Power Dip Setups at One Year Low

294 views

Dip buying when the market is continuing to fall requires confidence. I would not continue to dip-buy into a multi-month market collapse. One of the things I like about PDS is that when the market gets weak enough, the system will quit giving signals. The reason for this is simple. Since the system only buys stocks in an uptrend, a market that falls long enough will eventually erase most if not all uptrends.

Currently, the number of stocks in an uptrend (as quantified by the system) is 131. This metric has not seen such low levels since the summer of 2010.

We are looking at the bottom pane of the chart. This metric has also been a fairly good at marking bottoms.

Notice that beginning in 2008, the number of PDS setups was fewer than 100. It does build up slowly to almost 500, but then as the market begins to fall away again in June, the number of setups get fewer and fewer until on October 10th, 2008, there were only 17 stocks in an uptrend. Keep in mind that just because it is in an uptrend doesn’t mean that the system will buy it. It has to dip first, and when it does, it must not violate other criteria in order to count as a true Power Dip.

If the market continues to slide here, PDS will be issuing very very few picks, and subscribers will be mostly in cash. If the market stabilizes or bounces, the number of picks will climb. Either way, knowing this gives me the confidence to keep buying dips, even as the market is falling.

Power Dip YTD- Positive For the Year

228 views

My little swing trading system has suffered for part of this year but appears to have weathered the worst of the drawdown. In fact, my post about taking the system to the doctor damn near marked the bottom of the drawdown for the more aggressive models.

The 10% of Equity per Trade model has been in the black for over a week now (see the YTD equity curve below), and the other models are flirting with going positive for the year. Their metrics, specifically the percentage of winning trades, are still sitting beneath their historical averages. I maintain that they will eventually return to their means, or better.

Here are the Year-to-Date results.

20% of Equity per Trade

Net % Profit: -1.76%

Annualized: -4.23%

Average Trade: -0.04%

Winning %: 60.81%

———————————————

10% of Equity per Trade

Net % Profit: +0.97%

Annualized: +2.38%

Average Trade: +0.12%

Winning %: 63.50%

———————————————

ATR Position Sizing

Net % Profit: -1.03%

Annualized: -2.49%

Average Trade: -1.10%

Winning %: 61.70%

.01/share was included for commissions.

To see more information about historical backtested results of the system, you can take the free trial, or feel free to leave a comment in the comments section.

YTD Equity Curve for 10% of Equity per Trade Model:


When Is a Power Dip a High Tight Flag?

166 views

Today…

There were 8 other picks for this morning’s open, but GTXI was the top pick. It was also 1 of 2 High Tight Flags for the day, with LONG being the 2nd.

PDS trial is free and only requires a valid email address.

Last Week, Power Dip Surges; Dow, Naz, S&P Fall

189 views

PDS bucked the trend of the broader markets last week, racking up nice gains across all models…

From 5.13.11 close to 5.20.11 close:

  • SPY -0.32%
  • IWM -0.78%
  • QQQQ -1.10%
  • DIA -0.88%

PDS Models over last week:

  • 10% Equity Per Trade +2.21%
  • 20% Equity Per Trade +3.17%
  • 3ATR Position Sizing  +2.90%

As posted a couple of weeks ago, PDS was stretched fairly significantly beneath its long-term averages in terms of its average trade and win percentage. Although I expected the system’s performance to bounce, it is still nice to see it bucking the trends of the broader markets.

Backtesting a Modified Power Dip Exit

290 views

The exit is always the most important trade…Can a subscriber idea for an exit modification improve results?

PDS issues an exit signal in the evening to be acted on at the next close. One of the subscribers left a comment on the site wondering whether selling a stock when it gaps on the open is better than waiting to sell it at the close. It is an interesting idea, and I decided to backtest it, although caveats must be added to the results (found after the summary).

I am using the 10% Equity Per Trade model as the baseline model as it will make the most trades. When conditions are right, it will have 10 open trades at once. This should give plenty of samples over the short term.

