Simple Stock Trading

Simple Stock Trading

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Simple Stock Trading is the key to making the big money.

The randomness of short term stock behavior can only be tamed with simple trading systems using very limited parameters; trading and making money is easier than you think.

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KEEP IT SIMPLE STUPID.You have probably heard of KISS, “keep it simple stupid”.  When it comes to stock trading no advice could be better.  In fact I am of the opinion that simple stock trading is the only way you can consistently make money in the stock market.

If you get the chance you should read my longer article, How to Trade.  In that article I tell about a brilliant engineer who believed he could write a trading formula that could accurately predict all market movement.  He anticipated that the formula would run about 50 pages in length.

The engineer was not successful.  The problem is that markets are not perfect and in fact most short term stock movement is random.  The most sophisticated formulas cannot predict random price behavior.  It is garbage in and garbage out.  You may wish to read my longer article, Stock Market Price.

So to deal with markets that are predominantly random you need to use formulas that are very simple with limited parameters.

EXAMPLE OF A SIMPLE STOCK TRADING SYSTEM

Let me give you an example of a stock market trading system with few parameters. At the close of a market day you take the LOW of the day and subtract it from the HIGH of the day. Next you take half of that value and add it to the CLOSE. So let us say that on Monday WUZOO makes a high of 20, a low of 10 and closes at 14. Then we will subtract 10 from 20 to get 10 and take half of that to get 5. Then we will add 5 to 14 to get 19.

The number 19, (.5(H-L)) +C, is the market price to buy on Tuesday. If the buy price is hit on Tuesday you hold the position until the open on Thursday and then you sell it. That’s it. There is nothing more to this simple system with the most limited number of parameters.

Then I tested this simple system.  I randomly selected four markets from the top of my list of traded markets that are arranged alphabetically. The four markets I selected were ADCT, ADSK, AMD, and ABGX.

I tested each market using this simple trading system for one year. I used a formula that commits $10,000 to each trade, hence you buy 2000 shares of a stock trading at $5.00 and you buy 200 shares of a stock trading at $50.00 etc. I tested ADCT, ADSK, and AMD from mid January 2009 to mid January 2010. As a check against correlated markets I tested ABGX from mid August 2000 to mid August 2001.

In the real world of stock market trading and trading on margin you could probably trade all four of these markets at the same time with about $10,000 in your trading account. Furthermore it is unlikely you would ever get a margin call on a trading system that is out of the trade on the open of the third day. By the time the margin clerk calls you are out of the trade.

This is the net profits from each market: ADCT $2,376, ADSK $2,401, AMD $4,308, ABGX $7,299.

If I put the numbers for all four markets together this is what they look like:

Gross profit = $35,604

Gross loss = $19,219

NET PROFIT = $16,385

NET PROFIT AFTER TAKING OUT $50 PER TRADE FOR TRANSACTION COSTS = $10,835

Number Trades = 111

Number win = 72

Number loss = 39

Percent profit = 65 %

Average Trade (win loss) = $148

MAX intraday drawdown = -$2,848

SIMPLE STOCK TRADING CAN MAKE YOU RICH

So the bottom line is you are making conservatively $10,835 and that translates into over 100% annual return on your investment of $10,000.

If you compound $10,000 for five years you get $1,208,221

If you can commit yourself to sitting in front of computers for five years you can become rich by using simple trading systems like this.

I am not just playing around with numbers and idle trading ideas either.  I have already done this.  I wrote the book “How I Quit my Job and Turned $6,000 into a Half Million Trading” and I published my broker statements to prove I had really done this.

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I made over 100% for six consecutive years.  The reason that I did not total over one million dollars was that I had to take money out of the account to live on.

I refuse to believe that I am the only person in the world that can consistently follow any one of these simple stock trading systems and I have integrated software and market data to make it easy for others to trade this way also.  (Please see, Automated Stock  Trading Software).

The point of this post is that stock trading is not complicated and a smart trader will simply tune out all the bogus stock experts and keep it simple (KISS).  Believe me Simple Stock Trading can make you rich!


 

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I am a trading system pro and have been trading markets and have been involved with trading system development and the programming of trading system software for 25 years. “Today Stock Market” is my opportunity to share with you some of my trading experience while discussing stock market news and giving my daily stock market update.


How do you get Rich?

How do you get Rich?

 

wp-content-uploads-2013-01-robertburan1 How do you get Rich?   How do you get rich trading only $10,000?

Trading $10,000 into a small fortune is clearly the ultimate challenge.  But regardless I am a little uncomfortable writing this article because it sounds a little sleazy.  But this is not about selling snake oil.   I am just trying to give some practical advise How-to-get-rich-1 How do you get Rich?based on my personal experience.

Do you have only a small amount of money and yet dream of becoming rich ?  Maybe all you have is $3,000 or perhaps you have no cash, but perhaps you could borrow $10,000?

Can a $10,000 account be traded into a small fortune?  My unequivocal answer is yes.

Is that an easy task?  No, it may be the toughest thing you have ever attempted, but I am going to offer you some ideas and tools that may help you.

The information on this web site is absolutely free so take your time and read everything you want.  In fact you SHOULD read everything.  What I do for a living is not for everybody.  Call me,  Robert Buran aka Trader Bob, at 702 490 5317, and talk to me if you would like.  I promise I will not try to sell you anything.  I can listen; before I was a trader I was a psychologist. And you can talk to me for free about getting rich!

How-to-get-rich-2 How do you get Rich?

But you will have to learn many things.  This is NOT a get rich scheme and let me repeat once more, this is not easy.

But you do not have to be brilliant; you just need to be persistent.

How I started thinking about “How do you get Rich?

About 15 years ago I wrote a book, How I Quit my Job and Turned $6,000 into a Half Million Trading. Well I can’t say I got really rich and I can’t say I got rich fast either.   Some might say my accomplishment was modest.  In fact I took 6 years to accumulate that half million dollars.  I believed in becoming rich slowly.  I did not compound all my profits and I took money out of my trading account to live on.  My trading account was seldom over $100,000.  But the indisputable fact was that I turned $6,000 into a half million bucks.

I also did something practically no other market guru has ever done, before or since.  I published most of my broker statements and offered a reward to anyone who could prove they were fakes.  To date there have been no takers.

I would estimate I have made about three million dollars trading my own money in about 20 years.  Again I made those millions starting with only $6,000 of borrowed money.

I am not the Person you would think could answer the question, How do you get Rich?

If you think my bold proposal, to turn $10,000 into a fortune, is absurd, please understand that these three million dollars were made by a guy who had no formal investment training whatsoever and who typically fell asleep during investment seminars.  In fact I find the whole subject of market fundamental analysis boring and I do not even know the names of half the companies whose stock I trade.

