profitunity?

[gremtp]

Hi MTP stock traders.
I have used MTP (EOD, RT) for quite some time. I use futures and forex. I have never liked stocks. However I am always looking at ways to diversifying my trading portfolio and I was thinking whether there was any reason for me to consider stocks.
I recall that a sort of test conducted by Matt more than one year ago, then discarded, on a sample of only US shares did not show amazing results (apologies if I am wrong). I have also noticed in the forum that some users have been struggling with stocks this year and some suggested to use only MTP trades that happen at the Typical (not minimum) WPT. Indian stock trading seem to be going rather well, though.
But….. simple, stupid thought: if the MTP concept is reasonably good, as we believe it is, and if one scans for a huge number of instruments and takes exclusively pure, extremely good looking, perfect out of the book (or rather Steve’s manual) MTP trades, and manages them according to the MTP guidelines, etc. … you see where I am getting ….big numbers should be on our side here.
The only way to achieve huge numbers is by using shares. If one scans a vast number of shares (say US, most of Europe, Japan, Australia and some more, plus all the ETFs, etc.) there should be a sufficient number of “perfect” trades to start the money machine rolling……or not?
Has anyone tried it? Where is the catch?. Where is the flaw in this thought (slippage, commission, capital, other)?
As I said, I am not an expert in stock trading, so I would appreciate any comment from stock traders.
Thanks

[Steve Griffiths]

A good question, but not quite correct.

The reason being is that each stock is not totally independent, they will generally (mostly) follow the Indices, so although you are following 1,000 different stocks, they will "generally" move the same. In other words, they are "correlated".

This is why I suggest following Futures and FOREX as well as stocks, so when the "overall market" is hard (like it has been for the last month or so), there are are other good markets to profit from, for example Beans and Oil recently

I hope this helps ?

Steve

[Matt Bowen]

Profitunity... for a minute there I thought I was going to read something on Bill Williams, but I guess not... oh'well.

Stocks... I like stocks, they just take a heck of lot more capital to trade and that why most people don't so well with them... they don't offer any leverage for the small player. But, if you have a large account, they are great.

My thoughts on stocks are pretty simple. Stock in general have an upward bias (see the monthly first chart below going back to 1970). For the short seller, that's a real uphill battle. Take a look at the weekly chart, if you are trying to short stocks as an investor you are getting your ass handed to you... this is why listening to all these "SEERS" out there who think they know everything are just a bunch of talking heads.

So if Stocks have an upward bias, think about it, doesn't it make sense to be an investor rather than a trader? This is how Buffett built his "Billions" by sitting, not jumping in and out. Commodities are totally different, they have a limited life span, the average contract is 15 months and only actively traded for 3 months... (this is why you have to trade them...especially when you are dealing with a leveraged product). For the small trader without leverage, it makes no sense to trade stocks...unless of course you do not need the leverage or you are an investor. Heck, if you want to invest in stocks, you can start with $500. (just don't trade them or you will soon find yourself doing a lot of work for very little reward and I think this is the problem with many people on this forum who are trying to trade stocks with less than 100k).

And I should remind people this has nothing to do with MTPredictor, I does not matter what system you are trading. Think about it, if you have 100k and you risk 1% how much stock are you going to be trading? Not much and this where traders go wrong because they put 10% or more at risk so they can get some "bang for their buck". So, what hwppens? well, they get the "bang" alright and over the head in the form of a drawdown.

I recall that a sort of test conducted by Matt more than one year ago, then discarded, on a sample of only US shares did not show amazing results (apologies if I am wrong).

Here was the most recent one:

http://www.mtpredictor.com/pricing/EODRecord.html

First off, I think the stock results are pretty good. I mean, on 1 year of trading the S&P 500 stocks, this is not bad.

Second, if I know I can outperform these results using a leveraged product like Futures... why wouldn't I trade Futures over Stocks? Here are 8 months of commodity setups on the link below which shows an obvious difference between the two:

http://www.mtptrader.com/MTP5-12.pdf

See, for most people, they don't understand leverage, that's why they hate commodities...they don't understand them. I mean, all of us dislike things we don't understand, so it's only natural they just write-off or choose not to look at them...you can't blame them...they need to educate themselves if they want better returns on their trading: http://www.mtptrader.com/showthread.php?t=996

[Larry22]

I agree with you Matt, I traded Canadian stocks for more then a year and even if I was making money ($10,000 with a $50,000 margin portfolio).

