Category Archives for "Trend Following"
Recently I have been researching longer term hold strategies. I wondered which indicators by themselves would show an edge 3 to 6 months out. I am not looking to create a strategy from the indicator alone but want to know is there a statistical edge with it. Naturally, I started with my favorite Relative Strength Index, RSI.
I recently gave a presentation on Better System Trader about using stops on a breakout strategy. The research produced results I was not expecting and may be surprising to you. The stops tested are
A research friend recently sent me a link to The #1 Stock In The World. Besides being a blatant title to get one’s attention (and it worked on me), I found the idea interesting along with my research friends. I have been trying to add either XIV or VXX to my trading in some small way. The article is only doing a buy and hold on XIV but it peaked my interest to try some other ideas.
Trading stock splits is something that I have read about for long time but never researched. This article, A simple way to beat the market with stock splits, caught my eye and gave me the push to investigate the topic. This falls into the category of a topic I have heard a lot about that I can’t believe that it would work but as always one must test. One never knows.
A reader recently introduced me to Heikin-Ashi charts. Popular with forex traders for showing trends which at first look of chart sure seems that way. Look at these two daily charts. The top one is a standard Candlestick chart while the bottom is Heikin-Ashi chart.
The trend of unbroken green sure seems more obvious and stronger in the Heikin-Ashi chart. Will testing confirm this?
I recently read on Don’t Talk About your Stocks about an idea that stocks that were losers after (4, 6, 8) weeks should be sold to make way for other stocks that may do better. Will this idea improve the results from the original DTAYS Weekly Breakout Strategy? This reminded me of research I did while working for Larry Connors. On a mean reversion strategy we were researching, we noticed that after 10 days, 95% of the positions end up being losers. Then came the ‘obvious’ rule to add. Exit a position if it had not bounced after 10 days. We both thought this would greatly improve the results. It did the opposite and hurt them. Why? Because it was better to wait for the bounce even if the trade was a loser.
Continuing on from our previous posts and research, Should one trade high or low volatility stocks? , Stops and trading high vs low volatility stocks, and Low Volatility Stocks and Profit Targets, we are now testing how these results translate to a portfolio. I pick one variation from each of the tables from the Low Volatility Stocks and Profit Targets. From that one a variation we create a portfolio with a maximum of 10 stocks.
In the two previous posts, we have looked at low volatility stocks vs. high volatility stocks with trailing stops. Overall, the data pointed to trading lower volatility stocks. In this post, the focus is on low volatility stocks but now adding profit target stops to see how they can improve the results.
In my last post, Should one trade high or low volatility stocks?, we placed stocks into three volatility buckets and compared their performance. Several readers pointed out that using a fixed percentage stop made it more likely for high volatility stocks to hit the stop thus not performing as well. Readers suggested using an Average True Range stop or a time stop. We will explore those two stops and see how the volatility buckets compare.
Before we get to the tests, I need to explain a new metric I will be using. At Connors Research we use Individual Trade Quality, ITQ, when we were comparing results of non-portfolio tests, such as these tests. The simple way to understand ITQ is it analogous to Sharpe Ratio in a portfolio test. To get more details on ITQ see How to Measure the Individual Trade Quality of Your Strategy.
After my interview on ‘Don’t Talk About Your Stocks,’ Andrew pointed me to a strategy he is trading called the DTAYS Quantitative Growth Fund. He was curious to see back tested results. Always looking for new ideas to write and tested, I jumped on it.
Unfortunately, the results will not be exactly as he trades it. Andrew uses the IBD50 as his trading universe. As is the bane to stock researchers, I do not have historical data on the IBD50. One could create some great models using that data. Instead, the test will be on the standard stock universe