Trading stocks under 20C (tech's method)

[tech/a]

OK firstly Im looking at the universe of 20c stocks Id like to trade.

Ive placed only one criteria here and thats liquidity.
I only want stocks that have traded over $100K average for the last 21 days.

So I have 82 in my universe.
Now of these 82.

At sometime in the past 50 days.

41 of these have risen atleast 33%
28 of these have risen atleast 50%
11 of these have risen atleast 100%
and 1 has risen 200%

Now this tells me that looking for a 50% rise is not un realistic.
It also tells me that if I limit my loss to 10% of Purchase price I have an expectancy of 5:1 If trades are held to 50% increase.

Now to design an entry and possibly a trailing stop for those impulse moves that get belted next day.

Ill be back.

tech

[stefan]

Now to design an entry and possibly a trailing stop for those impulse moves that get belted next day.This sounds very interesting indeed. Keep it up tech/a! Looking forward to your next posting!

Happy trading

Stefan

[tech/a]

Well.
Tested about 50 theories and not one profitable!!(yet).

Just downloaded V 4 of Tradesim so will use the new software to test.
Need to print out the manual and have a read.

Ill be back but could be a while.
Im sure youll cope without me.

tech :banghead:

[Lucstar]

Good to see that you're really making yourself at home here. LOL :drink:

[tech/a]

Hey I can go as quick as I came!!

If my input is not wanted or indeed needed happy to move on!

tech

[RichKid]

My guess is Lucstar didn't intend to offend you. I'm sure looking forward to seeing your next post so hope you hang around! All the best!

[markrmau]

Now of these 82.

At sometime in the past 50 days.

41 of these have risen atleast 33%
28 of these have risen atleast 50%
11 of these have risen atleast 100%
and 1 has risen 200%


What are the equivalent percentages for falls of 33%, 50%, 100%?

*If* the percentages are roughly the same, then I don't think that it is possible to come up with a method of trading to your advantage. (I am assuming that the movements up and down are due to randomly occuring events such as announcements).

It is possible however that investors react disproportionatley to good news or to bad news in which case it should be possible to come up with a tradable system. Of course once you do come up with a system, it will not work any more!

I am interested in what you come up.

Cheers,
Mark.

[tech/a]

RK.
and Lucstar.

Ok.

Mark thought the same myself and will run possibly tonight.

Im interested in why youd think that if the results balanced or indeed were weighted to the downside that developing a profitable trading method would not be possible?.(to the long side).

Just quickly we would(well I would anyway) have stops in place that were far less than the maximum falls in the universe of stocks.
The whole idea is to minimise risk to the downside.

I did not on some of the simulations that gaps down (and severe ones) were common place.Slippage is an issue with smalls.
Im not convinced that smalls are all people crack them up to be(little money spinners)but even though I trade the top ASX200 (Bt Margin list) Im curiuos like many here as to wether its possible to turn a consistant profit

Im encouraged by the run of contributors rushing to enter their ideas into the discussion--------------Come on people.

[markrmau]

Im interested in why youd think that if the results balanced or indeed were weighted to the downside that developing a profitable trading method would not be possible?.(to the long side).

Just quickly we would(well I would anyway) have stops in place that were far less than the maximum falls in the universe of stocks.
The whole idea is to minimise risk to the downside.

I did not on some of the simulations that gaps down (and severe ones) were common place.Slippage is an issue with smalls.

I am being overly cautious and am thinking that you may not have time to get out - I personally have no experience in this area.

Can you get intraday data for these stocks? How well do automatic stop-loss functions (such as on commsec work)?

[wayneL]

>>It also tells me that if I limit my loss to 10% of Purchase price <<

You may need to revise this on < $0.20 stocks. Thats not much wiggle room at all for these volatile little puppies.

Cheers

[Lucstar]

Oh no, i think i've just stirred up a bit of trouble. But thanks to RichKid, who manage to cool things down for me while i was away...thanks RK. Well tech, my post really did not mean to offend you and if it did, i'm truly sorry. Hope you enjoy ur time on this forum.

[tech/a]

Mark.

Yes I have intraday live feed via Marketcast in all timeframes.

Its good to see that some are recognising the inherant problems in trading the pennies.

Wayne your absolutely right take a 5c stock which falls to 4c thats a 20% fall!

