Although camping with the family at a top-secret hidden location, Woodshedder is still finding the time to check in on his beloved blog from the local McDonald’s while on his morning sausage McMuffin run. Wood, we appreciate your dedication!
The system will close out the following trades on Wednesday’s open – for gains:
Ritchie Bros. Auctioneers (USA) [[RBA]] InterMune, Inc. [[ITMN]]
… and replace them with the following:
The Hershey Company [[HSY]] Zebra Technologies Corp. [[ZBRA]]
a 10% stop works very well for these and positions should be sized accordingly.
Although the model portfolio is full, Power Dip is also generating buy signals on the following, some of which are also worth a closer look:
Genpact Limited [[G]] Ocwen Financial Corporation [[OCN]] Target Corporation [[TGT]]
Wood, really enjoy your blog. First time poster here. Regarding RBA…our company has been taking lots of equipment into RBA for disposal, the dudes there state that they have more on the horizon and also are adding auctions. Also they will also be selling all those vehicles from the GSA from the American Recovery Act. Lots of fleet turn over there. Other thing happening is that some equipment has been no sale and later is getting repo’ed. Just my two cents, enjoy the vacation. BTW, every time over the last two months i am in target, there are more employees than customers and the littler terminals at the front have lines for job applicants.
Wood, Thanks for the BRCD! Please let me know when “Power Dip” is going commercial. I may need to add a systems trading component to my discretionary trading, and “Power Dip” seems to fit my style. Thanks again.
Ha….moved up in the world…checking in this morning from Pipestem…Google it…its beautiful here. Off to horseback ride and other outdoor stuff.
RBA was sold this morning.
See ya’ll later.
Thanks B!
Hey Wood. Hope the time off is good. Been meaning to ask, are you getting your list of candidates for the Power Dip through a screen on Amibroker for the trigger, or are you using a “canned” list of stocks?
Brandon here, filling in for Wood. I am the co-developer for this system so I can answer your questions while Wood is away. There is very specific criteria that was programmed and developed through AmiBroker and a couple of other pieces of software.
The setup and entry conditions were developed over about 9 months of backtesting and real-time trading as was the exit condition as an entry alone does not make a system. The candidates for the system are the entire US stock market (NYSE, AMEX, NASDAQ) but there is a minimum price and liquidity condition as part of the setup criteria.
The system is designed as a general system to perform well over the widest range of market conditions as reasonably possible. The system looks to buy and sell short term dips within longer term (and more persistent) trends so it is really a hybrid mean-reversion/trend following system and difficult to categorize as either/or.
The type of markets this type of trading will tend to under-perform in is the exact type of market we have had over the past several weeks where the market moves straight up without a break. The last few weeks are an incredibly rare even however and it would be foolish to attempt to design a robust system around a market “event” that only occurs every decade or so.
i have a quick question for you genus people
you have stop at 10 % and your profit % are way lower than that. how is it going to work longer term, dont you think that huge stop can create lot of issue. would like to know what u guys have thought
thanks
Bill
The 10% stop is a worst-case scenario and the system does have an exit trigger that will exit a losing trade prior to that stop actually being hit most of the time. Tested over the past 10 years (w/ IB commissions), this system has generated 2,882 trades.
The Win% is 68.63%
The average winning trade is 4.19%
The Lose% is 31.37%
The average losing trade is 5.49%
The average trade for winners and losers is 1.15% with an average hold time of 5.27 days resulting in a positive expectancy.
Expectancy = (Win% * Avg Win) – (Lose% * Avg. Loss)
= (.6863 * 4.19) – (.3137 * 5.49)
= 2.875597 – 1.722213
= 1.153384% is what you expect to make over the long run on each and every trade.
All of this translates into an average CAGR of 34.85% with only 46.11% market exposure, resulting in a risk-adjusted annual return of 75.57%.
A 34.85% CAGR essentially takes 100k to 2mill in 10 years with a max system drawdown of 16.33%, less than 1/3 the draw down a B&H investor had last year. No leverage was used in these tests.
Bill,
One other thing. This system uses percent risk position sizing and in our tests for which the result were posted above, we never risk more than 1% of our equity on any single trade. An example:
Account size: 100k
Risk per trade: 1% (1% of 100k is $1000) which means we will risk 1k per trade.
Say a stock is at $50 and we are using a 10% stop – that means we can lose $5 per share.
$1000/$5 = 200 shares we purchase for $10,000.
Now if we were using a 5% stop, we would buy 400 shares but still be risking $1000 per trade but we would lose that $1000 dollars after a 5% drop instead of a 10% drop. This translates into a much smaller win% with a larger number of the losing trades taking place at the max loss of $1000 vs our average loss of only 5.49% with the larger stop, which in this example, is only $549.
A tighter stop essentially makes the system a lot more volatile with much larger equity swings and draw downs because you basically close down a lot of trades that eventually become winners (or lose less) with a larger stop. This is counter-intuitive but when you study this stuff – it begins to make a lot more “common-sense”.
Brandon,
Well said. Thanks. Nice explanation of risk based position sizing.
Thanks Yogi and you’re welcome Bill.