Friday, January 18, 2013

Hunger Games: Fail!

Today is a fine example of how having statistics on stock price behavior makes life easy. They let me identify losers quickly, and move on to other things.

Fifteen stocks and exchange-traded funds, out of the 1,025 liquid issues in my current trading universe, broke beyond their 20-day price channels on Thursday, all of them to the upside.

At that point, under my methods, I begin what can probably be described as a Hunger Games competition for stocks. Many are drop from the pack, and only the toughest survive.

The percentage of successful trades for past breakouts ran from a high of 50% down to a low of 19%. So the odds of winning with any of these breakouts is no better than flipping a coin. Talk about random walk!

Of those 15 stocks, 10 are publishing earnings within the next 30 days, meaning that under my rules I exclude them from consideration.

Of the five remaining, three in today's trading fell back within their 20-day price channels, meaning that under my rules, the breakouts were unconfirmed and so are no longer candidates for a trade.

The two survivors of this winnowing process are Dish Network Corp. (DISH) and Omnivision Technologies (OVTI).

OVTI has a win rate of 50% with average return on successful trades of 8.4%, for an adjusted score of 4.2%.

DISH has a win rate of 44%, with an average gain from successful trades of 10.8%, for an adjjusted score of 4.8%.

None of these numbers are attractive to me as a trader. When I gamble, I want the house odds. I don't take trades where the odds are against me, and I expect an adjusted return of at least 5% unleveraged (which can work out to 35% or so with the leverage options typically provide).

So, in today's analytical run -- today's Hunger Game -- everyone fails. There is nothing here to trade, and I shall be starting my weekend early. And it is a long weekend, since the markets will be closed on Monday for Martin Luther King Day. Enjoy!

By the way, I used the term "trading universe" earlier. Here's how I'm doing that.

I use the screener provided to subscribers by the stock analysis company Zacks to select stocks and exchange-traded funds they cover with the following criteria: A price of $15 and a above and average volume of at least 500,000 that can be traded through option contracts.

The number of stocks and ETFs meeting those criteria changes every day, but generally it comes out at 1,000 issues plus change.

Zacks rates stocks on a 1 (bullish) to 5 (bearish) scale. Although I look at the ratings, along with return on equity and debt levels, they aren't essential to my trading decisions. The historical odds and charts are everything under my rules.


My trading rules can be read here.  A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.

And the classic Turtle Trading rules on which my rules are based can be read here.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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