15 With the end of the month falling tomorrow, this is as good of a time as any to outline a new monthly seasonality strategy that I have been planning to implement. This is, without a doubt, a keep it simple stupid strategy.
The primary source of data will be provided by the seasonality screening tools found in The PPT. Before you question my tactics, I have taken statistics classes and know the pitfalls of using past data to predict future events and how a limited data set can significantly skew results.
Nevertheless, few, if any trading strategies are going to be right even 75% of the time. Whether or not this data is an anomaly is kind of irrelevant, I think there is a small edge that can be exploited with fantastic results over a long period of time. I’ll try to keep the nuts and bolts discussion to a minimum in this introductory post and just present the primary details.
I will (initially, depending on the success of the strategy) take 10% of my account equity and spread it equally amongst three different stocks that have historically outperformed in June (or whatever month it may be). I am looking for stocks with the following metrics:
- average volume > 100k/day
- > 10 years of data
- monthly “winning percentage” > 75%
- average historical monthly return > 3%
I will set market buy orders for the three stocks to be filled at 3:59:30 tomorrow, thus opening positions near the final trade of the day (with some wiggle room). Naturally, I’m doing this to try and simulate the experiment as closely as possible to the historical results.
From each position, I’m looking to grab 3%. As soon as price reaches that level (+3%) relative to my entry point, I’m taking my money and getting the hell out of there.
Conversely, I’m kind of torn as to where, if at all, I am going to take a loss. For June, I’m going to let it ride and sell at a 3% gain or on June 29th, whatever happens first.
I want to announce my positions, but I also don’t want to cross any lines by giving out premium information, so I’m going to use generic ticker symbols (unless Fly, should he read this post, advises otherwise) with the real results. Of course, you could just cough up the $1/day and have all of that information at your fingertips.
As for the state of my portfolio, I sold 1/3 of my $THLD position early in the day at 7.19 (6.37). In the coming days, I will be looking to take off another 1/3, and look to buy more on any ‘reasonable’ (i.e. nice-looking) pullbacks.
As I mentioned earlier I opened a partial position in $P via the June 10 calls. I had a limit order out at 0.80 from about 2:30 until the bid jumped to 0.85 around 3:40, I then raised my order to meet the bid and still couldn’t get a fill. My phone was down to 5% battery at 3:57 so I had to quickly/nervously modify to a market order…which was filled at 0.85 anyway.
Ideally, with $P, I’d love to see an inside day tomorrow with a close looking like it will be near the open. In that case I would feel VERY comfortable taking on another layer of risk. If it looks like it’s going to close under 10.20, I’ll sell half, and be out in full on a close below 10. Thanks again to the average bulletproof tiger, otherwise I wouldn’t be paying attention to this one at all.
The puts I own in $WFC and $HON are making money for the time being. Small gains, but it feels good to hit a few singles again. I’m watching The PPT hybrid closely to provide a frame of reference so I can try to lock in a profit on these.
As tempted as I am on a daily basis, the $DIA calls I own aren’t even worth liquidating. Hell, I’ll keep them around as a reminder of what can happen when greed and subjectivity reign supreme.
My best to you all.
-EM
15 Responses to “Seasonality Strategy”
Rhino
Damn, good post! Remind me to “retweet” this tomorrow around 10am Pacific. THIS IS GOLDEN. twitter https://twitter.com/#!/Rhino_Cap
elizamae
Thanks. Will do.
The Fly
Rhino
I’m impressed by your work horse mentality. You literally came out of nowhere.
Rhino
Me or him? He’s AMAZINGLY good.
elizamae
Hah, thanks…
http://youtu.be/8NlrgjgOHrw?t=15s
Rhino
LMFAO!!!!!
Rhino
Fuck, didn’t see the Rhino part. Got it boss, thanks.
The Fly
let’s hear the positions.
elizamae
You got it.
redman59
Sounds good, looking forward to the results. Could maybe use the PPT forum to post the trades but your approach in masking them would also work as PPT members have the means to the seasonality data. Good work.
The Fly
I will post seasonality screens in PPT tomorrow. It’s alright to share picks here on iBC. I am only very protective about Overall Hybrid OB/OS indicators.
Rhino
eg the index/market as a whole, as opposed to an individual security?
elizamae
I don’t think the unwashed should be privy to that info…like I said earlier, it’s $1/day.
zenhunter
“Conversely, I’m kind of torn as to where, if at all, I am going to take a loss. For June, I’m going to let it ride and sell at a 3% gain or on June 29th, whatever happens first.”
In my book, this is bad trade management. I always want to have a 3-to-1 win versus loss ratio. In your case, you have an open-ended loss against a 3% win. Do you mean you will take a 10% loss hit if it comes to that?
While your stat showed a 75% win favor; don’t forget the 25%. The 25% is really not that far from you waiting to bite your ass (pardon my language…)
elizamae
Yeah, I’m definitely concerned that one bad seed could potentially ruin many months of gains. So I’m aware of that as a flaw that could arise. Still, I’m starting with such a small amount of capital allocated to each position, it’s not -really- going to make that much of a difference. This is more for experimental purposes anyway.
Thanks for the comment.