I realised one thing.

The levereage of the commodities (indexes)was much more and I was able to risk less in going RT, because of intraday analyzis with MTP TS'S and DP'S, plus some of my own (wave counts) to increase my chances.

All I have to say is that I am very happy with all the tools I have. This permits me to take a more convenient and calculated risk on when to take a trade. ;)

[d-day]

If one scans a vast number of shares (say US, most of Europe, Japan, Australia and some more, plus all the ETFs, etc.) there should be a sufficient number of “perfect” trades to start the money machine rolling……or not?


Who would have the time to look at all those charts? I use MTP EOD for commodities, and I use MTP real-time for FOREX and real-time daytrading of stock index futures.

I do not use MTP for stocks. For stocks, I keep a cumulative 10 week trailing list of IBD 100 stocks entered in TC 2007 (currently 167 stocks). That is more than enough. I buy calls after pullbacks. I sell half the calls once the previous swing high is met, and then I use a trailing stop for the other half.
Why make life difficult by trying to screen every stock on every exchange in the world?

I'm not saying that MTP cannot be used for trading stocks, but when you can buy a weekly list of the 100 strongest trending stocks at that moment for a few dollars, why look any further than that? Learn to read charts, pick an overbought/oversold oscillator and train your eyes to read that, and have at it. And if you do use options, either be ready, willing, and able to close them for a quick loss if the stock makes a new low, or only invest an amount that you are willing to see go to zero. For example, on 9/17 CRNT came up on my scan as being oversold and ready to resume its uptrend. The October 15 calls could be had that day for 45 pennies ($45.00/contract). If you're trading a 20K account and risking 2%, then you could do 8 contracts for a total risk of $360.00. If you were willing to place a 50% stop loss in the market you could have doubled that position size. If you are simply going to risk the whole premium, then size it accordingly. I take half off once the stock meets or exceeds its prvious swing high, and then I trail the other half.

By the way, on 10/2 CRNT hit 21.89 and you could have closed those 15 calls for nearly $700 each. Not bad pay for twenty minutes worth of chart reading each night. How many minutes/night would it take to review each and every chart that MTP idetified as having a potenital set-up?

[Sejake]

I've also been trading stocks off and on (Canadian TSX mostly) using MTP EOD. Just recently (last two weeks) switched to trading CFD's so I can trade the same TSX or US or Asia or whatever stocks, leveraged with no uptick rule etc. This also gives me access to commodities and indicies as well.
Seems to be the best of both worlds....for the moment anways....:)

Not a recommendation of anykind...just another option for some...

[gremtp]

