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My current project is to identify strong, steady trending stocks.
Over the last couple years I found that while I was busy chasing the
latest momentum stock du jour I was missing some of the longer term
really nice trending stocks.
I picked 100 or so issues that have had strong runs lasting several
months or more. These stocks may have strong enough ROC to bubble to
to the top of a momentum scan, but typically they do not sort to the
top 10-20 positions on a ROC type scan. Yet there are periods in the
last few years that I would have really liked to be in them.
The runs last long enough that picking them up after a month or two
is acceptable.
My initial work has been to find indicators or patterns that do catch
the trending period on those 100 stocks.
Once a scan can catch the runs then I check to see if
that "indicator" will have so many false entries as to drive me
crazy with excessive trading, commissions and tied up capital.
If the trading idea still holds up, I then check it against the
universe of stocks that I normally follow. That is ~2500 stocks
prescreened in TC2000 or QP2 for price > $4, avg vol > 300k or so.
AmiBroker is very handy for this use of backtesting as a screening
process for trading ideas. I can whip up a few lines of code in AFL
and quickly backtest against the 100 stock portfolio to see if it has
any merit for this type of trade.
I can tell you that in many cases doing this on a weekly basis is
superior to trying to make it work on a daily basis. Fortunately
there is no great hurry to enter the trade. Once this type of scan
has identified the initial conditions the candidates can be put into
a watch list and further evaluation can be done on the concentrated
list.
Things that need to be examined at that point are possible prior
basing, current earnings situation, smoothness of trend and applying
the oscillator or pattern of choice to enter the trade.
Is it working yet...no, always looking for ideas.... I have
evaluated a lot of ideas so far and naturally no single indicator or
pattern does the job...what else is new :-)
Preliminary evidence points to a voting scheme with 3-5 inputs for
entries and maybe 1 of 3 or 2 of 3 conditions for exits.
Looking for some code for indicator divergence as one of those exits.
Well, enough for now. This gives some idea of my current project.
Trader
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