Apologies for the radio silence, and thank you Sam and Leonarda. I've been head-down ploughing through the spreadsheets with three particular points of focus:
1. Bringing everything up to date after nearly three weeks of bare bones maintenance - job done.
2. Keeping my eyes open for correlation between the dodgy four stocks, including scrutinising Sam's charts, and seeing what I could see from Yahoo's data - I've found something very interesting, which I'll expand on in a moment.
3. Adding a 10th method, which occurred to me on a whim while I was updating the spreadsheet with the overdue maintenance - very exciting results, I'll expand on this first.
10th Time Lucky
Oh wow! Something here to write home about. The figures are not huge, because Method 10 is using an entry that doesn't have me entering a lot of trades, and does tend to pull me out a bit fast too. I've applied it across the basket of 11 shares (including the suspended one, which was Connaught), over the same time period as the other methods and it shows a profit over 6 of the basket totaling £1,073.33 and a loss over 4 of the basket of £309.15. Overall it has a profit of £764.18.
Okay, the figures are not astounding in themselves, but what I get from this method is great consistency. If something's going to make a profit, the method might or might not let it run, but if it's going to make a loss, the likelihood is high that Method 10 will pull out before it gets anywhere near a stop. It's very safe, and I like that. It's also very simple.
I added a column to each of the methods for each of the shares, which showed how much profit / loss I was "running" on any one day, just so I could see what potential I was missing, and how high my risks were running, between trading actions. It was a little annoying seeing nice profits running in the £100s turn to small profits in the £10s before my various money management techniques pulled the cash out. "Wouldn't it be great if I could model a trailing stop". Not easy, but I figured I could fashion a crude version by adding an exit trigger that was calculated to activate when the buy/sell (including spread) caused my profit to drop to 2/3rds of it's maximum since entry.
A big benefit of this method is that if it's not making money, if the price is going sideways, a spike will tend to take it out rather than leaving it to run and cost rollover fees.
Method 10 is an exit strategy, it doesn't dictate entry at all, I've applied it to one of the entry methods which uses indicators to dictate entry. Compared to the other exit strategies, Method 10 is so successful at making me feel comfortable, that next time I'm restructuring the spreadsheet I'm going to bin off the other exit strategies - this is the one I'm going to use in my trading plan.
What I've seen in the 'Dodgy Four'
I was looking at Sam's charts, and looking at Yahoo's charts, and idly playing with iPhone app charting thingies just for the fun of it while I was bored. I spotted something, I had one of those "so obvious I couldn't see it" moments of clarity. I developed a hypothesis and then tested it out across the basket of shares and found a correlation.
When I set Yahoo's candlestick chart to a timeframe of 1 month, I can easily count the number of times that the colour sequence changes from red to green and back to red again. All of the shares that I've been mostly making profit on have changed colour 8 times or less in a month, all of the shares that I've been making a loss on have changed colour 8 times or more in a month.
It's obvious really, my methods attempt to ride a trend, so shares that flip between up and down on long cycles are easier to identify, get on board, and ride for a while before I exit with cash. Shares that flip between up and down on rapid cycles don't give me time to identify them and get on board before they're heading in the wrong direction for me again.
Okay, so I figure that the market isn't rational, so I could identify a stock that's had a slow flip cycle (I'm sure there's a proper name for that) for the last month, but it's no guarantee that it'd continue that way for another month. But I only need it to continue that way for three days. I need three days of a continued trend to identify it, get on board and ride it to beyond breakeven. Could it be that I should browse the 1 month charts to identify suitable candidates and bin off the old basket of shares?
I know now that for my current methods a "suitable candidate" is a stock with a price of between 200p and 400p and with a volatility (measured using my own quirky version of an ATR(14)) between 5 and 15, preferably as consistent as possible. (Volatile is good, so long as it's consistently volatile, quiet days and noisy days screw the calculations.)
Hypothesis of the (14)s
Just a thought. I use 14 day averages a lot in my calculations, from stops to entry indicators, to the now-defunct exit strategies. Maybe 14 day averages work great with stocks that don't flip their price cycle more often than every four days on average (8 flips a month), but maybe a shorter averaging period would work better for the stocks that flip more frequently? Maybe before I bin off the old basket of 11 I should have a look at what happens if I replace the arbitrary 14 day averages with a 7 day average - or even a 3 day, just to see what happens.
Summary
Anyway, enough for tonight. I'm very happy to have identified something that'll form part of my trade plan, something I can believe in enough that I won't try and second guess it when I'm playing for real. I'm pleased that I'm on the trail of some more ideas that I want to check out too.
I should be a bit more active in here now that I'm on top of things again.
Sal
