Current Method
Modified August, 2008
Much More Simple Than the Above
Developing FastBreak stock trading systems on a general list of stocks (e. g.
large cap, small cap indices) is dangerous, as can be seem from some examples.
Instead, select
from a list of stocks with allegedly good fundamentals
CNBC
has a list of top-rated
stocks.
Zacks
also has a Number
One list, as well as a Focus
List - but these are subscription pages.
AAII has lists - also
for a price.
Coolcat publishes a list of his
current picks - also
for a price.
Kirk has a weekly stock screen machine
- also
for a price.
Forbes
Magazine has a list of the 200 best small cap companies - they may have other
lists also.
From Sid Kaiser: In my case I have various flavors of the list with C8080 being one of the
better choices. C means $8 min, 2m liq. 8080 means in the top 20% over
the last year for RS and earnings growth rate. He uses Quotes
Plus to do the search.
Construct a list of leading companies in all of the major sectors. A source
for these may be the Rydex Sector Funds holdings, or the Fidelity Select top
holdings in all of the sectors.
Develop a FastBreak System to trade these stocks - here are suggested parameters,
developed from many long FastBreak Pro runs. This will speed up the optimization
process in FastBreak
I previously believed that
the best systems were developed by Most
Anchored Momentum - (Buy in the range of MAM (4-10,4), Sell in the range of MAM
(30-40,4) The buy parameters will pick what is hopefully the beginning
of the trend, and the sell parameters will tell you when the momentum leaves
the stock. When the market is choppy, the higher end of the buy parameters
and the lower end of the sell parameters seem to work best. When the market
is strong, the lower end of the buy parameters and the higher end of the sell
parameters seem to work best.) However at this time, I have come to believe
that the most profitable systems use Short EMA/Long EMA. The Most Anchored
Momentum systems are profitable and stable, but may not be as profitable as
the EMA systems. In any case, you can always use FastBreak Pro to look
at both types of systems.
Stops
at EMA(34) or EMA (28), or use EMA crossovers
Flow
Control at EMA(28) or EMA(15)
Hold
10 out of the top 15-30
Hold for 5-20 days unless stopped out
Optimize the 10 stock system to limit trades to 120 switches/year
Use FastBreak Pro to optimize the system in the following way: let the
in-sample optimization be over the most recent 6-9 months, and the out-of-sample
optimization be over the last 2 years. If you have FastBreak Pro you should
consider different kinds of stops and let FastBreak pick which is best.
The genetic algorithm in FastBreak Pro picks parameters at random and develops
systems. The more successful systems are allowed to breed with each other;
the less successful systems are sterilized.
Use
of common sense in trading the system:
Avoid
very thinly traded stocks.
Avoid
buying a stock that is very extended.
Check the news before buying - did the CFO just leave for an extended vacation
to the Cayman Islands?
Did the stock just move up because of a buy-out? Then all the gain may
already be in the stock.
Possible
money management rule: Keep about 30% of your account in leveraged index
ProFunds (or Rydex). This part can be used as a hedge immediately, in
the case of a market drop.
These stock trading systems do not always correlate to any of the major market
indices. If you hedge, you need to do it by looking at the equity curve
that the system is producing.
These systems are more volatile than the indices.
Nothing is guaranteed to work all of the time.