Working Money magazine.  The investors' magazine.
Working-Money.com


LIST OF TOPICS





Article Archive | Search | Subscribe/Renew | Login | Free Trial | Reader Service


PRINT THIS ARTICLE

STRATEGIES


Finding Tradable Stocks

11/10/04 05:57:01 PM PST
by Jacob Singer

Here's a strategy that can give you a clue about what stocks to trade.

As traders, we are always trying to find the utmost perfect strategy for stock market trading, the so-called Holy Grail -- the one that will always give you a sure winner. Does it exist? I don't know, but here's a strategy that looks promising. Check it out, tweak it to fit your needs, and decide for yourself.

First of all, the patterns for a buy signal and for a future short (Figures 1A and 1B) look pretty straightforward.

FIGURE 1: Here's a buy signal and a future short, respectively.

But if you take a close look, you have to wonder is that right? Shouldn't it be the other way around? The buy is a falling or short pattern and the short is a rising or buy pattern isn't it?

Actually, the two patterns and the way I have described them are the basis for a number of final patterns. Consider Figure 2. The pattern is the fourth and fifth wave of an Elliott wave pattern, which shows a change of direction.

FIGURE 2: Here are the fourth and fifth waves of the classic Elliott wave pattern.

The pattern is also the start of the familiar head-and-shoulder, a pattern that is excellent for determining a target (Figure 3).

FIGURE 3: Inverse head-and-shoulder and the head-and-shoulder right way up.

It is also a pattern that could break a short-term trendline, moving average, or any other trend-following indicator you may prefer using.

Okay, so how do we use it to forecast a market?

Look at Figure 4, which should give you an idea.

FIGURE 4: Higher highs vs. lower lows.

"You have a point," you may say. "This way, it does look interesting. But how would I develop a strategy to trade these patterns?"

Glad you asked. Listed in Figure 5 is a strategy that I developed and tested in real time. I am quite pleased with the results.

The first thing to do is identify the pattern. This is easy, and you can program a formula to highlight a number of shares to look at. Eyeballing these shares will eliminate half of them, but the few remaining are the ones to analyze.

Having chosen the shares with patterns that fit the strategy, you must decide when to buy or sell. The share price forms a low (high), then a lower low (higher high), and then starts retracing. At what point do you place your order?

FIGURE 5: A break above a Fibonacci level of the range between the high after the low, and the lower low.

FIGURE 6: A break above the previous low.

You could also wait for a retracement and buy the share when it rises above the pivot point, as shown in Figure 7.

FIGURE 7: Waiting for a retracement.

But whatever strategy you decide to use, intraday, daily, or weekly, the system can produce surprisingly good results. To find out exactly how the strategy worked, I ran a test portfolio from December 30, 2003 (Figure 8).

FIGURE 8: Here's a test portfolio.

Even though the market fell from March 2004, the portfolio is still in profit. I placed an 8% stop-loss on all stocks, but only one sell signal was given, and that was on HIP Technology on the Toronto Stock Market (HP-T).

To identify stocks that could be possible buys, I programmed Technifilter Plus as outlined in the sidebar. I included volume in my formula, as I look for falling volume as the price falls. This is a sign of strength, as is rising volume with price rises.

I have found that the strategy gives better results when you trade the share chosen with a 4% stop-loss. You may be in the share for as long as four to five days, depending on which day of the week you enter the market. It may not be the Holy Grail, but it can still be useful for you.

Jacob Singer has been a technical analyst since 1969. He has worked as a futures and options trader, a technician specializing in gold and gold shares, and editor of a South African tipping sheet before emigrating to Canada, qualifying as an investment advisor. He has developed and uses a mutual fund investment strategy for client portfolios called MOM Investing. He may be reached at jsinger@globalsec.com.

Charts courtesy TechniFilter Plus

Current and past articles from Working Money, The Investors' Magazine, can be found at Working-Money.com.

Sidebar

TECHNIFILTER PLUS FORMULA

NAME: 20-Day Lower Low + Volume

DESCRIPTION: We have a 20-day low, and then four days later, a lower low. Today's close must be greater than the 20-day low to be a buy.

Note: I look back at 20 days only, but this can be increased depending on your strategy. For the lower low, I look back four days, because I want to make sure that the lower low has been established.