I would describe myself as a pretty ordinary guy who has developed over a 20 year period some pretty extraordinary ideas about trading markets.  These ideas that I have worked with for nearly 25 years have the goal of yielding maximum investment returns while keeping risk low.   When I say maximum returns I am talking something around  50 % to 250% annual returns on an original investment.  This is about the range of returns that I have realized trading my own money over many years.

To make $500,000 on $6,000 in 6 years you need an average yield of around 125% compounded.  But of course I did not compound the money; in fact I took most of the money out and used it to live on.  And so my yields actually were higher than 125%.

How-to-get-rich-3 How do you get Rich?

In fact I believe I have the best stock trading programs in the world and I could care less who laughs.

So perhaps you ask,  “does becoming rich mean I have to bet the ranch to make this kind of money?”  Absolutely not and that is why I am suggesting starting with only $10,000.  Trade your $10,000 on margin and that will give you $20,000 to work with.  Let’s do it.

Trading this modest amount into a small fortune in the stock market is our goal and this is what this web site is all about.  Stay with me and I will show you the secrets of Short Term Stock Trading for the small investor.   And rest assured I will most certainly answer the question, How do you get Rich?

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I am a trading system pro and have been trading markets and have been involved with trading system development and the programming of trading system software for 25 years. “Today Stock Market” is my opportunity to share with you some of my trading experience while discussing stock market news and giving my daily stock market update.

Trading System and Trading Strategy

Trading System and Trading Strategy

 wp-content-uploads-2013-01-robertburan1 Trading System and Trading Strategy

What is the difference between a trading system and a trading strategy?

This is the curious story of how government regulation, over a decade ago, changed the use and meaning or the words trading systems and trading strategies.

On the Google search engine nearly 1,000 people per month type in the words Automated Trading Strategies.   For me this phrase brings a smile to my face because I do not believe you can automate a strategy..  Let me tell you why.

You see the way I look at it the words “automated” and “strategies” really do not go together in the lexicon of a knowledgeable trader.  When a trader thinks of a trading strategy he is thinking more in general terms such as:

Example of Trading Strategy

trading-system-1 Trading System and Trading Strategy

“I will focus on newly issued NASDAQ stocks trading under two dollars and I will buy them on the first pull back after an initial price surge.”

In this example the word strategy is more general and global in its meaning with respect to actual market prices.
A strategy however cannot be automated unless it is precise as opposed to being general.  For a trading approach to be automated it must be based on specific market prices and   trading strategies are too general to lend themselves well to automation.

I will try to explain better.

Taking the above example, I will focus on newly issued NASDAQ stocks trading under two dollars and I will buy them on the first pull back after an initial price surge, I can convert the statement into a more precise trading statement by saying:

Example of Trading System

“If this is a NASDAQ market and if  the average close of the past 10 days is less than $2 THEN if there is a price expansion on a daily bar AND where the daily range of that expansion bar is three times the average range of the previous 10 daily bars AND the high of  the expansion bar is higher than the lowest low of the past 10 bars PLUS three times the average range of those 10 bars THEN I will BUY IF AND WHEN price comes back to the expansion bar’s high minus one half of the average range of the past 10 bars.”

The second statement is a mouthful, but it is precise, it is programmable and its validity can be tested in any market.  In theory, using a computer and the right software, you could test this idea using one thousand years of daily bar data.

But the second statement is really no longer a STRATEGY.  It is more like a TRADING SYSTEM. (For an expanded discussion of these ideas please see my article TRADING SIGNALS)

The words trading strategy is not generally applied to buying at a specific price and therefore it CANNOT BE AUTOMATED.  So I really do not understand what people are searching for when they type into Google the words “automated trading strategy”.

If a trading approach has specific predetermined rules that dictate the exact price at which a market is to be bought or sold it is called a TRADING SYSTEM not a TRADING STRATEGY.

So how did the phrase TRADING SYSTEM ever become TRADING STRATEGY?

trading-system-2 Trading System and Trading Strategy

In this case government rules changed the English language just a little.   Starting in the early 1990s government regulators and agencies sought to extend their power and influence by forcing anybody who gave market advice to register with the government, take tests, pay fees and submit to government reviews and audits.  And obviously this process implied censorship of ideas.
I did not register with the government and around 1999 I got hauled in for publishing articles about trading on the Internet.  I had to travel to Los Angeles, testify under oath for several hours and pay my attorney $25,000 to escape the tentacles of government registration, regulation and censorship.

Originally the government tried to regulate the Internet, software and even Newsletters that contained information about trading and markets.  But because of legal challenges by free speech advocates the government backed off and soon it was implied that market advice, as defined by the government, only meant giving precise and specific recommendations regarding the price at which a market should be bought or sold.

So everybody started using the phrase TRADING STRATEGY rather than TRADING SYSTEM in order to avoid the appearance of giving specific market advice that might subject them to government registration and regulation.  Probably the largest trading software developer at the time, Omega Research in Miami, launched their first system development software circa 1985 which was appropriately called

trading-system-3 Trading System and Trading Strategy

SYSTEM WRITER.  But after the government started witch hunting Omega promptly eliminated any mention of SYSTEM from any of its software and substituted the word STRATEGY.

And so Trading System became Trading Strategy

And after that everybody started using the phrase TRADING STRATEGY when they really were talking about TRADING SYSTEMS.  In fact I believe that the phrase trading strategy was invented, for very practical reasons, by the now defunct Omega Research organization as a convenient euphemism for trading system.

But it has been a euphemism that has stuck and one that is now used frequently by traders.

But in my view it is an improper use of the word particularly when combined with the word automated.   You cannot automate a trading strategy; you can only automate a trading system.

Our country is great and for the most part so is its government, but I think this story remains a cautionary tale, albeit slightly humorous, of how the power of government regulation can change how we use the English language and in fact how the government can force the IMPROPER use of the English language.

And I insist again, Trading System and Trading Strategy are different, but government regulation made them, in the minds of many, synonymous

 
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I am a trading system pro and have been trading markets and have been involved with trading system development and the programming of trading system software for 25 years. “Today Stock Market” is my opportunity to share with you some of my trading experience while discussing stock market news and giving my daily stock market update.

About System

About System

Jordi is Hot

Market-Wrap-Up-300x172 About System

By Robert Buran

COPY2-JRJC-300x199 About System

“Jordi” is hot.  This is a snapshot of Jordi’’s performance in two days in August 2014.  This trade would have cost about $45,000 in cash and it made $32,000 plus in two days.  JORDI got into JRJC the day before a 40 + % move and got out near the top.  This is admittedly as good as it can get (click to enlarge):  Jordi is a composite of trading ideas I have developed over a 20 year period.  In the two manuals included with this package I talk about my earlier ideas that developed systems using daily data.  But my dream from the beginning was to combine these ideas with intra-day data.  My belief was that using intra-day data in combination with daily data would give a trader more control over trading problems.