Rules:

  • Apply standard exit BUT close at open (instead of close) IF the open gaps more than X% above previous close.
  • Commissions of .01/share included.
  • De-listed data used (survivor free).

Results:

Summary:

  • The exit modification of selling the open when the stock will gap up MAY improve results (see caveats) as over the long-term tests, it has beat both the baseline and baseline with selling the open.
  • Just selling at the open instead of the close has done well since 1.1.2011. However, over the long-term, selling at the open has slightly under-performed the baseline.

I think this is an interesting exit modification, and I’m grateful to Rick for introducing it. If one is an experienced trader and understands how to properly place orders, monitoring liquidity and the bid-ask spread, I believe this modification could improve results. Of course it would have to be applied diligently and consistently or the trader would likely introduce biases which would probably negate any positive benefit.

Caveats:

Trying to backtest selling the open because of a gap-up introduces a “look-ahead” bias. In real life, there is absolutely no way to know exactly where a stock will open. Yet, when backtesting, we know exactly where it opened and can then place our sells according to the open AND get the open price. In real life, if a stock gaps +4%, the likelihood of getting the exact open price is very, very slim. There is no sure-fire way to know that your sell order will fill for more than 2%, or 1% above the previous close. Thus, one must take these results as a guide, and not as the gospel. Furthermore, the open is notoriously illiquid, which can exacerbate the problems highlighted above.

Power Dip System Visits The Doctor

425 views

PDS has been suffering a drawdown recently. And while the drawdown appears to be fairly normal, it is always healthy to take a look under the system’s hood, to be sure that everything is okay. Much like a doctor giving a patient an EKG, I have processed crucial data to determine whether or not everything is running within normal parameters. Based on the control charts below, the system appears to be experiencing a normal cycle of under-performance, and does not appear to be developing any abnormal traits.

20 Trade Moving Average of each Trade’s Profit/Loss

I know, it sounds complicated. It is not. Here is how it is figured.

  1. Get the % profit/loss of each trade.
  2. Average the % profit/loss of the first 20 trades.
  3. Create a moving average where the 1st trade is dropped from the average and trade 21 is added to the average. Repeat until the moving average is run through all the trades.
  4. Plot it.
  5. Analyze.

Click on the chart to enlarge…

There have been 4 times in the past 10 years when PDS has seen the 20 trade moving average dip to the current level. From here I expect it to begin to retrace back to the average, which is 1.74%. Should the 20 trade average hang around here for several months or more, or dip significantly lower than -4.00%, it would be abnormal.

20 Trade Moving Average of the Winning %

This metric is calculated the same way as the 20 trade moving average of each trade’s profit or loss.

Again we see that the 20 trade average of the winning % is stretched, but does not appear to have exceeded normal parameters. I expect this metric to begin to climb back to its average of 68.7%.

Dr. Woodshedder’s Diagnosis

My diagnosis is for continued system trading diligence as PDS will likely roar back to life over the next several months. For anyone interested in trying out the system, historically (as the above charts show), now would be an excellent time to give it a try.

Power Dip Year to Date Results and Analysis

319 views

All models are significantly under-performing SPY (+7.12%) and IWM (+6.79%).

There are several trades that have seriously impacted performance. I chalk this up to bad luck and know that given enough time, there will be good luck trades to balance these out. I say bad luck because typically large, losing trades are spaced out over time, and not grouped together over a couple of months. It is not the large, losing trades that make bad luck. I expect losing trades. Instead, it is the grouping. The system is also experiencing the normal cycle of surge and drawdown. More on this later.

Shameless Plug Alert: If you have been considering trying out this system, the best time to start trading it is when it is in a drawdown. Most people want to start trading a system when it is killing it… On The Power Dip System site, there is a tab labeled “Models” where graphs are housed showing previous drawdowns. The current drawdown from the last equity high is ~17% and looks to be very typical of performance during a market correction. (See larger equity curve, below).

