Monday, May 12, 2008

Looking for Mr. Goodbar - Part 1

This is the first in a series that will examine some of the parameters of mechanical trading systems. My goal is to aid understanding of market dynamics and, in practical terms, making the greatest return with the least risk exposure.
This series is NOT about providing you a list of recommended trading stocks. . .everybody looks at the market differently and with varying degrees of risk management controls. I'm just going to present a trading perspective that may help in the formulation of your own trading plan.
Today, some thoughts on picking the right trading vehicle. Now this could take years to explain as there literally hundreds of scanning programs, books, DVDs, training courses, etc. to help you achieve those ends.
My spin is a little different.
I prefer to reverse engineer scans to fit my trading parameters using the components I'm most comfortable with: support, resistance and time.
My decision some years ago to focus on the Qs derives from my desire to simplify my trading and the belief that a basket of stocks like the Qs offers superior risk management and technical reliability as opposed to single stock trading. Many traders make a good living trading only the SP500 and Russell minis. . .I like the Qs because of the liquidity, the options, the QID and the penny spreads all round.
But let's set those preconceptions aside and begin from scratch in search of a viable trading model.
To jump start my little research effort, I'll borrow Dr. Brett's watchlist of 40 stocks. The list reflects mostly NYSE stocks with a few of the NAZ big dogs. It's designed to reflect relative strength and weakness of the various market sectors, while simultaneously providing a proxy for wider market dynamics. Dr. Brett makes no arguments for the alignment of the individual stocks and technical analysis, preferring (like myself) to favor the TICK and NYAD to gauge short term momentum.
The scan above is the Schwab SSPro strategy tester, loaded with a simple RSI system on 10 minute bars.
This is a look back of 500 bars = 5000 minutes = 12.8 days
The scan is based on a 100 share trades
Commissions are $6 per side
System only trades long
Of the 9 stocks with positive results, 5 are energy related
Tomorrow, we look at the impact of bar size.


Unknown said...

Thanks for all your comments. I am trying to monitor TICK but it changes every second. Any specific indicators we have to add to TICK for each monitoring. pls advice

bzbtrader said...

The nature of the TICK is that it does change every tick. Check out the Panel(not the link)on the right side of this blog labelled How I Trade and look at example Fade 1. I use the pivots, a 10&20 MA on 2 minute bars and sometimes the signal line component of the the MACD (5,20,3). I also watch the slope of the TICK on 2 minute bars to determine increasing or declining momentum, but I don't show slope lines as I visually asign them rather than actually drawing them on the chart. Remember, my focus is daytrading and I'm seldom in a trade more than 120 minutes so my view of the markets is a bit skewed. Longer term traders will obviously have a different spin on the TICK and Dr. Brett has profiled several in the past. I'll try and free up some time from my current research project and devote a single post to some TICK dynamics from my humble perpsective by the end of the week.