Jordi is therefore kind of my dreamJordi uses two data streams, a daily bar and a 15 minute bar.  As I describe in “Stock Trading Millionaires” I have pushed nearly two billion dollars worth of trades through the US stock market using a nearly identical algorithm as Jordi uses.

Jordi has never before been published.

Jordi has been modified to accommodate the small trader.   As it is presently written it can commit as little as $1,000 per trade or it can commit as much as $50,000 per trade.

I publish daily on this site all the real time trades generated by Jordi in 60 plus markets.  I am of the opinion that a $20,000 account traded on margin would support this entire portfolio of 60 plus markets.  E-mail me at bobburan@juno.com and I will send you free our current stock list.

However, a small trader could start with as little as $3,000 traded on margin.  With a $3,000 account a trader could probably trade about 10 to 15 of these stocks.  There might be a handful of days you run out of money and would be unable to take all trades, but for the most part 10 to 15 stocks would be OK.  On a normal day, if there is really such a thing, a trader could expect to be in about two or three positions at a time.

Jordi requires that you monitor your positions with live data.  Jordi is not for the casual trader.  HOWEVER, you can automate Jordi fully with TradeStation 9.5.  See  Full Automation of my Stock Trading Systems.

My systems are also compatible with Multi Charts.  With Multi Charts it is possible to trade my systems with full automation and execute trades through Inter Active Brokers.  See  http://www.multicharts.com/

Jordi is NOT a day trading system and rarely enters a trade and exits it on the same day.

Copyright 2010-2015 Short Term Stock Trading

 

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I am a trading system pro and have been trading markets and have been involved with trading system development and the programming of trading system software for 25 years. “Today Stock Market” is my opportunity to share with you some of my trading experience while discussing stock market news and giving my daily stock market update.

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Stock Investors

Stock Investors

 

 

wp-content-uploads-2013-01-robertburan1 Stock Investors

 

By Robert Buran

 

 

Stock Investors, a Psychologist’s Perspective

 

Stock Investors come and all sizes, shapes, styles and colors!  And some stock investors are very successful and some are not so successful.  How does the psychological profile of these two groups differ?

stock-investors-1i Stock Investors

Before I became a professional trader I was a psychologist.  And so naturally I am not just interested in the obvious attributes of stock investors; I am also interested in the psychology of different investors and what really makes them tick.  I want to look under the hood of stock investors, probe their minds a little, and understand what makes some successful and what makes others less than successful.  I want to know more about the psychology of stock investment.

Not too long ago I read an article in the New York Times about John MacAfee, the founder of the MacAfee anti virus Software Company.  There are things in John MacAfee’s story that shed some light on stock-investors-3 Stock Investorsunderstanding something about the psychology of investment.

Quite surprisingly, given his corporate position, Mr., MacAfee was not into making investment decisions himself.   Although no longer associated with that company, Mr. MacAfee was and is a brilliant businessman and entrepreneur who, it seems, for a couple decades, could do no wrong in his business dealings.

Only a very short time ago Mr. MacAfee had a net worth of well over 100 million dollars.  Today that net worth is about 4 million.

So what happened?  Well one of the major reason’s for Mr. stock-investors-2 Stock InvestorsMacAfee’s problems was he made a very common mistake that many other wealthy people have made.  Although John MacAfee was furiously independent in his business thinking, when it came to investing his millions he let others do it.   Rather than practice “do it yourself” investing he turned investment decisions over to “financial experts” oftentimes people who call themselves brokers or financial advisers.  And in MacAfee’s case one of their recommendations was to put millions of dollars into bonds tied to Lehman Brothers.

Obviously Mr. MacAfee got bad advice and most people now know that Lehman Brothers was one of the first cards to fall in a financial deck that toppled in 2008.  The resulting fallout brought the world economy to its knees and five years later we are still digging out of the resulting mess.

Mr. MacAfee also got burned in the real estate collapse as well.  And I am certain he got a lot of advice on real estate investment also.  Like stock investors, real estate investors in 2008 were also told their investments were safe.  These prices cannot go down and increasing demand and increasing prices are almost a given.

This is the manure spread by financial advisers, brokers and people in government prior to the crash of 2008.  And 10s of millions of Americans, including Mr. MacAfee, bought into it.

So what is this psychology of investors, and not just the psychology of stock investors, that led to John MacAfee’s downfall and the downfall of so many others in the crash of 2008?

 

Stock Investors and Independent Thinking

 

Years ago I wrote a book, “How I Quit My Job and turned $6000 into a Half Million Trading”.  

 

Basically what I had done was to start with $6,000 of borrowed money.  I was poor and got a $6,000 chattel mortgage from my bank by putting every thing up I owned, literally the shirt on my back, as collateral to get the loan. This flew in the face of logic and the sound financial advice of almost everyone.

Tstock-investors-4 Stock Investorshen by taking about 10,000 individual trades, I realized well over 100% annual returns on my investments for six consecutive years.  I had to take money out of the account to live on, but I still made a half million dollars in six years having started with only $6,000. Then I wrote the book, published my broker statements and got some attention.

I am not trying to blow my own horn here, but this experience got me to thinking a lot about the psychology of investors, risks and return as well as “expert opinion”.

I was not an expert; I developed my basic plan on a yellow legal pad on a skiing trip!  And understanding the plan required an understanding of 5th grade math and no more.  No I was not an expert.  But in some ways I was light years ahead of the experts.

 

Four Specific things Stock Investors can do to Improve Returns and Performance

 

I am not going to try to rewrite that book in this article, but there were four important noteworthy things I did that contributed to my success:

1) I ignored just about everybody’s advice and I developed my own strategies for trading.  My strategies violated many sacred rules of trading financial instruments.

2) I never held on to anything more than three days.  This kept me from being killed in the marketplace.  If I bought something and it started going for the toilet, I was out of it while I still had some money.  There is a lot of safety in trading the short term.

3) I traded a lot of different markets.  There is also safety in diversification.  Things can go bad with one or two things, but it is rare that things go wrong with everything.  On one memorable day when all hell broke loose I lost $18,000 in bonds, but made $24,000 in stocks.  Diversification saved my butt.

4) I did everything myself.  I developed the strategies myself, I did the trading myself and everyday I counted the money myself.

 

Of all these strategies the most important is doing it yourself.  I was once fired from a good job because my boss said I was too much of a “lone wolf”.  But you have to be a lone wolf to be a good stock investor.  Contrarians may make bad employees and bad spouses, but they make excellent stock investors.  One of the truths of stock investment and trading is that the markets tend to destroy the majority following conventional wisdom and reward the minority following contrarian thinking.

