Buy signal for AmSurg Corp. (AMSG)

AMSG got a buy signal during the week and for some reason I decided to buy the stock during the trading day on Friday instead of waiting until the end of the day. As a result I bought the stock at a price much higher (26.68) than the closing price (26.07). I have no idea why I've done it but it's done and I'll have to live with it :).

Theoretically, I would rather buy the stock in the following week and "lose" few percents than to buy too early and discover that the signal was gone as result of a drop at the end of the day.

 

Open positions for October 27th

Last week was pretty good with ARTG rallied to 4.37 setting the profit to 45.67%. TYL gaining 11.2% on Friday bringing the profit to 12.22%. The trend sure was my friend this week.
Unfortunately EPIC is out of the game with ~18% loss (stock is sold if price drops 10% below the entry price).

Here is the status of my current holdings:

Symbol	Entry Date	Entry Price	Current Price	Profit %
ARTG	24/09/2007	3.00	4.37	45.67
INTV	24/09/2007	9.34	9.80	4.93
IDEV	24/09/2007	6.62	7.83	18.28
EPIC	26/09/2007	13.63	11.12	-18.45
CERS	28/09/2007	8.9	8.9	0.00
INFA	28/09/2007	15.72	17.06	8.52
LWSN	16/10/2007	10.15	11.03	8.67
ANDW	19/10/2007	14.36	14.45	0.67
TYL	19/10/2007	14.08	15.80	12.22

I would like to remind you that I am a long term trader and my system is built around weekly charts, so open positions can stick around for quite a while.

Stayed tuned for next week's update.

Buy signal for Euro Tech Holdings Co. Ltd. (CLWT)

While getting ready for this week, I run the screener on the Nasdaq and discovered another buy signal for CLWT. I wasn't near a computer so I was unable to post anything.

Expand your knowledge

• If you have the patience and mental strength - find your 40,000% return stock.
• Brett Steenbarger of TraderFeed publish his prediction for the following week and it looks a bit depressing.
• Interesting article about Nassim Taleb (also available in PDF) taken from one of the TraderFeed's posts.
• Trader Mike post a link regarding Lifeway Foods, Inc. (LWSN) which I bought last week due to a buy signal from my system.
• After reading the first link. It seems Google is still a bargain at 600+$
• Advisory Group's research shows there is no point trying to predict the economy's direction with the "Anxious Index".

Open positions for October 20th, 2007

Last week had a very bearish behavior and Friday ended up to be real massacre. luckily, the system didn't issue any sell signals.

Here is the status of my current holdings:

Symbol	Entry Date	No. of weeks	Entry Price	Current Price	Profit %
ARTG	24/09/2007	4	3.00	3.36	14
INTV	24/09/2007	4	9.34	10.03	-2.03
IDEV	24/09/2007	4	6.62	7.81	19.03
EPIC	26/09/2007	4	13.63	13.59	-6.46
CERS	28/09/2007	3	8.9	10.18	2.47
INFA	28/09/2007	3	15.72	16.67	6.49
LWSN	16/10/2007	1	10.15	10.19	0.39
ANDW*	19/10/2007		14.36	14.34	-0.14
TYL*	19/10/2007		14.08	13.79	-2.06

ANDW and TYL had a buy signal 3 weeks ago which I somehow missed. since both stocks were losing around 1% I decided to take the chance and buy them.

I would like to remind you that I am a long term trader and my system is built around weekly charts, so open positions can stick around for quite a while.

Stayed tuned for next week update.

A psychological war

In my last post I mentioned I was going to sell my holdings for NTWK since I received a sell signal from the system. I sold it for 3.15 which is exactly 10% below my entry price. If any of you followed the stock you probably saw it closed on 3.79 which is 21.47%.

 

Now comes the big war between the mind and my instincts:

The mind tells me I should sell since I received a sell signal from the system. I have tested the system hundreds of times and I'm positive it works best as it is. Having said that and to be on the safe side, I run a few tests over the weekend trying to increase the value of the stop loss from 10% to 15%. The results were conclusive and proved that setting the stop loss to 10% yield more profit and reduce the drawdown.