So lets just recap.
We have a small initial capital base of $10K
If we wish to spread the risk by having a portfolio more than 5 stocks or $4K each appears un workable.
Workable stop losses are certaintly advisable and the saviour of many methods---we have identified that a small 10% stop of the purchase price is not workable.

My suggestion is that our universe of stocks to trade be such that a 10% stop is workable.
This would mean that at a pinch 10C stocks should be included as the minimum,and 50c as the maximum.

I still think youll get the leverage,volitility and more likely to get the liquidity to trade.

So Ill switch my method to 10c to 50c stocks and see if I cant get something that will turn a profit consistantly.
Back with some figures soon.

tech

[tech/a]

Ok.

Now running a scan on the All Ords with a liquidity filter of $100000 minimum traded a day on average for a month.

The results are for stocks trading 10c to 50c

80 prospects for our Universe of stocks.
50 have risen 33% at sometime in the last 50 days
25 have risen 50% at sometime in the last 50 days
9 100%
2 200%
1 300%
1 400%
1 500%

To be balanced.
11 prospects had fallen 30% at sometime in the last 50 days
2 50%
1 75%

Of all stocks in the universe(82) 71 are higher today than they were 50 days ago.
Now if thats not a sign of a bull market what is!!

49 of the 82 are higher today than they were a year ago!

Now I chose 4 charts at random to see if I could find an obvious reason for entry.What do you think??

This looks promising even without doing any testing ,that we should be able to develope a profitable method to trdae these.
Ill be back when Ive had time to throw some tests together.
Think the breakout entry looks the goods!

The profit ofcourse comes from the EXIT!!

[Lucstar]

This is getting very technical (tats a good thing). Got me all puzzled tho. Its just too complicated for a young trader like me. So i'll just sit bak and learn

[kifoghorn]

This is getting very technical (tats a good thing). Got me all puzzled tho. Its just too complicated for a young trader like me. So i'll just sit bak and learn

For me to... As soon as figures are mentioned my brain stops :o

But interesting ideas...

[tech/a]

Hi.

Im interested in the last 2 comments.
I guess Ive taken it for granted that those contributing and those watching have at least a basic level of trading knowledge.Some Im sure have but there seems that quite a few dont.

Thats fine if you dont--------11 yrs ago the Financial Review was in another language to mine!!!---- but if you really wish to learn to trade or even invest, profitably its essential you UNDERSTAND what we are doing here.

If you dont please dont hold back----------ASK.

The biggest tradgedy I see are people who come and go----think its easy have a win or two or worse still loose a packet and give the trading game away as TOO RISKY or TO COMPLICATED.

Im happy to simplify it and cut out the "Voodoo"(Sure Ill be talking technical stuff but youll understand it!)

The MORE Questions YOU ask the More Others will learn!

Im hoping in the end that I will have walked those who wish to know,through the process of developing a trading method which can be traded profitably.

From here you will be able to take and indeed refer to the template to develope your own!!!Or a version of that which we develope here.

Hometrader charge about $5k to do this-----and the results are questionable seeing their success is based on using CFD's with 10X leverage.
So a method that returns 15% is touted as returning 150%-----Now you know how they do it!!

Even if you dont have the software ----YET.
Youll know what to look for and the reason/application/use of it in your trading.

So thanks Kifoghorn and Lucstar for pointing this out.
I lookforward to your questions.
Any other experienced guys/gals like to help me out here?

tech----John

[kifoghorn]

Ok whats CFDs and whats the best software, prefferable free :D

[RodC]

CFD's are Contracts for Difference. (a type of derivative) that gives quite high gearing/leverage.

check out this thread

http://www.aussiestockforums.com/forums/showthread.php?t=531

Rod.

[tech/a]

K.

I wouldnt be looking at CFD's while in your trading apprenticeship.

As for software Im afraid that unless your using a full service broker you wont have access to the software you need.

Even then it wont have the dexterity software like mine has.
EG I can search for prospects with certain criteria like I did to get some of the Stats above.
Youll also need a data feed which is again expensive to some.


My software data feed and live feed total around $4K.
Add to that Testing software and thats another 1.5K.

So can get up.

Cheapest testing and charting software thats anygood I think would have to be Amibroker.(I dont use it).

Data feed Just data a one Off $680 ish from memory.

Live feed I use Marketcast as its SBS rather than online.
$400 setup and $160/mth.

