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My liquidity filter is pretty simple, I screen by average 10-day volume * average 10-day price to determine the dollar value of capital flowing through a given security per day. I then require that the position I want to take be no more than between about .1%-.25% of that daily flow. There is a range there depending on if the system buys the open or close, limit or market orders, contrarian vs. trend following, etc. I have no minimum price or volume requirement per say as individual requirements although I only trade the major exchanges.
Now the clever among us will point out that when backtesting this using split and dividend adjusted data, these numbers are inaccurate because a split adjusted price will tend to be lower than the raw price at the time of the historic trade. This is a true and valid criticism, along with survivorship bias and all the other problems that arise with backtests.
--- In amibroker@xxxxxxxxxxxxxxx, "Mike" <sfclimbers@xxx> wrote:
>
> bh,
>
> What is your approach to backtesting your filters?
>
> By this I mean what type of metric are you applying to historically accept/reject a stock based on minimum price and liquidity, given that current volumes have exploded in comparrison with those of the past, and a $2 stock today is very different than a $2 stock of years gone by?
>
> Are you using a sliding scale of some form to reflect your filters of today as expressed in terms of the past such that your stock picking is consistent through time?
>
> Thanks,
>
> Mike
>
>
> --- In amibroker@xxxxxxxxxxxxxxx, "bh.hicks" <bh.hicks@> wrote:
> >
> > > Out of curiosity ... are you finding it easy to come up with noncorrelated systems?
> >
> > Perhaps not "easy" but possible. Without going into too many details, the 3 systems I currently trade do the following.
> >
> > System A - a long/short mean-reversion system that trades the S&P (ES or SPY) using short-term overbought/oversold levels. Average hold time is 3-5 days, buys and sells the close.
> >
> > System B - a long only mean-reversion system that trades the entire stock market universe with a minimum price and liquidity requirements. It essentially buys short-term weakness on longer-term high relative strength stocks. Average hold time is 3-5 days, buys and sells the open.
> >
> > System C - a short only system that trades the entire stock market universe with a minimum price and liquidity requirements. I am very protective of this one because a short-only system that has an edge over the past 20 years through any market climate is rare but this system buys the open and sells the close of the same day.
> >
> > I need a longer-term system (2-3 week hold times) that buys strength rather than weakness to try and fill in the under-performance gaps during significant market rallies like what we are having now. I have found this extremely challenging to do quantitatively.
> >
>
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