Thanks Steve and Matt, and all others for your replies.
Hmmmm, now I remember why I do not post too much on forum(s). I obviously cannot express myself the way I intend to.
1) Perhaps it was not clear form my message, but if I am potentially looking into stocks it is exactly because I would like to further diversify, i.e. add to my futures (commodities, indexes and currencies) and FX trading. I was just wondering whether there is “safety” or rather “profit” in numbers, with a simple and easy to implement methodology that does not require spending too much time and brainpower (both in scarse supply) I have never said that it was without a doubt a great thing to do. Just asking, guys:eek:
2) Also, Matt please rest assured that you do not have to convince me about the superiority of leverage products. Actually, my search on this topic has started also because there is a large amount of shares available for trading through CFDs, a decently leveraged instrument, here in UK. This clarified, I agree with you on the rest. Even so, what is the boundary between trading and investing? If I use a weekly chart of a stock to get a good entry am I still a trader? Well this is quite academic, but I see your point.
BTW: Thank you for the link to your SP500 shares test. It looks rather good, I remembered it wrong.:D
3) As for Steve’s first point, I do not know, Steve. I am not convinced. Whilst I do agree with the correlation principle, I do not see how this can make the general idea incorrect. If anything, it proves that it would be probably better to filter out the trades according to the general trend of the benchmark.
But even that could be an oversimplification. Not all shares are correlated. They may be if you look at the period from 1920 to now, I agree, but I think one has to draw the line of correlation a bit more precisely.
One could filter for shares that have a positive correlation to a benchmark and shares that have a negative correlation. If benchmark market goes up and one has signal to go long shares A, B, C and D, positively correlated with the benchmark, one can take them all or just one of these, if they prove to be correlated under some other parameter. In addition, he can chose to take short signals on shares negatively correlated with the benchmark.
Take today’s PGR, for instance: is there any reason apart from the fact that S&P has been on an uptrend, not to take this signal? (sorry, I have the chart on another PC). XL is in a similar situation. They both belong to the same sector and industry, if I am not mistaken and it is underperforming the general SP. So maybe in this case we can more properly talk of correlation and chose only one of them.
Then there is the further question of what is a right benchmark: index, sector, industry, country, ETFs? And what are the correlations among these benchmarks? Then there are special circumstances, where news or further analysis point out to a special case for stock ABC or XYZ.
So maybe, by using many shares belonging to different countries and sectors and sub-sectors, etc. we could multiply the chances of finding set-ups and perhaps minimise the possibility that all the set-ups concern highly correlated shares?
4) The problem is that the more one has to analyse, the less feasible this exercise becomes, as there would be no time to do anything else. Hence the importance of sticking as close as possible to the KISS principle. So I was wondering whether it was at all possible
5) On this note, David, thank you for your input, but I have never meant that I want to check 10,000 charts. I can scan a large amount of shares in few minutes. I have just made a kind of mock test, scanning the SP500 shares for two weeks for the perfect set-ups with MTP EOD. I got 8 eligible signals. 7 shorts and 1 long . If I filter by those going same direction as the trend (long) I have had 1 set up (+2R at the moment). It did not take me too much. Sure, if one has to do much more analysis and/or trade options, it would take more time and the whole idea would not make sense.

I hope it is clearer now……maybe

[rrs]

.... I was just wondering whether there is “safety” or rather “profit” in numbers, with a simple and easy to implement methodology that does not require spending too much time and brainpower (both in scarse supply) I have never said that it was without a doubt a great thing to do.

...... I have just made a kind of mock test, scanning the SP500 shares for two weeks for the perfect set-ups with MTP EOD. I got 8 eligible signals. 7 shorts and 1 long . If I filter by those going same direction as the trend (long) I have had 1 set up (+2R at the moment). It did not take me too much. Sure, if one has to do much more analysis and/or trade options, it would take more time and the whole idea would not make sense.



Hi,

The two key questions you raise in your message are:

1) Using MTP, is it possible to profitably trade stocks in a time efficient manner by implementing a simple methodology?

2) Are there enough good MTP stock trade setups available at the end of every trading day that allow the efficient use of available trading equity?

Let me share with you my recent experience in this area .

The availability of MTP add-on for NinjaTrader (NT) and the capability to scan for DP trades that is built into this version allowed me to test the idea / assumption that an MTP stock trader will have more than enough number of trade setups on a daily basis to trade profitably and employ the capital in a efficient manner and this goal can be achieved by following a simple daily routine. My assumption was based on the fact that the addition of DP trade setups to the group of traditional MTP trade setups (TS1 to TS4) would substantially change the playing field for the MTP stock trader. So, I setup a paper trading portfolio that incorporated the risk management and position sizing parameters that I use in real money stock trading. The NT-MTP software was also set up to reflect these risk and position sizing parameters.

Here is a summary of other setup factors:

Testing Period: From 08/18/2007 To 09/18/2007

Type of MTP trade setup studied: Auto DP Trade setup

Commission: included in the analysis

Dividend and slippage: Not included in the analysis.

Stock Universe: Dow 30, Nasdaq 100, and S&P 500

Software: MTP add-on for NinjaTrader

Hardware: IBM NetVista Desktop with Pentium 4 & 2Gigabytes of RAM

Operating System: Windows 2000 Professional with SP4

Data Source: eSignal

Average time spent per day on scanning the stock universe: 21 min

Average time spent per day on reading the charts of Auto DP Trade setup: 15 min

Average number of new DP Trade setups (with colored reversal bars) per trading day: 2 to 3 per trading day

In addition to offering support to my idea / assumption about the positive impact of DP trades on MTP stock trader, the results from this limited experiment appears to suggest that the answers to both your questions are an encouraging Yes. The results are summarised in the report generated by Market System Analyzer software. Please see the attached charts and the pdf file for details. I hope you find them useful.