And they reckon the markets full of sharks!!!

tech

[still_in_school]

Hi Techa,

Tricom Brokers, now offer a platform, that is free for both trading the FX and commodities, the data feed is live, but no training is provided, unless requested.

though i have the program, i havent used it yet for online trading, as its still same price over the phone, as to the alternative online trading (and confirmation from your broker... if they trade is a wise trade.)

Cheers,
sis

[markrmau]

If your handy with linux, there is qtstalker which is free - as in idealogically free, and free beer.

It has most indicators stoch, obv, ult, macd .... and easily imports ohlc data from yahoo (and other sources).

Cheers,Mark.

[tech/a]

Well Im still at it!!

Ive been testing ideas for the last couple of days and still cant find a method which tests profitably!!

Seems from the other thread no one else has offered any ideas up either.
Ill keep at it!.

Anyone out there have a method they have been using which appears to trade profitably that they would like coded up and tested?To see if long term Theory = Practice.

tech

[RichKid]

Hi tech/a,

Really glad to see this thread going well. I don't have any special software so I can't filter stuff. I just 'eyeball' for trends once I hear about something and check it out.

But coincidentally I came across BSA and CUE which were on your charts (CUE has jumped up from where it was on your chart- watched it at 11c after a 'tip' but didn't enter as I expected it to fall lower and consolidate, oh well...), BSA is trending well IMO, no signs of the trend reversing. I got into BSA at about 21c but as I was inexperienced I jumped off after setting a tight stop loss. I didn't watch the stock properly after that but I'm considering re-entry. From my reading of Edwards and McGee we should follow the trend until we get a signal to the contrary. I'd look to enter at 43c (support) and exit if it closes below 42c (support)- but that's just me being cautious. I'd also consider a close at or above 45c (resistance), on volume (1.5m+), to be a strong buy signal.

I use volume mainly to confirm trends and signals- I've an eye on NMC for example and notice support at 4.5c but expect a fall to no more than 4c (maybe 4.3c first) and to consolidate and then fly through 4.5c. If it doesn't fall below 4.5c next week I'll probably buy as that'll be some evidence of support, just depends on whether there are better opportunities. Interest (orders) has increased but volumes have not really reflected the surge. Volume just confirms the price trend though.

Anyway, those are my views. I mainly look around for co's that are forgotten and look like they're recoveirng TA wise and then try to time a proper entry (that's how I came across DES and AZR- mentioned elsewhere). Also the same with HDR except it was trending strongly and was not forgotten, but I'm getting off topic now. So I still have to come up with a set system but the key is tactics rather than just picking trends IMO. I also like co issued options/warrants for more leverage. but still learning....

[cabbie]

Hi Tech

I'm curious to know from which sectors do the majority of the stocks come from your explorations. Given the run on the energy sector, are there many junior oil explorers?

The reason why I ask is that, I read/heard somewhere that oil explorers can be the most predictable of stocks. That is they make an ann. to drill, if it's considered a potentially profitable drill, a run will start (if the time period is in the near term eg 2/3 mths), then from about 4/6 weeks before the drill (or spud date) the run will resume up until the spud date, ease of then resumes again as target depth approaches. Of course the fun will start as the drill progresses!! (with the results usually entirely unpredictable ! with a few exceptions.)

This is of course a bit simplified, but I would think some study & analysis might produce a bit of a pattern.

I've only tinkered around with a few species, with mixed success, so I'd be interested to know it a reasonable trading plan could be developed.


Regards


ps. any idea when tradesim 4.0 will be released?

[tech/a]

RK
Things are actually a bit slow as I havent had time to play much with this.
Still not finding a method which returns a profit.

I think the smaller the cap and the Larger the universe of stocks the harder to return a profit.I havent worked much on which stocks to include.

Dog"Catcher"(Does that mean you catch dog stocks and trade them?).

Id have thought that anything remotely associated with oil would benifit from 12 mths of super bullish price hikes.

But agree that a small universe is best.

V4.0 Tradesim.
Ive had mine 6 weeks.
Its on the site.

John

[pete152]

Well I am also interesed in the .20c and under stocks but have yet found a reliable way of picking them
Peter

[stefan]

Ive been testing ideas for the last couple of days and still cant find a method which tests profitably!!Hm, I think you guys are looking for something that doesn't exist. Penny stocks are penny stocks for a reason.