I travel a much less exciting road today regarding investing.  I do not leverage my investments as much as I used to and I only buy stocks and never go short.  That is correct, I no longer short stocks; in the year 2013 probability clearly favors rising prices.  But I still diversify and I presently take trading signals in about 70 plus diverse stock markets .

I do a lot of programming now, but my trading systems are not that much different from what I developed on a yellow legal pad on a skiing trip 25 years ago.  That old stuff still works.  And I still do not keep anything more than three days.stock-investors-5 Stock Investors

I have fun now is putting these trades up on this web site every day.  I keep it low key and gear it to small investors.  I do not make money everyday but I do make money the majority of days.    This web site is kind of my way of saying “in your face” to the kind of moronic advise that got John MacAfee in trouble.

In order for stock investors to be successful they must shut out the noise and avoid the investment pitfalls that come from listening to others.  Successful stock investors must practice do it yourself investing. Simple logic is still a viable investment strategy and lone wolves still make money.  Diversification really worksShort term trading is one of the most logical and easiest ways to increase profitability while reducing risk.  In order to be a successful stock investor you must develop your own strategy, ignore the experts and DO IT YOURSELF!    

Copyright 2010-2015 Short Term Stock Trading        

 
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I am a trading system pro and have been trading markets and have been involved with trading system development and the programming of trading system software for 25 years. “Today Stock Market” is my opportunity to share with you some of my trading experience while discussing stock market news and giving my daily stock market update.

Stop Loss Order

Stop Loss Order

 wp-content-uploads-2013-01-robertburan1 Stop Loss Order

So what exactly is a stop loss order?

A stop loss order is an order that you place online or with a broker to buy or sell a position when a certain price is reached.  If you are short a market you set a buy stop and if long you set a sell stop.  The idea behind a stop loss order is, as its name implies, is to prevent you from experiencing a serious loss because of adverse price movement.  For example if you own 1000 shares of XYZ you bought at 100.00 and you want to limit your loss to 20 % you would enter a stop loss order to sell 1000 shares at 80.00 stop.  If the market then falls to 80.00 or lower your stop loss order becomes a market order and your position is liquidated.

To the unsophisticated trader it may sound like placing stop loss orders is always a good idea.  After all do not all traders want to limit their losses?  It may sound like trading heresy, but I think stops are not as important as many traders think.  There is a lot of nonsense written about trading, but one of the more amusing things I have read is about the importance of “loving your stops”.  Of course what the writer was trying to convey is the importance of protecting your stock market positions from large losses by employing some kind of stock trading stop loss.

Stop loss orders may not always be a good idea.

Stop-loss-1 Stop Loss OrderStop Loss Order

However, let me say at the outset that I do not love my stops. In fact I hate my stops and only use them when absolutely necessary.  The problem is that stop losses do just that, they stop you from losing additional money.  The problem is that nobody wants to lose money and so most people will tend to make their stops too shallow and the result is they never lose a whole lot of money on any given trade, but almost all their trades go to losses and so in the long run they still lose a lot of money.

Although I am not recommending you trade this way you need to understand that under Utopian trading conditions you can make far more money without using stops than you can with using stops.  Just about any kind of market entry will eventually go to a profit if the position is never exited with a stop loss.

I have always known this but the point was recently driven home in a very practical way when I had to adapt the trading system I post on this web site to accommodate government regulations concerning “day trading”.  The regulation that I am referring to is the trading account requirements for “pattern day traders”.  This regulation requires that any person engaging in “pattern day trading”, that is entering and exiting a position on the same day, must have in excess of $25,000 in his or her trading account.

I do not day trade, but sometimes I take a position, intending to keep it for two or three days, and it starts to go south almost immediately.  And to avoid a major financial hemorrhage of my account I exit the trade on day of entry.  But according to these bizarre government rules when I get out of that trade, on day of entry, in order to save my butt, I am engaging in “pattern day trading”.  And if my account has less than $25,000 in it at the end of the day, the account must be closed.

Trading System Improved with no Stop Loss Order

So in order to avoid this situation for both me and my customers I redesigned the system I trade on this website to trade essentially without stops on day of entry.  I was surprised to find how easy this was.  What I found is that the overall performance of the system was improved.  What I also found was that trading many markets (diversification) was actually better protection against aberrant price moves than was the placement of a stop loss.  If you are in 20 markets and you get killed in just one you might still have a good profitable day because of the price movement in the other 19 markets.
I have been trading now without stop losses on day of entry for several years and have had no problems.  I might add that I also traded through the “Flash Crash” of May 6, 2010 as well as the crash of August 24, 2015 and I emerged from those fatal days without mortal injuries.  In May 2010 our overall losses for that month in fact were very small compared to the large profits we had made the previous five months. (please see my article, Flash Crash)

I have posted every one of the trades I have taken since December 1, 2009 and there is not a singe trade that I have exited on the same day I entered it.  Go ahead and examine those trades and you will see the results of trading without stops on day of entry.  There are really no large losses that stand out, we certainly win more than we lose, and our bottom line shows good profits on our investment.

I trade about 80 markets and on a really busy day I might be holding 30 to 40 positions.  In my view this is far better protection than stops.  I think that all this talk about loving your stops comes from stock index traders who almost always lose money anyway.  Stops just make their losses a little more tolerable and allow them to indulge in their gambling habit a little longer.  Believe me, I have done a lot of stock index trading in my 20 years of trading and I know of what I speak.  Stock index trading is a game of the big boys running the stops of small traders with weak hands.  If you do not have the money to allow you to use very deep stops you should stay away from the stock index game.

Stop-loss-2 Stop Loss Order

I do not think much of stock index trading and do not think it has anything to do with the kind of short term stock investing that we do.  Most of the stock index traders I have known are kind of thrill seekers who seem predisposed to losing money.  I have never known either a day trader or a stock index trader who really consistently made money over a long period of time.

Contrast this with our trading approach that never ties up a high percentage of our money in any one market and consistently yields high returns year after year in all kinds of market environments.

In summery, I believe the importance of stops has been overdone and you will make more money if you do not have to use them.  What will save you money more than price stops is spreading your money out across many markets and limiting your time in trades to two or three days.  And furthermore make sure you limit losing trades to only TWO days.

What I am really saying is that TIME STOPS offer you more protection than do PRICE STOPS.  You should try stock trading without a stop loss order based only on price. Believe me you can live without stop loss orders.   I think you will find that the dangers of trading without price stops have been vastly exaggerated.