I have just started (from October 1) to collect the trade statistics generated by executing these trade setups in a real money portfolio. At the end of three months, I intend to analyse the results and learn from them.

Sincerely,

Rama.

[gremtp]

Hi Rama
Thank you so much for your reply. I was starting thinking that nobody was interested in this…
Yes , my main questions were basically those. Some comments:
First of all, let me see if I get it right.
1) you’ve used just DPs for your test, or DPs and TSs? It looks like it is the former, but if the latter, how did DP (out)performed the TSs?
2) You have taken the signals as they came form the scan: filters on or off? no added analysis (trend, correlation, etc.)?.

As for data, I use Tradestation data into MTP EOD for stocks scans, in my test.
EOD scans do not show DP yet, so it will take more to check all the DPs in radar screen, but I think it would still be manageable.
I also use NT, but I find it ….well…unreliable? Plus, I would not like to double my data fee to get data from eSignal.
TS only has US data, basically, so no other region will be usable. However, using the stocks in those US indices only would be quite good, as virtually all of them are available in spread betting or CFD form here in UK, so I could use a leveraged product.
Thank you again for sharing this awesome piece of analysis

[rrs]

Hi Rama
Thank you so much for your reply. I was starting thinking that nobody was interested in this…
Yes , my main questions were basically those. Some comments:
First of all, let me see if I get it right.
1) you’ve used just DPs for your test, or DPs and TSs? It looks like it is the former, but if the latter, how did DP (out)performed the TSs?
2) You have taken the signals as they came form the scan: filters on or off? no added analysis (trend, correlation, etc.)?.

As for data, I use Tradestation data into MTP EOD for stocks scans, in my test.
EOD scans do not show DP yet, so it will take more to check all the DPs in radar screen, but I think it would still be manageable.
I also use NT, but I find it ….well…unreliable? Plus, I would not like to double my data fee to get data from eSignal.
TS only has US data, basically, so no other region will be usable. However, using the stocks in those US indices only would be quite good, as virtually all of them are available in spread betting or CFD form here in UK, so I could use a leveraged product.
Thank you again for sharing this awesome piece of analysis

Here are my answers to your questions:

1) you’ve used just DPs for your test, or DPs and TSs?

I looked at DP trades only in this excercise.

2) You have taken the signals as they came form the scan: filters on or off? no added analysis (trend, correlation, etc.)?.

I kept the whole process very simple by taking the DP setups when they appeared on the scan. I just accepted the default settings -- no added analysis etc.

The most impressive fact is that many of the MTP DP Long Trades appeared at a time when the market's down trend was ending and the uptrend was starting. (Please see the chart of DJIA Cash Index to get a general view of the time period during which these trades were taken). This was a time of fear, doom and gloom. By making objective measurement of the price action and combining that with a well known phenomenon of divergence, MTP allowed the user to trade profitably during this period by managing the risk and postion size. As one of the financial "advisor" writing for smartmoney admitted recently, only in retrospect could any one have recognised the fact that mid to late August period was a "bottom".

John Kay said it best (in a recent article published in London Financial Times): "We should eschew forecasts, acknowledge unresolvable uncertainty and plan accordingly".

Good luck in your trading.

Rama.

[gremtp]

Really impressive indeed. Thanks.
One of the points of further analysis would be how many of these trades were long and how many short and what percentage of wins you had on each.
If most longs were right and most shorts were wrong, then there would be a big incentive to follow the main trend and "filter out" signals.
From past posts I gather you are quite keen on following the main trend.

[rrs]

Really impressive indeed. Thanks.
One of the points of further analysis would be how many of these trades were long and how many short and what percentage of wins you had on each.
If most longs were right and most shorts were wrong, then there would be a big incentive to follow the main trend and "filter out" signals.
From past posts I gather you are quite keen on following the main trend.

Hi,

Even though the total number of trades taken during this time was relatively small (36), I will break them down and post the numbers you are interested in this evening when I get home from work.

Yes, I follow the main trend most of the time. But, the availability of DP Trades (counter trend trades) in MTP has allowed me to pursue my long term interest in divergence trades with strict risk management and position sizing. I will try to elaborate this point in my next message.

Sincerely,

Rama.

[rrs]

Hi,

Even though the total number of trades taken during this time was relatively small (36), I will break them down and post the numbers you are interested in this evening when I get home from work.

