Review of the PPT oversold trade

It has been quite a few months since the last time there was any kind of organized group effort to play The PPT over-sold trade. I’m sure we have a lot of new members who’ve joined since that time who might not understand what we are referring to, or what the best approach is. I would like to take this opportunity to give everyone a brief summary of what we discussed to death last summer.

The PPT hybrid has proven to be very effective at flagging local/short term bottoms, via its oversold range value(s).  Two people (myself and @Po Pimp) did quite a bit of work, last summer, analyzing that phenomenon over the previous 1.5 years or so, back testing various approaches – a lot of that discussion can be found in the various PPT forum threads, I invite you to search there if you’re interested in exact details. He and I had slightly different approaches to trading hybrid oversold markets:

@Po Pimp would go long a bull instrument when The PPT hybrid flagged oversold, and would sell it when The PPT hybrid flagged a value which was either overbought or close to it (the details of what values constituted good entry and exit points  were subject to long discussions, and varied from situation to situation, as you might expect).

I had a slightly different approach: in “my” system, I would go long at oversold, and then wait for a  specific return, giving the market specific number of days, selling out at the end, if the goal wasn’t reached. I wrote a number of online back testing tools, available to PPT users, to test both of these approaches using different values for the main parameters. I found that, in the market as it existed until last fall, using my system, the sweet spot seemed to be asking for a 15% increase in TNA, giving it 10 sessions to run.

During the 1.5 years up to the fall, doing only that trade, would have given you some silly return, like 800% (this was, of course, assuming you’d go all-in at the oversold, into TNA, and I doubt anyone would have the balls to do that, so while mathematically correct, this rate of return would practically be unreachable).

There were drawdown, and there were situations where you had to sell on day 10, at a loss, but (going from memory), there were something like 8 winning trades to 2-3 losing trades. That’s right, doing only about a dozen trades in 1.5 years gave you a ridiculous profit. It only required patience, and access to The PPT engine.

Since the bull run which started in Sept we’ve really not seen any “real” oversold conditions, so this approach has fallen aside, forgotten, in favor of chasing an increasingly bullish market. Well, it seems like PPT O/S trades might need to be re-visited.

We closed PPT oversold on Mon, according to the current definitions of what constitutes an oversold PPT hybrid value range. I bought into TNA and ERX today, playing for the O/S bounce. No particular target in mind – I am not going to try for the 15% which has proven successful in the past, but I will try for a more modest 10%. Let’s see what happens… And best of luck to anyone else who might like to do their own version of The PPT O/S trade!