 
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I am a trading system pro and have been trading markets and have been involved with trading system development and the programming of trading system software for 25 years. “Today Stock Market” is my opportunity to share with you some of my trading experience while discussing stock market news and giving my daily stock market update.

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Trading Signals

Trading Signals

 

What are trading signals?

The answer is going to depend on who you ask.

  • For example dyed-in-the-wool contrarians might believe that a stock trading signal to sell stocks might be when Time Magazine runs a picture of a bull on its cover.stock-trading-signals Trading Signals
  • A dyed-in-the-wool technical analyst on the other hand may look for certain stochastic numbers on a 30 minute bar chart to indicate when to buy a certain stock.
  • And finally a dyed-in-the-wool ‘fundamental’ investor may consider certain financial numbers of the underlying business to be a signal.

Definition of a Trading Signal

So to this mix let me now add what I think is a true and usable definition of a trading signal.  Let me give you an example of the kind of signal I like.

  • Take any given stock and look at all the daily bars for the past 10 days.  Next subtract all the highs from all the lows to get all the daily ranges for each of the 10 daily bars and then calculate the average range for those ten days.
  • Let’s call this AVERAGE DAILY RANGE.  Next divide each daily range by two to get the midpoint for each day.  Now find the average midpoint for the 10 days.
  • Let’s call this AVERAGE MIDPOINT.  Next take 125 % of the AVERAGE DAILY RANGE and add it to the AVERAGE MIDPOINT and that becomes our trading signal to buy tomorrow.
  • Thus we have created a signal using only two parameters, AVERAGE DAILY RANGE and AVERAGE MIDPOINT.

Trading Signal Exit

There are any numbers of ways to exit this trade, but again we want to keep it simple and limit our parameters.  For example we may wish to put a stop loss on the average low and take profits on the average high plus 150% of the AVERAGE DAILY RANGE.

In any case I have created signals from the simplest ideas of market momentum theory and using the most limited number of parameters.  And for this reason this little trading system will probably tame the randomness of short term stock market movements and it will probably make some money. (For an expanded discussion of these concepts please see my articles on market momentum theory in Stock Trading for Dummies and Stock Market Price).

What a  trading signal MUST be:

But in this brief article I am not trying to design a trading system.  What I want to do here is simply to demonstrate my ideas of what constitutes a valid trading signal.  In my view a trading signal should embody the following:

  •   A trading signal must be mathematical and precise in nature.
  •   A trading signal must be programmable into a computer so the computer and not the trader can track the relevant markets and alert the trader to when the trading signal has been hit.  This allows the trader to diversify and to trade many markets simultaneously.
  • Finally the trading signal must be of such a nature that it can be tested in all kinds of markets and in all kinds of market environments to establish its accuracy and validity.

Used in this manner objective trading signals form the backbone of our trading system development and become indispensable tools for profitable stock trading

 
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I am a trading system pro and have been trading markets and have been involved with trading system development and the programming of trading system software for 25 years. “Today Stock Market” is my opportunity to share with you some of my trading experience while discussing stock market news and giving my daily stock market update.

In and Out Trading

In and Out Trading

 

wp-content-uploads-2013-01-robertburan1 In and Out Trading

In and Out Trading Defined

wp-content-uploads-2013-01-in-and-out-trading In and Out Trading

In and out trading is generally understood to be a trading style whereby a security or stock is bought and sold within a relatively short period of time.  However, In and Out Trading does not necessarily mean day trading and “short period of time” can be longer than one day.  The trader employing this In and Out strategy anticipates a profit within this short period of time and then exits the position. And by definition

In and Out Trading implies more frequent trading executions then more traditional buy and hold strategies.

I call In and Out Trading short term stock trading and I have been using this strategy for the better part of 25 years.  I hold trades two to three days and do not day trade.  Although conventional wisdom would have that in and out trading is risky I would argue quite to the contrary.  I believe that In and Out Trading reduces risk by limiting the time that a trader is exposed to adverse market action.

This article examines In and Out Trading and the relative effectiveness of long term vs. short term strategies for trading stock markets.  The article introduces an entirely original concept I call  “margin efficiency” to explain how relatively simple short term, in and out trading systems can realize high levels of profit while at the same time reducing risk.

I started trading in 1984 and like many novice traders I lost a few thousand dollars.  But in 1985 I started to get the hang of it and I managed to make a few HUNDRED dollars my second year of trading.  And by 1986 my bottom line was close to 6 figures.  I really never looked back after that.  I have traded accounts of about $3,000 and I have traded accounts in excess of $6,000,000.  And I have traded them all about the same way using short term trading strategies.

Curiously I found my success a little perplexing.  I was working in the public schools at the time and had no real academic background in finance, math, statistics or computer programming.  I used a simple break out system that got me in one day and out the next.  I did not day trade.  There are many published variations of this simple system and it clearly was not rocket science.  This trading style did not seem too risky and yet, for me, it was yielding annualized gains exceeding 100% year after year.  I was outperforming the best professionals with a system I developed using 5th grade math.  This kind of performance flew in the face of conventional thinking regarding performance and risk.

In and Out Trading and my Theory of Margin Efficiency

I gradually began to develop theories regarding market behavior and money management that might help explain why this simple short term breakout approach to trading did so well.

I am going to discuss in this article one of the most critical of those theories, my theory of margin efficiency.

To explain my theory of margin efficiency I am going to discuss a simple study I did using only one market over a 34 day period of time.  Studying just one market for only 34 days demonstrates nothing that is statistically significant; this study is for demonstration purposes only so you can understand what I am talking about.  In and of itself this study proves nothing and it is used here only to illustrate my theory of margin efficiency.

I tested two systems I shall call simply LONG TERM BREAK OUT SYSTEM and SHORT TERM BREAK OUT SYSTEM.  The single NASDAQ market I used was SEED, Origin Agritech Limited.  I tested the systems over a 34 trading day period, 11/24/09 to 01/12/10.  Using my money management strategy both systems bought and sold 80 shares for all trades.  This number of shares is calculated to limit the cash margin requirement to approximately $1,000 per trade.  During this time period SEED put in a range of about $6 to $14.50 per share.  I consider this to be a very volatile market and hence a very good market for my trading strategies.

These are some of the numbers coming out of this study:

Two systems:   1) Long Term break out system   2) Short Term break out system

Test from 11/24/09 to 1/12/10 (34 trading or “Study” days)

LONG TERM SYSTEM made one trade lasting 34 days: It bought 80 shares of SEED on 11/24/09 at 11.74 (cash margin requirement $939).  It sold 80 shares on 1/12/10 at 14.14

Net Profit $192 – $10 transaction costs = ACTUAL NET PROFIT = $182

SHORT TERM SYSTEM: Made 6 trades buying and selling 80 shares each time.