Yes, I follow the main trend most of the time. But, the availability of DP Trades (counter trend trades) in MTP has allowed me to pursue my long term interest in divergence trades with strict risk management and position sizing. I will try to elaborate this point in my next message.

Sincerely,

Rama.

Here is the distribution of trades plotted as a bar chart. I hope this bar chart answers some of your questions.

Divergence trades in general have three possible outcomes:

1) change of trend

2) retracement

3) failure (i.e. the current trend continues)

With addtional information on price momentum, a trader can profitably trade the counter trend moves (DP trades). MTP as a trading tool maximises, in my view, the profit potential by focussing on those divergence trades that occur near prize zones that offer significant support / resistance.

Sincerely,

Rama.

[gremtp]

Rama, thank you again for this.
So, it looks like going with the trend, once again, pays. Using just longs would have avoided the 4 (short) losses, about 10% of the trades.
I was surprised to see so few short signals. In the period that you have used the trend was up, so I would have expected a larger number of shorts.
Having said that, I do not know how many of these longs were taken at the beginning of the period, where there has been a (minor) trend reversal. I am just making some comments here, I am not asking you for yet more disclosure, do not worry. You have done more than enough! Besides, you have actually answered already in a previous post, I guess. Also, by looking at the equity curve it is quite easy to see that the best period was at the beginning of the observation bracket, flattening as the general market encountered resistance. By looking at the DJ chart, I think I have a pretty good idea as to where I would have rather taken the longs. And perhaps now is a good time to be looking at shorts as well…?

Another thing. I think I can also see some similarities between your equity curve and the DJ chart. This may add to Steve’s point regarding correlation, if this is what he meant. I can almost see his grin… :D

Anyway, it still looks like there may be something good in this. Whether it is easily implementable with a 30-40 minute “quick check” per day remains to be seen. Many questions are still open. For me, as long as we (hopefully) continue to make money with other instruments, it is something to look at further.

[gremtp]

Well Rama, it looks like we (or rather I) killed this topic.
Any other development on this?
I understand prh is working on something, as he mentioned in a post that he is looking at a way to scan 12,000 shares.
I did not have time to pursue any study in recent weeks, but I hope I can do something this month.

[rrs]

Well Rama, it looks like we (or rather I) killed this topic.
Any other development on this?
I understand prh is working on something, as he mentioned in a post that he is looking at a way to scan 12,000 shares.
I did not have time to pursue any study in recent weeks, but I hope I can do something this month.

Hi,

The last 3 trades in the paper trading exercise closed few days ago. I will add them to the total and update the report and the charts. I will also add some comments. I will do so in the next day or two.

Sincerely,

Rama.

[rrs]

Hi gremtp,

As promised, here is final report on the DP paper trading exercise. I have added the trade stats from the last 3 trades in the series and updated the analysis report.

As I said in one of my earlier messages, the distribution of the type of DP trades (i.e. long or short) conveys, in real time, the information on market direction. This measurement has some superficial similarity to advance -- decline (A/D) line. Unlike the A / D line, the DP trade distribution statistic is based on the phenomenon of divergence taking place at critical price zones (i.e. areas of support and resistance). The preliminary data from this exercise appears to suggest that monitoring the cumulative distribution of the types of DP trades may be a better way of assessing the market direction in real time than other measurements that may be lagging the general market. This market generated information has the potential to be a simple yet effective and reliable barometer of the market direction. Only a larger data set gathered over a longer period of trading may be able to confirm or refute this idea.

The next report on DP trades will be in January 2008. This will have real money DP trades taken from October 2007 to December 2007.

Good luck in your trading.

Sincerely,

Rama.

[hodger]

I've also been trading stocks off and on (Canadian TSX mostly) using MTP EOD. Just recently (last two weeks) switched to trading CFD's so I can trade the same TSX or US or Asia or whatever stocks, leveraged with no uptick rule etc. This also gives me access to commodities and indicies as well.
Seems to be the best of both worlds....for the moment anways....:)

Not a recommendation of anykind...just another option for some...

Hi Sejake

I assume you're using CMC Markets for CFD's. If so, how do you like them? Are your CFD fills bang on with the real mkt? Have you used them for commodities yet? I'm thinking of opening an account with them and your comments are appreciated.

Regards, Bob