For anyone worried that the system will dip buy itself to death, it will not happen. As a stock must be in an uptrend to meet the buy criteria, during a sustained market correction, there are very few stocks in an uptrend. Thus, the system sits mainly in cash until the market improves.

More analysis after the stats…

YTD: 20% of Equity per Trade

Net % Profit: -7.50%

Annualized: -21.11%

Average Trade: -0.59%

Winning %: 55.93%

———————————————

YTD: 10% of Equity per Trade

Net % Profit: -4.81%

Annualized: -13.92%

Average Trade: -0.40%

Winning %: 58.33%

———————————————

YTD: ATR Position Sizing

Net % Profit: -7.15%

Annualized: -20.19%

Average Trade: -0.98%

Winning %: 57.14%

.01/share was included for commissions.

Analysis:

  • The Winning % has dropped significantly and is due for some reversion to the mean. I expect the Winning % to average  67.5%.
  • The 10% Equity Per Trade Model is out-performing the other models. This tells me that the system has seen large losses in high-ranked picks. Since the 10% Model takes a greater number of smaller positions, it has been less affected by large, losing, high-ranked picks.
  • I will be generating some control charts which will allow me to draw some conclusions about current performance compared to past performance. Specifically, I want to determine if current performance is normal or abnormal compared to past performance. I fully believe that current performance represents a normal drawdown, but a graph is worth one thousand assumptions.

YTD Equity Curve for 20% of Equity Per Trade

Equity Curve from 1.1.2001 to 5.3.2011

The 10 year equity curve (representing a compounded annual rate of 61.16%) shows the large surge from PDS that started in late 2010 and lasted through February of 2011. After such a surge, a drawdown is not abnormal. In fact, previous surges have resulted in similar drawdowns. Historical backtesting shows that the system has seen similar drawdowns several times over the past 7 years. Evaluated against the big picture, the drawdown shown in the YTD graph does not look nearly as scary. In fact, I look forward to the next surge!

All results are generated from de-listed (free of survivorship bias) stock data.

A free The Power Dip System trial is available.

Power Dip Setups at One Year Low

294 views

Dip buying when the market is continuing to fall requires confidence. I would not continue to dip-buy into a multi-month market collapse. One of the things I like about PDS is that when the market gets weak enough, the system will quit giving signals. The reason for this is simple. Since the system only buys stocks in an uptrend, a market that falls long enough will eventually erase most if not all uptrends.

Currently, the number of stocks in an uptrend (as quantified by the system) is 131. This metric has not seen such low levels since the summer of 2010.

We are looking at the bottom pane of the chart. This metric has also been a fairly good at marking bottoms.

Notice that beginning in 2008, the number of PDS setups was fewer than 100. It does build up slowly to almost 500, but then as the market begins to fall away again in June, the number of setups get fewer and fewer until on October 10th, 2008, there were only 17 stocks in an uptrend. Keep in mind that just because it is in an uptrend doesn’t mean that the system will buy it. It has to dip first, and when it does, it must not violate other criteria in order to count as a true Power Dip.

If the market continues to slide here, PDS will be issuing very very few picks, and subscribers will be mostly in cash. If the market stabilizes or bounces, the number of picks will climb. Either way, knowing this gives me the confidence to keep buying dips, even as the market is falling.

Power Dip YTD- Positive For the Year

228 views

My little swing trading system has suffered for part of this year but appears to have weathered the worst of the drawdown. In fact, my post about taking the system to the doctor damn near marked the bottom of the drawdown for the more aggressive models.

The 10% of Equity per Trade model has been in the black for over a week now (see the YTD equity curve below), and the other models are flirting with going positive for the year. Their metrics, specifically the percentage of winning trades, are still sitting beneath their historical averages. I maintain that they will eventually return to their means, or better.

Here are the Year-to-Date results.