The 6 trades lasted two days each buying at an average price of 12.00 (average cash margin requirement $960), 3 win totaling $451. 3 losers totaling $259

Net Profit = $192 -$60 transaction costs = ACTUAL NET PROFIT = $132

Now this is my formula for calculating margin efficiency:

Margin efficiency (ME) = ((Study Days / Days in Market) * (Actual Net Profit/ cash margin)) * 100

That should read number of Study Days DIVIDED BY days the trade is in the market TIMES Actual Net Profit DIVIDED BY the required cash margin (price times number of shares) TIMES 100.

Now let’s plug in the numbers for each system:

LONG TERM SYSTEM:

ME = ((34/34) * ($182/$939)) * 100 = 19.38

SHORT TERM SYSTEM:

ME = ((34/12) * ($132/$960)) * 100 = 38.91

The ME for the SHORT TERM SYSTEM is twice what the ME is for the LONG TERM SYSTEM.  What does that mean?  IN THEORY it means that a portfolio of ME 39s should make twice as much money as a portfolio of ME 19s.

wp-content-uploads-2013-01-in-and-out-trading-2 In and Out Trading

In order to understand this better let us return to our study.  The LONG TERM SYSTEM makes $182 in 34 days but there are no unused days.  During those 34 days a trader can only trade ONE market using the allocated cash margin requirement.

The SHORT TERM SYSTEM, on the other hand, makes less, $132, but it is only in the market for 12 days.  That means that during the 34 study days there are 24 unused days and that means that other markets can use those blank days without increasing the margin requirement.

Now if we fill up those blank days with short term trades from other markets that means we can make a lot more money in the same amount of time with the SHORT TERM SYSTEM than we can with the LONG TERM SYSTEM without increasing our margin requirement.  How much more can we make?

If the LONG TERM SYSTEM makes $182 in 34 days it is making $5.36 per day.  If the SHORT TERM SYSTEM makes $132 in 12 days it is making $11.00 per day.

If we fill in the 22 blank days with markets that also make $11 per day we can add $242 (22 * 11) to our net profits of $132 to get total net profits for the SHORT TERM SYSTEM equal to $374.  Now we are comparing $374 in profits for the SHORT TERM SYSTEM against $182 for the LONG TERM SYSTEM.  This is of course a theoretical value because markets never fill in those blanks perfectly.

Another way to arrive at a theoretical value is to use the ME numbers we have already calculated.  If we divide the SHORT TERM SYSTEM ME of 38.91 by the LONG TERM SYSTEM ME of 19. 38 we get 2.01.  Now if we multiply our original SHORT TERM SYSTEM profits of $132 by 2.01 we get $265.

Now we have two theoretical numbers $265 and $374 for projected profits for the SHORT TERM SYSTEM over period of 34 days.  Reality probably falls somewhere in between because the reality is that the blanks will not be filled by markets that are as volatile and that are trading as well as SEED.

But regardless of volatility and performance how do we fill in the blank days with other market trades?  This starts to get into money management theory that is a little too long and complicated to cover in this one article.  However the simple answer is that I trade a lot of markets, currently 70 plus markets, to assure that all the blanks are filled.  And you now should understand of course that with a SHORT TERM SYSTEM I can trade many more markets with the same amount of money than I can with the LONG TERM SYSTEM and that by trading more markets I can reduce risk through market diversification.

This then, in the most simple of terms, explains in and out trading works.  A short term in and out approach to trading works because it is margin efficient.  My theory of margin efficiency explains in part why these simple, short term break out trading systems can produce such high yields with limited risk.

When deciding a strategy for trading the stock market you should carefully consider a short term trading approach, sometimes called “in and out trading” with high margin efficiency to assure you will be able to limit your risk while obtaining high returns on your investment.

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I am a trading system pro and have been trading markets and have been involved with trading system development and the programming of trading system software for 25 years. “Today Stock Market” is my opportunity to share with you some of my trading experience while discussing stock market news and giving my daily stock market update.

Manual Trading

Manual Trading

 

wp-content-uploads-2013-01-robertburan1 Manual Trading

Manual Trading is an Art Form

Manual-Trading-1-300x200 Manual TradingAutomated trading is all the rage right now (please see my article, Automated Trading from Home) but if you really want to become a super slick professional trader you may wish to consider manual trading.  Manual trading is an art form.

To learn manual trading you must first understand the subtleties of the orders you place

STOP LOSS vs STOP LIMIT, UNDERSTANDING THE DIFFERENCE

Understanding the difference between stop loss and stop limit is very critical to profitable trading.  Understanding how to choose the right kind of order can prevent trading losses due to either failure to get out of bad trades or failure to get into good trades.

Stop loss usually means an order placed to get out of a trade, but stops can also be used to enter trades.

FIRST OF ALL SOME QUICK DEFINITIONS:

A STOP LOSS ORDER is a resting order placed with your broker prior to the price being hit.

For example you may have bought 1000 shares of XYZ at 51.5.  In order to limit your loss to about $1,500 you place a stop loss order to sell 1000 XYZ at 50.00 stop.  That stop loss order is ALWAYS filled once the price of 50.00 is hit.

Once the price of 50.00 is hit the stop loss order becomes a market order. As a market order it is it is going to be filled at whatever price is available at the time. Sometimes it may be filled at 50.00, but most likely it will be filled at 49.99 or lower. This stop loss order will NEVER be filled at a price better than 50.00 and if it is filled better rest assured that your broker will find a way to pocket the extra money.

The difference between your stop loss price (50.0) and the price you actually get, say 49.97, is called SLIPPAGE. If you are filled at 49.97 on 1000 shares your slippage amounts to $30. If you are paying your broker $20 commissions this means that your TRANSACTION COSTS for this trade is $50 (commission + slippage).

Commissions and slippage can eat you alive and this is why I recommend using a broker charging no more than $3 per round turn trade.

And to complicate the matter there are many dishonest brokers who make their living pocketing your slippage. Many years ago I had a floor trader take 6 minutes to fill a stop order and this delay cost me thousands of dollars. Acting as my own lawyer I took the guy to court and won (Buran v Lerman). The guy had to pay me back everything, pay his own attorney and court costs and in the end the exchange banned him from trading for life. But I was lucky and won only because this floor trader’s actions were so egregious. Usually dishonest brokers just nickel and dime you to death and you can’t prove anything. But they will erode your profits seriously.

You should assume the markets are corrupt because they are and you should assume your broker is dishonest because he probably is.

STOP LIMIT ORDERS

So is a stop limit order the solution? Many novice traders think that a stop limit order is the solution to all these problems. A stop limit order differs from a stop loss order in that it forces the broker to fill the order at the limit price or not fill it at all. A limit order must be filled WITHOUT SLIPPAGE.

