Jan 12, 2012

The Moneyball of Trading is Here

Written by Katie Gomez

Use number crunching to put the “Win” in Swing Trading.  

The market moves faster than and beyond your eyes. Patterns that appeal to you on a chart visually are more often than not misleading.

Set-ups seen at trade shows or on websites are sales tricks. There is no simple and easy.

Most traders have neither the tools or the time to take an identified pattern, test it against the market multiple times, and determine any sort of consistent record of performance when the aforementioned scenario takes place.

If traders could do so, they would see most patterns and the way to trade them perform like a coin flip. Sometimes it works and sometimes it does not.  

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.

The OddsMaker by Trade Ideas slices through the enormous data generated by the market every day.  After more than 4 years of analysis and continual improvement, here’s one fact results prove over and over: market windows of opportunity open and close. If someone is telling you they have a system that has been working for 10 years . . . run.

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

The results:

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.

If you have any questions about the strategy, please email us or post a comment. If you’re not yet a subscriber and would like to try out a demo of Trade-Ideas Pro, please sign up for a free trial.