StockFetcher Forums · General Discussion · What is a good filter and how do we decide?<< >>Post Follow-up
Koronbock
201 posts
msg #26716
Ignore Koronbock
6/3/2003 7:56:06 AM

In looking over the filters on this board I would like to thank the people who have contributed and shared generously. Especailly WALLMANN (alias Muddy) has gone out of his way to show and share some of his best filters. Thank you Muddy.

In general I like "objective" rules, that do not require too much interpretation (Not: “The chart looks like the stock will go up”). Otherwise it is too easy to fool oneself. The question is: What makes a "good / great" filter? There are several people on the board who report on filters and say "this one is good / great". So what does this mean:
- best profit (but under what market conditions and what constraints)
- consistency (a good filter should deliver consistent results, not something "super" for just a few days or weeks
- drawdown/risk (good profits are not everything. If the filter will let you experience severe drawdowns you will abandon the strategy.

For myself I have started to do the following: Since I want to be prudent in my trading and avoid unnecessary risks, it would pay to think of the risks involved. Since most filters are "long" filters the worst that could happen, would be a sudden and steep down period in the markets. When this happens, even the best filters will be adversely affected and you will lose money, no matter what. Thus I have started to test the "best" filters on a recent strong down period, namely starting this year on January 14. Some filters still do good, some look bad. This would be a good "hint" for the validity of the filter, as it keeps you affloat, even if general market conditions go against you, which may happen at any given time.

Good money management and good exit rules are just as important as entry rules, but most people are in love only with ENTRY and forget everything else.

Werner



defghca
150 posts
msg #26718
Ignore defghca
6/3/2003 10:45:27 AM

another objective rule would be %winners, anything below 50% is a kin trowing a dice. personnaly i use >66%


risjr
100 posts
msg #26719
Ignore risjr
6/3/2003 1:28:35 PM

I doubt if there is any one filter, or "Holy Grail", that works all the time. I usually set my stop losses at about 8-10%, and watch the hourly bars. And have done quite well, with many of the filters.

If anyone can be of further help, please let's discuss it


ig0r
51 posts
msg #26726
Ignore ig0r
6/3/2003 5:23:30 PM

Well to understand what to look for we need to understand what kind of situations cause stocks to rise rapidly over the next few days or weeks. We're looking for oversold conditions, stocks testing previous lows, or maybe even watching for possible upswings forming?

We have lots of indicators that will help us identify oversold conditions, or where a stock has been sold more then it should have been indicating that it will soon rebound as people realize it's low price. My personal favorite is the slow stochastic (5,5), oversold conditions and buy points are indicated by the fast line crossing above the slow line below 20, overbought is indicating by slow line crossing above fast line above 80. With other indicators of oversold/overbought it's not as easy to predict accurate entry points because you dont have a particular entry date such as when the slow and fast lines cross. I've been thinking about trying to graph an RSI(9) and then an EMA of an RSI(12) and 18 day, and then reading it pretty much like a stochastic graph, anyone ever try this?

Finding stocks that are testing previous lows is easy with the help of moving averages and even bollinger bands (which are created by taking 2 standard deviations of the stock's moevements up and down, if you dont remember from math, this will give us an area that the price will reside in 95% of the time, taking 3 std will give us 98.6% i believe but too much of an area, 1 std will give us only 68% or somethin around that, which won't do) like in wallman's filter. And of course using something like average true range (7 day works well) is good for finding strong upcoming movements. Also, remember, when a stock is testing old lows, large lower shadows and volume increase (as wallman pointed out) are a good indication of upcoming upward movement, the stock fell that day but because of increased buying interest it rebounded.

When it comes to exit points, I make it quite simple. I usually will exit any stock if the RSI(14) crosses above 70 OR if the slow stochastic(5,5) crosses above 75 or so OR if i make over 15%, I try to make it as unemotional as possible.


ig0r
51 posts
msg #26727
Ignore ig0r
6/3/2003 5:27:13 PM

risjr: It wouldn't be too hard to make a filter that would work 99.9999% of the time, just combine as many indicators as you know how to use. The downside of course is that you'll get a stock to match the filter maybe once a year? haha. Anyways, the key is not to find a filter that works all the time but a filter that works a good 90% of the time but that will always be available in good and bad markets and will work just as good in bad as it does in good, we all know pleany of these...


Koronbock
201 posts
msg #26742
Ignore Koronbock
6/5/2003 5:11:42 AM

Good day,
I think CONSISTENCY is what I am looking for in this game. You could also call this ROBUSTENESS of the method (filter). If this filter is good, it will produce good results over a variety of market condition (up, down, flat, not only in an up-market). The way I test this is the following:

Pick a top date in the market. Currently I am using Jan. 14, 2003 for this (top). Now go forward from this date until Febr. 12 (this is a bottom) and do daily filter testing, starting Jan. 14. If the filter still works well in this down period it is robust and consistent and it will likely produce good results in the future.

Werner





gruender
101 posts
msg #26749
Ignore gruender
6/5/2003 8:28:25 PM

Werner, I agree with your comments, and I too test my filters in mid-January to early March time frame. However, I think that we need to keep in mind that we can have filters that work best in an uptrending market and different filters that work best in a downtrending market. One of the beauties of SF is that we don't need to lock ourselves into only one filter that we try to make work in all markets.

Joe


Koronbock
201 posts
msg #26751
Ignore Koronbock
6/6/2003 3:32:51 AM

Joe,
yes, testing over various time frames will give you a good estimate if the filter is consistent or not. As for "short" filters, I have not seen any here. Certainly one can not only reverse the logic of the "ling" filters (like Muddys filter). Are you using SHORT filters as well, or have you seen any that you think are good? I expect a retreat from the current up-run very soon, we are extremely overbought in the markets. A SHORT filter could be handy in this situation, as the LONG filters will lose money in such a situation.

Werner



wallman
299 posts
msg #26752
Ignore wallman
6/6/2003 6:46:56 AM

as i have posted a few times before if you believe that you have identified that the market is in or beginning a downtrend,shorting ETF's and/or HOLDERS is IMO the safest,most reliable way to go in that situation....for those of you who are new to shorting individual stocks,it might sound easy but there are hangups involved which you will probably run into,also get caught in a "short squeeze" and you can lose $ real quick,to me shorting individual stocks is riskier than going long at that time with a method that you have been trading and are comfortable with,just play lighter and as always obey your stops,remember even on DOW down days of -100 or so points there are still almost always 1000 or more advancing issues on the DOW and nas composite,a good filter and trading method should pick many of these up,keeping you afloat until the bad times pass......it's good to be prepared but for now i think you should concentrate on trying to make as much $ as you can to tide you over if you believe we are headed for the bad markets,in the last 8 weeks the $ that could have been made with a good "long" filter could have seen you through many weeks of your expected bad times,in the last 8 weeks the market has been giving you $,don't fight the trend,take it!


StockFetcher Forums · General Discussion · What is a good filter and how do we decide?<< >>Post Follow-up

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