The problem is the last part of our definition: “or not fill it at all”. A limit order will not be filled if there is a lot of competition for that price at the time the price is hit OR the market does not pull back or back tick after the price is first hit.

I have been trading a long time and I will tell you that the great majority of stop limit orders WILL be filled BUT it is the order that you desperately need to have filled that will NOT be filled. Limit orders are practically useless, in my opinion, because there is no guarantee that they will be filled. I am a systems trader and I must have ALL my orders filled. If all my orders are not filled I have no system.

Also rest assured that the limit orders that are NOT filled will cost you the most money. They could even cost you your account. Don’t play with fire.

Limit orders do not work for entry and exit of system trades and for that reason I never use them.

SO WHAT IS A TRADER TO DO? If, on one hand, stop orders are almost always filled with expensive slippage costs attached and, on the other hand, important limit orders are oftentimes not filled.

MANUAL TRADING AND THE MANUAL EXECUTION OF ORDERS

If you want to go with full automation ( see my article Automated Trading from Home) you are just going to have to accept a small amount of slippage for every Manual-Trading-2 Manual Tradingtrade.
But if you like to sit in front of the computers as I do watching markets and writing and reading, you may want to try something else. The solution that I have worked out over years of trial and error is something I call MANUAL TRADING or MANUAL ORDER EXECUTION. I still use a computer online order placement system to do this manual order execution. But I call it manual trading because I DO NOT place resting orders with my broker that allow him to play around with my orders and to execute those orders to HIS advantage.

Instead I make the trading decisions myself and execute all orders as market orders when my computer beeps me “market position has changed” (Please see Automated Trading Software). Using my trading platform my computer has no problems following my 70 markets simultaneously. The computer is still doing the thinking for me.

Although this requires me to be in front of my computers at all times when the markets are open, it is time well spent and when I have been trading millions of dollars it has saved me conservatively 100s of thousands of dollars.
I also get a lot of other work done in front of my computers and right now I am writing this article and posting on Stock Twits while I am monitoring my stock positions for today. Believe me I am working and making money while I sit here. This is not time wasted.

This is why manual trading can save you a lot of money if you can learn to be a sophisticated trader and NEVER skip trades. Normal price behavior follows a pretty predictable pattern. It goes up and then pulls back and then goes up again and then pulls back again. With no experience at all you will find that by placing market orders immediately after your buy price is hit that you will start getting some trades with positive slippage. When I say positive slippage I mean that you are getting a better price than your system price.

But when you place resting orders with your broker you will NEVER get better price than your system price.

NEGATIVE SLIPPAGE

But also be aware that just as you can sometimes gets positive slippage doing manual order execution there will be times you will get NEGATIVE SLIPPAGE as well.

Through practice you will learn when it is time to jump on a trade immediately and accept whatever price at the market you can get even if you must accept negative slippage.

A Scary Story about Manual Trading

I remember one experience I had that still makes me sweat a little thinking about. I was managing an account just under seven million dollars. A report came out that I was not expecting and prices exploded to the upside and I suddenly had to get into over 60 markets. I tried to stay calm and move my fingers as fast as I could, but it took me nearly 40 minutes to get 60 market orders in and filled.

But what happened in those 40 minutes was interesting. For the first 10 minutes all the markets made their highs in the sky caused by filling all the resting stop orders that were in all those markets. But then for the next 30 minutes the prices came back as some profit taking, perhaps by day traders, came into the markets.

Manual-Trading-3 Manual TradingThen the buying came back in and almost all the markets made new highs before the close.

This resulted in my market orders for the first 10 minutes being filled poorly but the market orders for the next 30 minutes being filled at much better prices. Rest assured that if I had placed stop orders I would have been filled right at the top of the initial spikes and if I had placed limit orders I would not have been filled at all.

After the market was closed I put everything into a spread sheet and discovered that I had suffered $200,000 in negative slippage! That was the bad news. But the good news was that I had still captured about 70% of the move and that I had netted $600,000 in profits.

Not bad for a days work.

The Advantages of Manual Trading

But the point I would like to make here is that if you place resting orders with your broker you will never be filled at prices better than what your order specifies and most of the time you will be filled worse. However, if you manually execute your orders your fills will be a mixture of positive and negative slippage and, with a little practice, the two will tend to cancel each other out.

If you get really good at this you can all but eliminate transaction costs and keep all that money that your broker used to get.

So forget about stop loss orders and stop limit orders. When using those orders you are inadvertently making huge contributions to the corrupt brokerage industry.

Alternatively I would suggest that it would be well worth your time to learn manual order execution. If you really want to become a professional trader and make your living trading the stock market profitably you need to learn to sit in front of the computers and learn how to place orders manually. Learning manual trading should become the ultimate refinement of your professional trading skills.

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I am a trading system pro and have been trading markets and have been involved with trading system development and the programming of trading system software for 25 years. “Today Stock Market” is my opportunity to share with you some of my trading experience while discussing stock market news and giving my daily stock market update.

Finding Hot Stocks

Finding Hot Stocks

 wp-content-uploads-2013-01-robertburan1 Finding Hot Stocks

Finding Hot Stocks to Build a Hot Stock Trading Portfolio

You need a good trading system, but that is only half the battle; you also need a good stock trading portfolio and be skilled at finding hot stocks.

Finding-Hot-Stocks-1 Finding Hot Stocks

 

I do not like day trading stocks.  But I am short term stock trader and I DO like in and   out trading (see In and Out

Trading).  I like to get into positions when they are moving and then get out in two or three days.  And if you are going in and out in 2 to three days you need stocks that are really moving.  This is a highly effective way to trade and combines safety with very high yields.

Finding-Hot-Stocks-2 Finding Hot StocksBut to do this I use a very unconventional style of trading.  I set up a very large group of markets, currently about 70.  If I am not trading a huge amount of money I limit my commitment to each market to about $1,000 ($500 traded on margin) and then take mechanical trading signals from a trading system that I  have programmed.  I use a custom trading platform that interfaces with live streaming data from E-signal or I use TradeStation 9.  All my systems are fully compatible with both.
If using TS 9 I can automate the process but sometimes I like to do it the old fashioned way and enter all trades manually while I sit in front of a computer for six and a half hours per trading day.  I typically take 5 to 15 trades a day.
My methods are highly margin efficient, that is we only get into markets when they are moving and then we get out in a day or two.  For that reason my methods do not tie up our money in dead markets (see In and Out Trading).
For this reason we I am able to trade 70 markets comfortably with only $12,000 to $15,000 traded on margin and I have customers trading 15 markets with as little as $3,000.
I work very hard doing what I do but I anticipate annual returns in excess of 50%.  In spite of the high yields I am risk aversive and seldom see individual losses in excess of $100 when trading $1,000 per trade.  I post all these real time trades daily on my web site on the home page and post a daily video and market wrap up and commentary.
I do sell my mechanical program and the software to interface it with live E-signal data.  You can also use the same systems with TradeStation 9.  (see Automated Trading From Home)

