Trade Ideas Blog
The Moneyball of Trading is Here
Jan 12, 2012
Use number crunching to put the “Win” in Swing Trading.
Obviously a coin flip is not a good trading strategy.
I argue that a successful trader from now on must clean house and throw out tools and approaches that offer only diminishing returns:
- Visual, from-the-gut trading of 1 stock’s chart pattern
- The race for lowest latency and scalping for profits
- Client based technology and limited database capacity
Trading demands better number crunching against the avalanche of data generated by the markets.
Call it the Moneyball of Trading. And enter The OddsMaker.
A trader who lets go of the ‘1 Holy Grail’ approach to unlocking the markets’ “secrets” comes better prepared to hunt for opportunities.
Below is a system we designed performing well over the last 30 days. Imagine crunching the market data for every stock generated over this period. From that pile we identify a pattern and a set of trading rules that performed with a high success rate. Call it the “strategy of the week.” It looks for stocks oversold: making a 30 day low, are down 4 days in a row, and are trading on unusually high volume today.
Oversold 30 Day Low, Down 4 Days
The trading instructions are set to go long when the alert takes place and to hold the trade for 5 days exiting at the open on the 5th day.
|Fig. 1: OddsMaker settings|
|Fig. 2: OddsMaker results|
What do these results tell us?
What looks like a break in support is actually a buying opportunity.
The trading rules above stipulated that the minimum dollar amount to be defined as a winning trade was 20 cents. This requirement and the underlying strategy generated a 60% success rate, a 2 to 1 ratio of winner size to loser size, and over 90 points extracted out of the market in the last 30 days – a good starting point.
These are tools and approaches that stand a chance against the kind of market many trading veterans describe as the most frustrating ever. Time to put on the field technology that can crunch Big Data and time the market’s windows of opportunity.