I've recently been looking at US stocks and the potential to trade short term systems there is amazing due to the wide range of stocks and their liquidity.
The system that I've come up with is similar to the system described here a few months ago that traded ASX stocks through CFDs. Both systems are based on mean reversion and never hold overnight. But while the ASX system shorted overbought stocks and bought oversold stocks, with several days lookback and magnitude moves considered in the entry criteria, this US system just fades opening gaps and trades long only.
I have found gap fading (particularly going long gap downs) to be a robust edge that has worked well over many different universes of stocks. The idea came from James Altucher's book and also from this trader describing fading extremes as one of his favourite setups.
There are no CFDs in the US but my broker does allow 4:1 leverage intraday if required. The universe of stocks consists of 50 tickers from either the Nasdaq 100 or S&P 100, so I'm looking for liquidity and scalability in the system.
The system makes about 30-100 trades a month and performance is consistent with profitability on average 10 months of the year. 2008 was a tough year, but out of 10,000 portfolios, monte carlo testing shows that 98.59% were profitable last year, with the median portfolio gaining about 10%.
So the previous STMR system will not be traded; and this new one will take its place. I intend to use IB's PaperTrader to simulate it for about a year before committing real dollars to it.
Performance stats below are from 01-01-2003 until 31-12-2008. Position sizing is 10% of equity. Commissions are included (however, slippage, is not accounted for).
2 comments:
Slippage will eat you alive, IMHO.
Way too much work, W/L ratio too thin. % winners will go back to 50% and with slippage you will make nothing.
I have traded these type of systems and you should stick to your long term ASX systems and try to improve them. US markets are way too 'mature' for this type of system to work.
Plan_trader
Hi Plan_trader,
I appreciate your comments, thanks for stopping by.
Slippage has been a concern for me also. Note that all the tickers in this universe have over $50million per day turnover so that it something that should work in my favour.
The great thing about short term systems is that I will find out very quickly if it is working or not (after 3-4 months).
In terms of sticking to my ASX long term trend following system, yes, that system is here to stay. Why? So it can benefit from the power of compounding.
"Start young, Think big, and Stick to it"
Nizar.
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