Monday, 8 September 2014

testing trading strategies : methodologies and risks

Testing your trading strategies is one of the best ways to gain confidence before you begin real time trading. I recently came across a great website called Market watch which allows you to test your trading strategies by creating your games. You can basically create a few different games, and test different strategies consecutively to figure out which works for you the best. The question now arises, as to how you would formulate your testing strategy.

I will take an example of explaining a simple testing strategy that I recently tested, by testing it on a dummy account first. Here is the link to my dummy test :

I named the game minetrades. They provide you with a starting amount of $100,000 to test your strategy. Henceforth I will refer to the strategies that I used in this game with reference to the name of the game aka 'minetrades'.

Earnings season is always the focal point of day traders who want to make a few quick bucks. If you are one of the traders who want to make good use of the upheavals in the stock market during earnings season, a very good website to follow is the is the official site of Real Earnings Expectations, Whisper Numbers, Earnings Estimates, Earnings News, and Individual Investor Market Sentiment according to the website. Whisper Numbers are basically like analyst ratings of a stock, they are basically the forecasted earnings or unofficial earnings that circulate among professional traders in wall street.

Whispers list the earnings per share forecast days before the actual earnings announcement, thereby enabling trade enthusiasts to gauge the ability of a stock to go up in the near future. As a rule, market works on sentiment, and therefore these whispers even though not 100% accurate drive stock prices. our trading strategy during earnings season needs to focus on the strength of the following points not necessarily in sequence:
1. the financial stability of the stock & company
2. the past earnings of the stock, and whether the stock has been performing consistently well in the past few quarters
3.the analyst ratings of the stock
4. the overall market value of the stock
5. the 1-day reactions and the 5-day reactions of the stock in the previous earnings
6.any recent market news associated with the stock

Since market go up by sentiments, usually the biggest move in the market for a particular stock is before the earnings announcement.

In my game minetrade, I will take the example of A - Agilent technologies. When I brought Agilent, it had a projected Zacks rating of 1, and a positive whisper number. If see Agilent's chart, the major move in the stock occurred in between August 12 to August 18. The earnings were announced on August 14, and Agilent reached it's peak in 4 days. So the stock rose in anticipation for 3 days up-to $3 per share, and then after the mixed earnings reviews pulled down the stock shortly after. Sometimes, if the earnings are as per expectation but there are mixed reviews from analysts, like in the case of Agilent  where the guidance for fourth quarter fell well below analyst Zack's expectations, the bulls for the stock, kept the stock going up for a few more days based on the positive earnings report. On August 18, the stock tends to be more or less flat, and on August 19th the stock starts sliding down. This is aptly the right time to sell the stock. if the stock has been going up for a while based on market news and sentiment, and then eventually stalls and starts to slide, that is the right time to slide out of the stock. remember, sometimes, the slide maybe sudden, and you must be extremely careful , not allow your potential gains to become your potential losses eventually. as in the scenario above, make a sell anytime soon after august 18th is the wisest decision to made here for this stock. For those who want to invest, there are different strategies that must be applied. the strategy I explained here is for people who are interested in short term trading.

With positive news around the beginning of September, the stock seems to be rallying again, however, there is different strategy that works for trading stocks based simply on market sentiments minus the earnings data.


Friday, 7 February 2014

My simple Day Trading Strategy - Trade Log for FAS on 060214(yesterday)

Stock specially financials make huge moves primarily on two scenarios :

1. In anticipation of an upcoming event - could be an announcement from Fed, jobs report, employment data, policy changes, presidents address
2. In reaction to a particular event - again could be as varied and almost similar to the group above

Usually in anticipation the stocks and ETF's will move up, unless there is a negative precursor to the anticipated event

Usually in reaction stocks will go down, as many have either already made their profits and sell out, or they are scared by the negative news.

Once you are able to determine whether the above scenarios and the markets move is a certain direction, you can determine the prices at which you want to BUY and Sell.

I am posting my Trade Log from yesterday below to describe how this can be accomplished :

I brought 200 shares of FAS at 77.82 and sold at 79.90 , profit of about 2 dollars per share. This can multiply to larger value if you decide to invest more.

You could also make multiple trades and still make profit on a day like this, however you would need to ensure that your transaction costs are met.