I think the smaller the cap and the Larger the universe of stocks the harder to return a profit.I havent worked much on which stocks to include.I would fully support this statement. The smaller the cap the less likely it will return a profit. If a stock is worth 3 cents (like MUL for example) then obviously that's because it doesn't make a profit and as such is not worth any money.

Stocks in this price range tend to trade irrationally up and down based on rumours, news and speculation. I would be very surprised to see a technical analysis showing something useful yet alone picking the right stock before its next run.

IMHO there is no tech method to pick these sort of stocks simply because they do not behave in a way that would make them predictable.

Happy trading

Stefan

[tech/a]

Stef.

An interesting observation.While I am yet to find a profitable way to trade these,I cant then say I disagree with your observation.

However technically I can find and Identify impulse moves regardless of how/why simply using a breakout formula.Often for it to have a decient value it will need to be triggered intraday.However past moves indicate that there "Should" be some quick profit.

The sub 20c stocks move often over 50% so "Bang for Buck" or Reward to Risk can be high.Thats why many newbies like them ------- plus they are cheap.

Now I dont trade them as you know but the curiosity and the desire to see if we can find a method which is profitable goes on.

I actually do know a way but you need live data and a search capability.
I have that with Marketcast.I used to do this with 5K for some interest but dont these days as Im to busy to sit at the screen.But used stocks to 50C as 20c breakouts were rare.

At around now 10am I search for highest % gainers at heavy volume.
Id take only 1 or 2 trades if they were stand out and trade them intraday.
Ie Hold till close if it closed on its high Id log for sale at open tommorow.
If it was closing 25% or more off the high Id sell at close.

Just scanned and CUE at 21c would have been a candidate.Lets watch.

Anyway you may well be right but Ill keep banging the brain and see what developes.

tech
If it traded 2 ticks below entry then Im out.Did OK.

[Alvin]

yup, volatility is certainly a problem at these price levels, its just a matter of sifting through.
Did you use a software program to come up with your universe?

Alvin

[Dwib]

Tech/a,

I was wondering if you had done any further research on the penny stocks? And how did CUE go after you highlighted it on the 7th Nov?

I tend to stay away from the penny stocks as the lack of volume and there seems to be too many punters. But sometimes can't help myself.

Cheers
Dwib.

[Aussiejeff]

Hi guys.

I tried MXL for a while sometime back. Bought a heap at $0.12 and bailed two packets - one at $0.14 (profit) and tother at $0.11 (loss). They are now trading at about $0.08 or so, so I am GLAD I bailed when I did!

As always, this stock promises, promises, PROMISES! But as yet, the BIG promised contracts have yet to materialise. Given that they have Microsoft partnership, maybe that explainds it! hehe.

But if they really DO sign a big one, they will likely rocket - maybe 200% in a few months I would guess. However, the TIMING is the thing. I still have my eye on them and cash in reserve..... one day, one day .....


AJ

[Aussiejeff]

Oh, and good luck with trying to find a 'scientific' or 'logical' way to trade the "penny dreadfuls", Tech/A. ;o)

With my very limited experience in trading these "little monsters" (ABI, MXL, INT, EPT to name but a few), I honestly feel that the fortunes of these stocks are almost entirely in the hands of momentary market perceptions, whims, flights of fancy, rich rampers & dumpers out for a 'bit of fun' and even occasionally - just occasionally - a response to a fair dinkum, positive, no BS company news result!

But thats just my opinion. If you CAN come up with something less 'iffy' than I just postulated, I'll be the first to throw a few $quid on the barbie! hehe.

Cheers and good pickings...

AJ

[RichKid]

Customers CUS seems to be doing well with the recent deal and what in hindsight appears to be a saucer shaped recovery. Money will now flow in directly through the new ATMs (yes, the money machines). Worth a punt with your method tech? Most of the quick gains may have been made already but they are still on the look out for more ATMs.

[DaBubbA]

Hi Tech/a,
There are definite models out their to predict the price movements.
Sounds to me that you are trying to find a model that will predict and measure the impact of news on a stock then apply buy sell limits to ensure a profit.
If you interested in these type of models I suggest: News Impact Curve, ARCH and GARCH models. Briefly these are time series models that predict the future price within a confidence limit (ie 80% confident that the price at time t in the future will be $) given the previous performance, trend, volatility, and intra collelation.
Without getting technical traders don’t use these models to trade. Why, they are time consuming to develop, hard to understand if you don't have a stats background, and they have limited accuracy.