My instincts on the other hand, told me last Friday's drop was just a normal adjustments fueled by the general market behavior for the same day. I have searched the interment and could not find any news to support the decline.

I try to educated myself and learn to trust my system. To be honest, it is very hard once you start to trade with real money. I believe that eventually I will be able to control the "what if ..." questions flooding me every time I encounter a similar situation.

Let me know what you do to overcome this dilemma.

Come into my trading cubicle

I decided to share the signals generated by my system with the readers of this blog. I'm currently invested in 8 stocks, all from the Nasdaq stock exchange.

Here is a list of my current holdings:

Symbol	Entry Date	Entry Price	Current Price	Profit % (After commission)
ARTG	24/09/2007	3.00	3.36	12
INTV	24/09/2007	9.34	10.03	7.39
IDEV	24/09/2007	6.62	7.81	17.98
EPIC	26/09/2007	13.63	13.59	-0.29
CERS	28/09/2007	8.9	10.18	14.38
INFA	28/09/2007	15.72	16.67	6.04
NTWK*	05/10/2007	3.50	3.12	-10.86

* A stop loss signal was received for NTWK as it dropped below 10% from it's entry price. I intend to sell it on Monday around the middle of the day.

At the end of last week I received a buy signal for LWSN. I intend to buy it on Monday.

If you recall, my system works on weekly charts, so all trading activities are done on Friday at the end of the trading day. Since I'm a long term trader, I give my self the luxury of executing my trades in the beginning of the following week so I can verify that the data I download from Yahoo is correct.

I intend to keep the signal service updated on a weekly basis, so stay tune.

Test results for my system

I thought I should publish some statistics regarding my system. The system was build using a technical analysis software called WealthLab.

The system is build around the concept of trend following and as such uses moving averages with additional factors to determine the entry price. Once a signal has been accepted the system "ride" the trend as much as it can. This means, a trade can last from one week to several years. I know this sounds like a lot of time, but when the profit for a long trade can pass 1000% I think it is acceptable. As a precaution not to trade illiquid stocks, the system filter any stock with average volume less than 1,000,000 shares in the last 3 months.

Stop loss signal received if the price drops 10% below the entry price. For money management I use the "Percent Risk Model".

The system performed well on different markets but the market which performed best was the NASDAQ. I believe that even in a flat market, like we see this year with the NASDAQ, there are stocks which outperform and my goal is to find as many of them as possible. for example, watch SSTR on a weekly chart. The stock climbed more than 100% in two weeks. A move that was caught by the system.

 

I run a simulation using the complete NASDAQ Composite stock list (~3000 stocks) for the last 10 years.

The following parameters were used:

Starting capital: 1,000,000
Maximum risk percent: 1%
Commission: 0.01$ per share
Slippage: 2% of the base price

The raw trades (443 trades) where then passed to a Monte Carlo simulation application developed by the makers of WealhLab.

Here are some screen shots taken from the Monte Carlo simulation run.

 
Profit Analysis

 

 
Drawdown Analysis

 

 
Probabilities

 

Performance tab within Wealth Lab

 

Equity Curve tab within Wealth Lab

 

 
Drawdown tab within Wealth Lab

This Stock Ready to Explode

As a diligent reader of Brett Steenbarger's blog, I followed one of the links he posted on the subject of emotions and their affect on trading. A specific link that caught my eye was "Spam Spasms: This Stock Ready to Explode!".

I believe I get around 20 pink sheet's spam related emails a week, not including the ones which get caught by Gmail's spam filter. While reading this article I was amazed to find how many people fall for this scam. It appears that about 100 Millions emails are sent every week. "Spam touting also produces a significant increase in trading volume. On days when there is touting (no touting), a touted stock is the most actively traded stock 81% (6%) of the time."