20% of Equity per Trade

Net % Profit: -1.76%

Annualized: -4.23%

Average Trade: -0.04%

Winning %: 60.81%

———————————————

10% of Equity per Trade

Net % Profit: +0.97%

Annualized: +2.38%

Average Trade: +0.12%

Winning %: 63.50%

———————————————

ATR Position Sizing

Net % Profit: -1.03%

Annualized: -2.49%

Average Trade: -1.10%

Winning %: 61.70%

.01/share was included for commissions.

To see more information about historical backtested results of the system, you can take the free trial, or feel free to leave a comment in the comments section.

YTD Equity Curve for 10% of Equity per Trade Model:


When Is a Power Dip a High Tight Flag?

166 views

Today…

There were 8 other picks for this morning’s open, but GTXI was the top pick. It was also 1 of 2 High Tight Flags for the day, with LONG being the 2nd.

PDS trial is free and only requires a valid email address.

Last Week, Power Dip Surges; Dow, Naz, S&P Fall

189 views

PDS bucked the trend of the broader markets last week, racking up nice gains across all models…

From 5.13.11 close to 5.20.11 close:

  • SPY -0.32%
  • IWM -0.78%
  • QQQQ -1.10%
  • DIA -0.88%

PDS Models over last week:

  • 10% Equity Per Trade +2.21%
  • 20% Equity Per Trade +3.17%
  • 3ATR Position Sizing  +2.90%

As posted a couple of weeks ago, PDS was stretched fairly significantly beneath its long-term averages in terms of its average trade and win percentage. Although I expected the system’s performance to bounce, it is still nice to see it bucking the trends of the broader markets.

Backtesting a Modified Power Dip Exit

290 views

The exit is always the most important trade…Can a subscriber idea for an exit modification improve results?

PDS issues an exit signal in the evening to be acted on at the next close. One of the subscribers left a comment on the site wondering whether selling a stock when it gaps on the open is better than waiting to sell it at the close. It is an interesting idea, and I decided to backtest it, although caveats must be added to the results (found after the summary).

I am using the 10% Equity Per Trade model as the baseline model as it will make the most trades. When conditions are right, it will have 10 open trades at once. This should give plenty of samples over the short term.

Rules:

  • Apply standard exit BUT close at open (instead of close) IF the open gaps more than X% above previous close.
  • Commissions of .01/share included.
  • De-listed data used (survivor free).

Results:

Summary:

  • The exit modification of selling the open when the stock will gap up MAY improve results (see caveats) as over the long-term tests, it has beat both the baseline and baseline with selling the open.
  • Just selling at the open instead of the close has done well since 1.1.2011. However, over the long-term, selling at the open has slightly under-performed the baseline.

I think this is an interesting exit modification, and I’m grateful to Rick for introducing it. If one is an experienced trader and understands how to properly place orders, monitoring liquidity and the bid-ask spread, I believe this modification could improve results. Of course it would have to be applied diligently and consistently or the trader would likely introduce biases which would probably negate any positive benefit.

Caveats:

Trying to backtest selling the open because of a gap-up introduces a “look-ahead” bias. In real life, there is absolutely no way to know exactly where a stock will open. Yet, when backtesting, we know exactly where it opened and can then place our sells according to the open AND get the open price. In real life, if a stock gaps +4%, the likelihood of getting the exact open price is very, very slim. There is no sure-fire way to know that your sell order will fill for more than 2%, or 1% above the previous close. Thus, one must take these results as a guide, and not as the gospel. Furthermore, the open is notoriously illiquid, which can exacerbate the problems highlighted above.

Power Dip System Visits The Doctor

425 views

PDS has been suffering a drawdown recently. And while the drawdown appears to be fairly normal, it is always healthy to take a look under the system’s hood, to be sure that everything is okay. Much like a doctor giving a patient an EKG, I have processed crucial data to determine whether or not everything is running within normal parameters. Based on the control charts below, the system appears to be experiencing a normal cycle of under-performance, and does not appear to be developing any abnormal traits.

20 Trade Moving Average of each Trade’s Profit/Loss

I know, it sounds complicated. It is not. Here is how it is figured.