FORMULAS

[1]SymbolThe ticker of the stock.
[2]NameThe name of the stock.
[3]Close
Close
The stock's closing price.
[4]Close y1
cy1
Yesterday's close.
[5]Low over 20 days(Ly5,24)
(&1)N&2
The low over the previous 20 days.
[6]Vol over 20 days(Vy5,24)
(&1)N&2
The volume over the previous 20 days.
[7]# of days from low(Ly5,24)
(&1)N'&2
The number of days since the first low.
[8]Low of 4 days(L,4)
(&1)N&2
The low of four days ago.
[9]Vol over 4 days(V,4)
(&1)N&2
The volume of four days ago.
[10]# of days over 4(L,4)
(&1)N'&2
The number of days since the low of four days ago. I will tend to ignore the signal if the low occurred in zero days.
[11]High since Low(Hy[10],20)
(&1)M&2
To determine the high reached between the low of 20 days ago and the low of four days ago.
[12]# days High(Hy5,20)
(&1)M'&2
The number of days since the high.
[13]High-Low
H-L
The high-low current range.
[14]Volume
V
The current volume.
[15]Vol Ave(4)
Va&1
Volume average of the past four days.
[16]Volatility(60)
((((C/CY1)U9-TA&1)*T)F&1/&1)_.5*16
The volatility of the share over the past 60 days.
[17]Rel Performance(60)
(100*(c-cy&1)/cy&1)*[16]
The relative performance of the share using the volatility as the performance test factor.
[18]Relative Mom(60)
((V-Va30)/Va30)+((C-Cy&1)/Cy&1)
The relative momentum of the share with its current performance including volume movement relative to its 30-day average.
[19]Buy 38.2%
([8]+(([11]-[8])*0.382))
To determine the 38.2% Fibonacci level of the range between the high and the low reached within the last four days. Buy if the close is above this figure.

FILTERS

[1]Buy ([8] < [4]) & [3] > [4]The low of four days ago must be lower than yesterday's closing price. This is to make sure that a retracement has occurred. Today's close must also be greater than yesterday's low.
[2]Vol > 50000 [14] > 500Volume traded must be greater than 50,000 shares in any day.
[3]Buy 38.2% [3] > [26] & [4]< [26]The close is greater than the 38.2% level of the range between the high within the past 20 days and the low of the past four days.
[4]Vol > Vol ave [14] > [15]Volume should be greater than average volume in a rising price, showing strength.




Jacob Singer

Has been a Technical analyst since 1969 and was a member of the Market Technicians Association of America. Worked as a Futures and Options Trader with First Financial Futures in Johannesburg, South Africa for three years, then for Irish Menell Rosenberg, stock brokers in their research department as a Technician specializing in Gold and Gold shares. He was the Editor of a popular South African tipping sheet, Temkin and Moon, till 1992, and emigrated to Canada qualifying as an Investment advisor. Jack has developed and uses a very successful Mutual Fund investment strategy for client portfolios, called MOM Investing. The strategy is available on a weekly updated web page, restricted to clients only.

Global Securities Corporation has not added any product or service information to TRADERS' RESOURCE.
Company: Global Securities Corporation
Address: Three Bentall Centre, 595 Burrard Street
Vancouver, BC V7X 1C4
Phone # for sales: 604 443 5473
Fax: 604 689 5401
Website: regpub.homestead.com/index.html
E-mail address: jsinger@globalsec.com

Traders' Resource Links


Comments or Questions? Article Usefulness
5 (most useful)
4
3
2
1 (least useful)

PRINT THIS ARTICLE





S&C Subscription/Renewal




Request Information From Our Sponsors 

DEPARTMENTS: Advertising | Editorial | Circulation | Contact Us | BY PHONE: (206) 938-0570

PTSK — The Professional Traders' Starter Kit
Home — S&C Magazine | Working Money Magazine | Traders.com Advantage | Online Store | Traders’ Resource
Add a Product to Traders’ Resource | Message Boards | Subscribe/Renew | Free Trial Issue | Article Code | Search

Copyright © 1982–2020 Technical Analysis, Inc. All rights reserved. Read our disclaimer & privacy statement.