I'm wondering why is it that people cannot distinguish spam email from a true email. Why is it people trust someone they don't know and use their well earned money to buy stocks which they know nothing about?

History doesn't change and people don't learn from there mistakes. At least some of them don't.

I'm planing to upload some statistics about my system in the next week. I'd love to hear your comments about the results.

To sell or not to sell

As my trading system works on weekly charts, signals are received on the last day of the trading week which is Friday. I believe a sell signal will be generated by the system tomorrow for SSTR (see this my previous entry for more info). The reason for this, is my stop loss rule which sell a position if the closing price drops below 10% of the entry price. On the first day of this week SSTR dropped more than 20%. My assumption was that the stock will recover during the week, and if the price wont get back to last week levels, it will at least go back into the range of -10% or above. I bought the stock on 4.15 so I'm not worried about the loss my portfolio will suffer (if any as the current price is around 4.05), but whether I should have entered this position in the first place.

Actually, the real question is whether I should add another filter to the system so it will ignore signals for stocks which gained more than X% on the entry bar.

This calls for further investigation which I intend to do tonight. I'll post my results tomorrow.

As for whether I should sell or not? Of course I will. As I said earlier, There is no discretion with computerized system. My endless tests showed that on the long term my system win and as I am here for the long term so I'll stick to what the doctor ordered.

Problem you might encounter going live with your system

You work hundreds of hours developing a system. Test it hundreds of times using various markets, Monte Carlo computational tests etc. After six months of developing and testing you decide to go live and events you didn't  foresee begin to unfold.

Let me share with you two of these events:

1. The case of the missing symbol:

Last Friday I got a buy signal for "Greater Bay Bancrop" (GBBK). I had bought the stock and was eager to see how it will perform on the following week. Yesterday, as the market opened, I was watching to stock and something very strange had happen. It seemed the stock was not moving for almost two hours. I searched for news about the company and it appeared the company was bought by another company called "Wells Forgo & Company" (WFC). According to the news article, share holders of GBBK will get WFC shares instead. So far so good. Well, no quite.

As I use a computerized system, my buy signal was for GBBK. Now that the stock is not valid any more, the trade remains open and the system doesn't know it should be closed. I can close it manually by placing a sell order according to the exit rules of my system. Only problem is the system's exit rule doesn't apply to WFC as there is no "buy" signal for this symbol. I think I will just try to cover my trading costs for this trade and close the position.

2. Don't count on free historical data

Following a "buy" signal for "BioDelivery Science International Inc" (BDSI) I bought the stock a week ago. Today, while looking at the trading volume of the stock, something caught my attention. It seems like the volume was considerably low than last week volume. To be sure I run my system on the stock again and to my surprise, no buy signal appeared on the screen. I doubled checked the data and it seemed to be correct. My only suspicion was that while I updated the historical data for my stocks this morning, I noticed some stocks had incorrect data for the previous week. After running the update for last week for the entire list, the problem disappeared. I'm guessing that the historical data for BDSI was incorrect as well, and as a result I received a false buy signal.
The moral from this event is to check and double check the historical data of a stock when a buy signal is received.

Hard day (relatively) for a trader

The market was going my way for most of the day. Most of my positions were gaining profit and it all seemed great. However, in the last hour of the market one my positions (SSTR) flipped and was declining fast. It ended losing 5% on that trade.

As I use a computerized system, I bought this stock even though it gained ~90% last week. My trading philosophy is that I act according to the signals I receive from the system. That means, no discretion is involved. Yesterday, I was able to buy SSTR at the bottom after waiting for the middle of the day. The stock lost about 20% yesterday and I was sure (still am) it was for the bearish feelings people had after the steep move in the previous week. Today, the stock traded for most of the day between 5% to 7%. Suddenly, is started to decline rapidly, and ended losing about 5%.

I need to remember it's all part of the game, and as I have no discretion while using a computerized system, I need to relax and hope the system knows what it's doing :)