!! Also my husband will be very hurt if he find out!
August 30th, 2007 at 10:49 pm
I respell my mistake!
August 30th, 2007 at 11:13 pm
yes, i use a multiple of the previous 50 day volume average as one of the entry parameters.
if we assume that the random-walk theory holds and that any issue will have the same probability of moving X% in either direction by a Y period then we should be able to break even (minus slippage and commission) using sound money management techniques.
Now, if we can analytically find setups that tilt the odds of a move in our entry’s direction we will be able to make money over time. That’s what expectancy is all about.
If further we use proper money management techniques to cut our losses short and let our profits run then we should be able to compound our profits at a good rate.
Lastly, by using risk management to properly size our position based on entry/stop and relative to our portfolio’s size then we should be able to escape the risk of ruin due to nasty surprises.
That is basically my philosophy. I believe it to generate returns i can be content with. That also explains why i do not think the specific parameters for my entry signals are that important.
August 31st, 2007 at 1:00 am
Interesting that NOK makes the list of notable new highs. Several of the top tech names are quite close to new highs interestingly enough. CSCO, INTC, and HPQ are others that are very close to making the list. It’s tough to decipher whether this is a sign of strength in the techs and they should be bought, or if they need to be waited on for a pullback.
September 5th, 2007 at 7:27 am
CATS has showed up on my screen and is behaving very similar to what SCON did last week… i have a buy stop order for tomorrow morning, for a VERY small position (relative to my portfolio)… if i get filled i expect this to be a short trade.
seems like somebody is messing around with them small cap semiconductor stocks.