  1. Get the % profit/loss of each trade.
  2. Average the % profit/loss of the first 20 trades.
  3. Create a moving average where the 1st trade is dropped from the average and trade 21 is added to the average. Repeat until the moving average is run through all the trades.
  4. Plot it.
  5. Analyze.

Click on the chart to enlarge…

There have been 4 times in the past 10 years when PDS has seen the 20 trade moving average dip to the current level. From here I expect it to begin to retrace back to the average, which is 1.74%. Should the 20 trade average hang around here for several months or more, or dip significantly lower than -4.00%, it would be abnormal.

20 Trade Moving Average of the Winning %

This metric is calculated the same way as the 20 trade moving average of each trade’s profit or loss.

Again we see that the 20 trade average of the winning % is stretched, but does not appear to have exceeded normal parameters. I expect this metric to begin to climb back to its average of 68.7%.

Dr. Woodshedder’s Diagnosis

My diagnosis is for continued system trading diligence as PDS will likely roar back to life over the next several months. For anyone interested in trying out the system, historically (as the above charts show), now would be an excellent time to give it a try.

Power Dip Year to Date Results and Analysis

319 views

All models are significantly under-performing SPY (+7.12%) and IWM (+6.79%).

There are several trades that have seriously impacted performance. I chalk this up to bad luck and know that given enough time, there will be good luck trades to balance these out. I say bad luck because typically large, losing trades are spaced out over time, and not grouped together over a couple of months. It is not the large, losing trades that make bad luck. I expect losing trades. Instead, it is the grouping. The system is also experiencing the normal cycle of surge and drawdown. More on this later.

Shameless Plug Alert: If you have been considering trying out this system, the best time to start trading it is when it is in a drawdown. Most people want to start trading a system when it is killing it… On The Power Dip System site, there is a tab labeled “Models” where graphs are housed showing previous drawdowns. The current drawdown from the last equity high is ~17% and looks to be very typical of performance during a market correction. (See larger equity curve, below).

For anyone worried that the system will dip buy itself to death, it will not happen. As a stock must be in an uptrend to meet the buy criteria, during a sustained market correction, there are very few stocks in an uptrend. Thus, the system sits mainly in cash until the market improves.

More analysis after the stats…

YTD: 20% of Equity per Trade

Net % Profit: -7.50%

Annualized: -21.11%

Average Trade: -0.59%

Winning %: 55.93%

———————————————

YTD: 10% of Equity per Trade

Net % Profit: -4.81%

Annualized: -13.92%

Average Trade: -0.40%

Winning %: 58.33%

———————————————

YTD: ATR Position Sizing

Net % Profit: -7.15%

Annualized: -20.19%

Average Trade: -0.98%

Winning %: 57.14%

.01/share was included for commissions.

Analysis:

  • The Winning % has dropped significantly and is due for some reversion to the mean. I expect the Winning % to average  67.5%.
  • The 10% Equity Per Trade Model is out-performing the other models. This tells me that the system has seen large losses in high-ranked picks. Since the 10% Model takes a greater number of smaller positions, it has been less affected by large, losing, high-ranked picks.
  • I will be generating some control charts which will allow me to draw some conclusions about current performance compared to past performance. Specifically, I want to determine if current performance is normal or abnormal compared to past performance. I fully believe that current performance represents a normal drawdown, but a graph is worth one thousand assumptions.

YTD Equity Curve for 20% of Equity Per Trade

Equity Curve from 1.1.2001 to 5.3.2011

The 10 year equity curve (representing a compounded annual rate of 61.16%) shows the large surge from PDS that started in late 2010 and lasted through February of 2011. After such a surge, a drawdown is not abnormal. In fact, previous surges have resulted in similar drawdowns. Historical backtesting shows that the system has seen similar drawdowns several times over the past 7 years. Evaluated against the big picture, the drawdown shown in the YTD graph does not look nearly as scary. In fact, I look forward to the next surge!

All results are generated from de-listed (free of survivorship bias) stock data.

A free The Power Dip System trial is available.