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VenturaTrader
30 posts
msg #80749
Ignore VenturaTrader
10/6/2009 8:57:30 PM

Kevin,

I thought you were on to something when you were attempting to trade leveraged long and short EFTs with the MACD crossovers which you referenced on the "best short term indicator" thread.

A bi-directional trading strategy to profit whether the market is trending up or down! You appear to be leaning in that direction again which is good!

Mike

BarTune1
406 posts
msg #80751
Ignore BarTune1
10/6/2009 9:26:57 PM

I am a fan of bi directional trading also. Thats why I thought it might be interesting so see what the results of the BB trading strategy were in reverse.

However, its not that simple because the stock list used in Kevin's strategy are the IBD's top stocks which should be inheirently good.

If one were to test the strategy in reverse, for shorting, it would be nice to use stocks that were inheirently bad - such as the worst stocks in the universe as ranked by IBD. Crossing the upper BB would signal the short of an overbought bad stock.

The optimal low risk portfolio might be comprised of equal long / short holdings - if they could be balanced.

I would then further hedge by adding the leveraged SPY etfs whenever the VIX significantly diverged under the BB(9,2) Variance Strategy.

It would be nice if you could do all this stuff automated.

Kevin_in_GA
4,553 posts
msg #80753
Ignore Kevin_in_GA
10/6/2009 10:03:54 PM

Why do you need bad stocks to short when the price closes above the upper BB? I might wait for it to close red the next day as a confirmation, but other than that this set up should work with any stock.

A quick backtest on this idea, over the last four months (hard time to effectively short in the uptrend we have had):

Test started on 06/05/2009 ended on 10/05/2009, covering 84 days
Filter used:
close is below close 1 day ago
close 1 day ago is above upper bollinger bands(16,2.5) 1 day ago
average volume(50) is above 50000
stock is optionable
and apply to watchlist(IBD1,IBD2,IBD3)

Trade Statistics
There were 70 total stocks entered. Of those, 21 or 30.00% were complete and 49 or 70.00% were open.
Of the 21 completed trades, 10 trades or 47.62%resulted in a net gain.
Your average net change for completed trades was: -2.46%.
The average draw down of your approach was: -20.04%.
The average max profit of your approach was: 10.82%
The Reward/Risk ratio for this approach is: 0.69
Annualized Return on Investment (ROI): -14.48%, the ROI of ^SPX was: 29.47%.

Not good.

A slightly better timeframe for shorting:

Approach Name: unnamed approach
Test started on 01/05/2009 ended on 05/05/2009, covering 83 days
Filter used:
close is below close 1 day ago
close 1 day ago is above upper bollinger bands(16,2.5) 1 day ago
average volume(50) is above 50000
stock is optionable
and apply to watchlist(IBD1,IBD2,IBD3)


Trade Statistics
There were 86 total stocks entered. Of those, 36 or 41.86% were complete and 50 or 58.14% were open.
Of the 36 completed trades, 34 trades or 94.44%resulted in a net gain.
Your average net change for completed trades was: 16.40%.
The average draw down of your approach was: -7.50%.
The average max profit of your approach was: 19.28%
The Reward/Risk ratio for this approach is: 41.75
Annualized Return on Investment (ROI): 246.80%, the ROI of ^SPX was: -8.13%.


Still works. Not optimized of course, but the basic concept is valid. All depends on the timeframe.

chetron
2,817 posts
msg #80760
Ignore chetron
10/7/2009 6:41:38 AM

you don't necessarily short bad equities, though it can help. the better thought is overpriced, because when you buy an equity below a lbb, aren't you saying it is underpriced???????


hth


Kevin_in_GA
4,553 posts
msg #80761
Ignore Kevin_in_GA
10/7/2009 7:25:58 AM

Chet:

Right. That's what the test I ran indicates - a stock that clsoes above the upper BB is generally overpriced (although some argue that it is showing a strength that can carry it higher). I think that it means there will be a short-term reversion to the mean.

decipherlinda
133 posts
msg #80764
Ignore decipherlinda
10/7/2009 7:56:00 AM

My notes from Bollinger on Bollinger Bands:

Keep in mind, though, that as a stock price at the upper band goes higher, the upper BB goes up with it. A stock price can “walk up” the upper BB each day for a long time before reverting to the mean (MA(20)). This is one of the times when using other technical indicators is very useful.

The touching of an upper band or lower band can be confirmed with another technical indicator. When a price is high and hits (or “tags”) the upper BB, if the technical indicator is not going in the same direction, it means you can expect the price of the stock to begin to revert to the mean. The same is true (in reverse) for theprice at the lower BB.


Kevin_in_GA
4,553 posts
msg #80765
Ignore Kevin_in_GA
10/7/2009 8:07:35 AM

My notes from Bollinger on Bollinger Bands:

Keep in mind, though, that as a stock price at the upper band goes higher, the upper BB goes up with it. A stock price can “walk up” the upper BB each day for a long time before reverting to the mean (MA(20)). This is one of the times when using other technical indicators is very useful.

The touching of an upper band or lower band can be confirmed with another technical indicator. When a price is high and hits (or “tags”) the upper BB, if the technical indicator is not going in the same direction, it means you can expect the price of the stock to begin to revert to the mean. The same is true (in reverse) for theprice at the lower BB.
++++++++++++

Interesting ... I had been trading off of momentum-based indicators like the MACD and CMO for a while, but felt that they lagged too much from the price action. What specific indicators are you thinking about here that would confirm a BB signal?

gabestogie
79 posts
msg #80770
Ignore gabestogie
10/7/2009 9:42:52 AM

Kevin:
Looks like the Shorts are trying to cover. There is a high float of shorts @ 35.2% 0n STEC, they have 2.7 days left to cover.Hoping to close above 28.85 and then next major resistance point will be 30.69. Stec was one of the top 5 gainers premarket today.
Gabe

decipherlinda
133 posts
msg #80775
Ignore decipherlinda
10/7/2009 10:51:32 AM

The preferred indicators for use with BBs are volume indicators.

First, John Bollinger recommends normalizing technicals this way:

Normalized or Relative Volume: Divide volume by its 50-day MA * 100, plot same as regular volume. Plot a reference line at 100. Recomends normalization for indicators in general, if applicable. I tried on SF but wasn't as clear a read as SF's indicators although better, I'm sure.

From a table I created in my notes:

Categories of Volume Indicators (Bollinger on Bollinger Bands)

Periodic price change --> On Balance Volume, Volume-Price Trend
Periodic volume change --> Negative and Positive Volume Indices
Intraperiod structure --> Intraday Intensity, Accumulation Distribution
Volume weighting --> Money Flow Index, Volume-Weighted MACD

I can email a copy of my 11-page summary of Bollinger on Bollinger Bands for those interested.


Kevin_in_GA
4,553 posts
msg #80781
Ignore Kevin_in_GA
10/7/2009 2:05:50 PM

Kevin:
Looks like the Shorts are trying to cover. There is a high float of shorts @ 35.2% 0n STEC, they have 2.7 days left to cover.Hoping to close above 28.85 and then next major resistance point will be 30.69. Stec was one of the top 5 gainers premarket today.
Gabe
+++++++++++

STEC is still swimming against the market current today - only at 27.86 right now (up $0.10 from yesterday).

In general the portfolio is at net neutral for today. Thanks most to BJRI (up 6.5% right now).

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