In the beginning of the day, it is almost impossible to enter the market, as the volume is very high, but as soon as there is a first dip, you can make your move. In the trade above, the first dip happened at around 9:45 am, which was a good time to enter due to the following reasons:
the anticipation of jobs data based on the anticipation theory explained above
Volume was high near about the 80 mark
Both the slow stochastic and fast stochastic showed a dip signal (should ideally be between 10 to 25 for the right buy, and then bounce back above 25) Note the Stochastic signal a buy twice once at around 9:45 and next at around 9:56 , so there will be at least two opportunities for you to make your move
MACD is largely positive
Also if you notice the candlesticks, green sticks (the longs are quite strong) compared to the red ones(shorts), indicating that the market is moving in a positive direction

Important Note: I do not day trade on days that the market is on a negative direction. This is a rule I believe one must follow always!

Thursday, 6 February 2014

Why us stock market will go up today! watch out financial stocks and ETF's

With US jobs report pending Friday, markets will be more cautious, but today they will definitely go up in the hope of seeing some improvements. However the jobs report is unlikely to be positive tomorrow, in the event of which the markets may go down tomorrow.
So for those of you who want to make some quick bucks in the leveraged etf's like FAS , today might be a good day. Here are some other indicators and stocks that might be good to take a look at:

BAC : Bank of America
S: Sprint
JCP: JC Penny
C: Citigroup

Do Note: all these stocks may perform well only today, as they will most likely go down tomorrow in anticipation for a negative jobs report.

Saturday, 25 January 2014

Applying Technical and market analysis to shortlisted stocks on 24th Jan (Fri)


GEL : Genesis Energy
The price target for this stock ranges from 52 to 60, and considering that it has already broken its low, there is a great likelihood that it will try to reach its median target, given the market is on a positive note on the day. Not from upside from thereof though.

SILC: Silicom Ltd.
the stock skyrocketed on Thursday based on the earnings report. This stock will definitely have more upside, do note that the low target is at 68, and it may definitely try to reach this target, and most probably go above it. People who bought it on Thursday or Friday, will definitely see an upside, and make some quick bucks.

LOGI: Logitech
The company has posted a great earnings, even though the stock price has shot very quickly very high, it did provide some good opportunities for people to buy the share on Friday. There is definitely more upside left, although, this will be very short term and will need continuous monitoring.

TECUA: Tecumseh Products
Slightly risky considering the change in Board, may be prone o a lot of insider trading at this point, but the technical indicators are definitely positive at this stage, so could be a good buy, but would need more in depth analysis
some high level analysis can be found here:

Friday, 24 January 2014

Stocks for today (7 day direction)

GEL : Genesis Energy
Analysis: Both 20 and 50 day moving average is on an uptrend.
MACD is (26,12) indicating the stock is in a positive direction
14 day Relative Strength is above 70
Slow stochastic indicates there is still some upward trend left
The stock will go further high from here in the next few days

LOGI : Logitech International
Analysis : Both 20 day and 50 day moving averages are on an upward trend
MACD is moving in a positive direction
14 day relative strength is above 70
Slow stochastic indicates there is a definite upward trend from here in following days
Definite uptrend from here

SILC : Silicom Ltd.
Both 20 and 50 day moving average is on an uptrend.
MACD is (26,12) indicating the stock is in a positive direction
14 day Relative Strength is above 90
Slow stochastic indicates there is still some upward trend left
Definite uptrend in the next few days

TECUA : Tecumesh Products company
Both 20 and 50 day moving average is on an uptrend.
MACD is (26,12) indicating the stock is in a positive direction
14 day Relative Strength is at 60
Slow stochastic indicates there is some upward trend left

Tuesday, 14 January 2014

Day Trading Fundamentals

If you want profits in a single day, and do not want to wait it out for your investments to grow in the market, day trading is a viable option, given that you have significant hours to spend doing research and practicing your trading strategy in advance.

To Day Trade you would need the following :
1. your internet connection has good speed
2. if there is a connection failure at any point you have a backup broker over the phone to assist you
3. a reliable online trading platform
4. a trading platform that has the best plans in terms of trade execution charges(transaction fees). Opt for a firm that will give you the best transaction fee and the most user friendly online software, and charts as well.
5. You have access to real time market data, i.e. no delay in the relay of market data
6. Access to real time charts and stochastic tools
7. A spread sheet application to keep track of the losses and profits you made over a day

Once you have access to the above, you may first need to build your strategy for day trading and test it with filters and regressive cases to make sure that your strategy works in most scenarios.

To build your day trading strategy you will need access to pivot points, MACD, slow and fast stochastic charts, and volume indicators. In addition you may also need to be aware of news triggers and the overall direction of the market, and the time of the day, as most stocks have greater movement in the first half of the day, although this is a trend that is sometimes overpowered by market news and sudden unexpected triggers.