Identify Volatile Stock Markets

Finding-Hot-Stocks-5 Finding Hot Stocks

But because I take so many trades and am only in trades for two or three days my methods will not work in dead markets.  My methods require that I identify volatile stock markets.  And to identify volatile stock markets I must be skilled at finding hot stocks.
Identifying hot stocks can be a little tricky.  At one time I used a simple form of back testing to do this.  I would grab a market, get a couple months of tick data for that market and then apply our trading system and look at the results.  If the results looked good I would put the market into my portfolio and if the results looked bad I would discard the market.
The results of this method could be disappointing.  A market that had made good money for 8 weeks might produce a string of two or three losing trades just as I was putting real money on it and the market that I had discarded might start making money.
What I soon realized was that this approach was really a form of optimization that was in effect trying to predict future trading system performance by trying to fit a system to a given set of data.  It was a form of  curve fitting and curve fitting is the worst thing you can do to identify profitable trading.  This simply was not a good approach.
But what I realized when working with market data was that the critical factors for identifying profitable markets was volatility and follow through.
I then investigated some commercial software that allowed the user to scan large numbers of markets and enter certain criteria to identify markets that met that certain criteria.  I did find this commercial software helpful for identifying volatile markets but the results were nevertheless not as satisfactory as I had hoped for.

The Problem With Using Daily Range to ID Volatile Stock Markets

Finding-Hot-Stocks-3 Finding Hot Stocks

The problem was that most commercial software uses daily range over a period of time to determine volatility.  The problem was that sometimes that range took place in a single day or two and the rest of the time the market was dead.
This is an example of a market with a lot of volatility for two days but was nevertheless a waste of time to trade the rest of the time.  On 12/16/09 there was some breaking news on DCGN, deCode Genetics, and the market exploded and put in a range from 6 cents to over 30 cents, quadrupling its value in a single day.  That is volatility!

One day this market was at the top of the list for market gainers but on the next day it was on top of the list for market losers.  As I write this on 1/10/10 the market is back to where it started before the news and it is as flat as a pancake.  But if you run a volatility scan on all stocks for December 2009 DCGN will probably top the list.  And yet it was but a one day wonder and outside that one day it would be pointless to keep it in  a trading  portfolio.

The Solution to the Problem of Finding Hot Stocks

Finding-Hot-Stocks-6 Finding Hot Stocks

After some experimentation I hit on a solution to this problem which I will share here.  What I did was to develop a program that could scan a stream of data and identify the characteristics that typically work well with our trading methods.
The markets that worked best with our trading methodology, the true hot stocks, were markets that had repeated expanding, volatile break outs with follow through for a day or two.   After an expansion of range the market might contract for a few days but this contraction might then be followed by another expansion and then some more follow through.
In order to develop a tool for finding volatile markets I programmed a dummy day trading system.  I do not day trade and I am NOT recommending this system for actual trading.  But to identify good break out markets for us I set up the following simple rules for the dummy day trading system:
1)      This stock trading system uses my proprietary programming method for the determining number of contracts traded and limits the size of my positions to approximately $1,000 per position taken.  I do this to allow me to trade a large number of markets, currently about 70, and thereby protect my trading equity through diversification.  Hence I will buy 1000 shares of a stock selling at 98 cents per share but only 100 shares of a stock selling at $10.02 per share.  You can see better how this works by examining my posts of real time trading on the Home Page.  I show the markets, how many shares I buy, and the buy prices as the trades unfold in real time.
2)      After the close on a given day the dummy trading system determines the range for that day.  It then calculates 25% of that range and adds that value to the close to determine a buy point for the next day.  Hence virtually any kind of significant upside move the following day will result in the dummy system buying the market.  Typically the dummy system will get a buy signal about every other day and show around ten trades for every 20 trading days or so.
3)      A day of entry stop is immediately entered when a position is taken.  Using 15 minute bar data this stop will exit a market if it retraces its move more than 75% from the last intraday high.  This stop is rarely hit.
4)      All positions are closed out on the close of the trading day.
I call this screening device the Breakout Scan and it is included in my trading package (see trading software) and will run on either my trading platform or TradeStation 9.

Testing this Dummy Day Trading System

Using our formula to limit our trade commitment to about $1,000 per trade this is partial results from a good market, BIOF, which was tested on Intra-day data for eight weeks from 11/09/2009 through 1/08/10:

 

BIOF  BioFuel Energy Corp. (NASDAQ) 15 min bars 11/09/09 – 1/08/10
Total Net Profit = $552
Number Trades = 17
Wins = 10 (59%)
Average profit per trade (wins and losses) = $32.49

 

This is partial results from a bad market, ARBA, which was also tested on Intra-day data for eight weeks from 11/09/2009 through 1/08/10:

 

ARBA  Ariba, Inc. (Public, NASDAQ) 15 min bars 11/09/09 – 1/08/10

Total Net Profit = $44

Number Trades = 19

Wins = 12 (63%)

Average profit per trade (wins and losses) = $2.32

When you look at the three month charts of both these markets you may be inclined to believe that both markets are volatile and would be good markets to trade.  Using conventional methods of determining volatility will probably show that both markets are indeed volatile.  But when I apply the BREAKOUT SCAN to the 15 minute charts the difference between these markets becomes apparent.

 

The bottom line is that BIOF is a great market for my methods, but I am wasting my  time and money with ARBA.  ARBA trades well with my methods in so far as I get a good percentage of winners, my winners are larger than my losers and there are no big losers in the lot.  But the problem is that ARBA is simply not volatile enough to overcome my transaction costs when trading my relatively small positions.  For this reason I must reject this market.

 

As a rule of thumb when I scan markets with my Breakout Scanner, using $1,000 per trade, I like to see the average trade (win loss) over $10.  If the average trade is less than $10 I reject the market for use in my portfolio.
I have found that this method for finding hot stocks to be far superior to other methods, commercial or otherwise.  Time and time again I have found that markets that show an average trade greater than $10 on the Breakout Scanner will show handsome real time profits with my short term stock trading systems and strategies and for my in and out trading style this is the best method for finding hot stocks.

share-buttons-share-medium Finding Hot Stocks

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I am a trading system pro and have been trading markets and have been involved with trading system development and the programming of trading system software for 25 years. “Today Stock Market” is my opportunity to share with you some of my trading experience while discussing stock market news and giving my daily stock market update.