Crossing the Median--130% per year
A Trading System That's Easy, Simple, Profitable
with Automatic Risk Control
April 3, 2009--October 30, 2009
100 Stocks--3 Portfolios--Internet Set Porfolio
Weekly--Hypothetical
See Comments below
THIS IS EASY
Entry is clearcut and definitive. When the stock's ranking crosses the median going up, you buy. When it crosses median going down, you sell short.
In this example RealNetworks ranking crossed upward though the median on September 4. The stock is bought. On October 16, its ranking hits top--can't go any higher--good time to sell. This will be one of two simple exit rules, as we shall see. The profit is 30.2% on the trade. The holding time was six weeks. The table below will show the details of this trade and those of other stocks in this study.
The open blue bar links the price and rank on the purchase date. The open red bar does the same on the exit date.
The ranking of a stock is the measure of how 'strongly' its price is behaving compared with those of all the other stocks in the same portfolio. The median ranking is the exact middle of the count of all the stocks in a portfolio. In this case, the Internet Set portfolio has 36 stocks in it, as do the other two portfolios in the group. 18.5 is the exact midpoint of 36, with 18 stocks above and 18 below.
Why did I pick Internet Set? Because it is the most volatile of the three portfolios, with its components having the biggest price moves relative to the other two. If we are seeking profits, we want the biggest movers, depending on our confidence in the system we are using.
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TABLE OF RESULTS
Selected Internet Stocks
Crossing Median to Enter and Two Rules to Exit
Preliminary System Test
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|
date |
|
price |
|
|
days |
%P/L |
|
|
|
entry |
exit |
entry |
exit |
%P/L |
held |
annlzd |
|
Amazon |
AMZN |
B |
9-Oct |
30-Oct |
95.71 |
118.81 |
24.1 |
21 |
419 |
|
Digital River |
DRIV |
S |
17-Jul |
16-Oct |
38.61 |
24.79 |
35.8 |
91 |
144 |
|
Monster WrldWd |
MWW |
B |
7-Aug |
9-Oct |
15.07 |
18.23 |
21.0 |
63 |
121 |
|
Realnetworks |
RNWK |
B |
4-Sep |
16-Oct |
3.25 |
4.23 |
30.2 |
42 |
262 |
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Salesforce.com |
CRM |
B |
31-Jul |
18-Sep |
43.34 |
58.17 |
34.2 |
49 |
255 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average |
29.1 |
53 |
240 |
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|
|
|
|
|
target |
20.0 |
53 |
137 |
Notes
Opportunities occur every 3 or 4 weeks
B=buy S=sell short All dates are 2009
Exit when rank reaches limit (1 or 36)
or price and ranking diverge.
Next charts show
examples.
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What is delicious about these results is the ratio of the profits to the time consumed to obtain them.
Annualized, it took eight weeks to bank 240% in profits.
The exit rule in the chart above is that the ranking hit the top, sell. Could the stock not go higher? Of course, and often does. But what you have done here is to capture a large profit in a short time whereas the ensuing period may enter into a volatile trading range or decline. Capital is set free for the next dynamic trade.
Next examples
Salesforce.com
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Monster Worldwide
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Digital River
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Amazon
RealNetworks
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