Making a 2+2 trading system

[kimchi]

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1. Long equities no margin

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I looked at my last 4 months of trading and my short trades have been horrible, "Right stock, wrong time" seems to sum up this aspect. Why is it so hard to get shorting correct?


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I think it is quite different to shorting futures or the like due to their upward bias. Even shorting futures is less EV than going long.

What methodology are you using for trading? I find that equities break quicker than they go up and a different technique or method is needed. I tested some long-term trend following systems on a basket of international equity indexes over 10 years or so. I managed an expectancy of $0.30 per dollar risked on the long side but only $0.08 on the short side - and this included the long bear market that started in 2000.

[Uglyowl]

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What methodology are you using for trading?

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Over the past few months I have been using the following for my longs(and changing it up; maybe information overload):

-Trading above moving average (from 100-200)
-Trading at 5-10 day lows (I am still trying to find the "magic #"

This seems a good backbone for profitable trading and I have been trying to mix in others RSI, Williams R%, Bollinger Bands, etc., but without much luck yet.

From this criteria, I find stocks I like fundamentally and go from there.

I am finally backtesting starting tonight and will see. On the short side everything flips. I have been slaughtered though, maybe sample size? My timing has been horrendous though too, I missed some good 20%-30% downswings where I mistimed it by less than a week.

[Uglyowl]

I have a ton to learn. That being said, there is alot of garbage out there, don't believe the talking heads. Testing some common things you hear, there most likely is not a tradable edge.

[kimchi]

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-Trading at 5-10 day lows (I am still trying to find the "magic #"

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There really is no magic #. It looks like you're buying some kind of retracement here, but the values you choose for trade set-ups or entries are less important than the amount you decide to bet on your decision or how you are going to exit the trade.

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I am finally backtesting starting tonight and will see.

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I'd like to know what you are using for backtesting? Are you pouring over historical charts/data or trawling through excel. If you're using software, please say which one.

[Uglyowl]

I am using www.stockfetcher.com

The data is only EOD and is $16.95 per month (I got the advanced subscription). You can test 2 year periods over from 2002-2007.

I have been pouring over the data and the most effective trading system produced sell signals on my shorts a few days later than my original entry date and would have saved me a ton of pain!

I am using just a 5 day holding period with no exit strategy currently (to be worked on). So far my data:

Longs: 58% winning rate (average return 0.90% over 5 days not including transaction costs)

Shorts: 51% success rate (average return 0.19% over 5 days) NOTE for clarification: Stock price averages a -0.19% dip over next 5 days.

For the shorts there is only about 20% of the sell signals my longs produce and it is a very small edge, although it is in a bull market).

My short technical analysis had to be extreme #'s to get any edge, had to go more overbought than I did on oversold on the long side.

FYI- I am using RSI(2), RSI(5),MA(50), MA(200), and 5 and 10 day high (or low), and a $5 stock price and 30,000 avg. volume in my analysis to far.

Interesting thread, the combination of this and a good pummeling in November, especially the final week in November, is making me really do some much needed work and self reflection after 3 very easy months! I thought I was the next Warren Buffet [img]/images/graemlins/tongue.gif[/img]

[kimchi]

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I am using www.stockfetcher.com

The data is only EOD and is $16.95 per month (I got the advanced subscription). You can test 2 year periods over from 2002-2007.

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Looks like a useful tool. You might also want to try www.prorealtime.com it's a free charting/screener/backtesting platform with EOD data. I've been using this mostly to try some backtesting ideas, but I haven't worked out how to program in proper exits and money management yet. Also, my regular platform is LSE only. I'll have a look at stockfetcher.com too.


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Longs: 58% winning rate (average return 0.90% over 5 days not including transaction costs)

Shorts: 51% success rate (average return 0.19% over 5 days) NOTE for clarification: Stock price averages a -0.19% dip over next 5 days.

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I wouldn't spend too much time worrying about success rate. This stat is only really useful when calculating the EV of your system. After all, no winning poker player wins more hands than they lose, yet can be +EV. Obviously a system with a higher success rate might be psychologically easier to trade - a very important point.

I think your main job should be to try to make low risk, high reward trades and worry less about your success rate. Being right about a trade is very different from trading right, imo.