I can suggest the following parameters of stocks that you may like to test.

Volume - The stock must have some volume. Enough volume so the share price is not strongly effected by just a few trades.

Price Effect - The variance effect of a news announcement should be felt for 2 - 3 days plus.

Support Price levels - The stock needs to exhibit Support levels (ie a price the stock seems to be hovering around.)

Given the above stock type and information, this will allow you determine a Support price level to buy into and measure the expected effect of a news impact (initial impact). Given the expected variance and time lag of the effect you can set your buy/sell limits.

Can I suggest small to mid cap miners/explores, even if the price is up near the 50cents mark.

The above analysis is not suited to a day trading environment of large % gains and losses. Why, the data is hard to measure and even harder to predict. This type of data is effected by rumors and punts. Might as well play roulette.

Keep searching for that golden model. Regards, DaBubbA.

[emma]

I've been using the Tech Trader scan on all the ASX stocks since January and some interesting stocks that have shown up in the 1 - 50c range and the date of the scan, price on that date and last closing price are as follows:
AGM 04/4 .27 .395
AND 23/2 .385 .415
CBH 16/1 .29 .47
CMX 21/2 .395 .51
EXT 16/1 .042 .145
INL 12/4 .11 .135
MND 21/2 .325 .40
NMC 15/4 .084 .10
SDL 21/2 .058 .085

Food for thought?

[RichKid]

I've been using the Tech Trader scan on all the ASX stocks since January and some interesting stocks that have shown up in the 1 - 50c range and the date of the scan, price on that date and last closing price are as follows:
AGM 04/4 .27 .395
AND 23/2 .385 .415
CBH 16/1 .29 .47
CMX 21/2 .395 .51
EXT 16/1 .042 .145
INL 12/4 .11 .135
MND 21/2 .325 .40
NMC 15/4 .084 .10
SDL 21/2 .058 .085

Food for thought?

Very interestig Emma, not surprising that almost all are resources stocks, the list is short so I assume these are a personal selection. So is that just the normal TT scan limited to 1c-50c stocks that you use or is it the TT MicroCap Scan mentioned in this thread by Tech? This scan might be an extra filter to use for discretionary traders to limit the universe...Still following this Tech?

[emma]

The scan is run over all the stocks in the ASX - I'm running a small Tech Trader portfolio (but not using margin) as well as a paper trading using some of these small stocks that come up just to see how they could be traded.

The scan usually turns up a few stocks each day e.g. my April watchlist has 34 stocks on it of which 14 have have gone down since the date they were put on the watch list but that leaves 20 that have gone up with varying degrees of success.

About 3 of those that have gone down appear to be forming a flag - that could present other possibilities.

[tech/a]

Yes still looking at the comments.
I have a bit to input but not the time to until the weekend so will get back then.

[tech/a]

Well I have made some headway and while not tested through tradesim or other software I have had some good results.

I frankly dont like discretionary trading as most know as I cant measure it and quantify it.
As such I wont use it for longterm investment.

However the idea of picking up a few K from a 10K trade once a week or even a few a month,has always had me interested.Particularly as I have a ticker on my desk and it has an alert function where every 15 mins it shows biggest winners,losers,%gains,%losses,highest volumes and highest number of trades.I have watched 100s of opportunities go by.

But of late have tried again with pretty good results.
1 win of 5.5k
2 wins of 3-400
One loss of 400 and another of 350

2 open trades one 500 loss and the other 1500 win.

In the process of ditching the full service broker for these trades. Too slow and too expensive.

Anyway this is what Ive found.

(1) Use cheap online broker.
(2) Be patient.
(3) I buy 1/2 first then if it rises 4 ticks the other half.First half I buy at support if I can.
(4) Set really tight stops and dont be afraid to leave quickly and return again if resistance on intraday chart is broken.
(5) Set a profit target at at least 4 X risk (I'm using 2% of total trade capital on each trade).
(6) Most fly from announcements I find if I can buy on the day of announcement the best exit is OPEN the next day when others come on late.
(7) Entries are simply from the alert Quick % gain on volume and large number of trades. I have a look at the intraday chart(You can see one here on the Yahoo link above) and if its broken out of resistance or out of a retracement then Im in.MUST LOOK OBVIOUS.
I look for announcement and the most meat it has to it the more Ill invest.

Currently on FXR and AGM (again).


Ill do some more figures and report back if interested.

[RichKid]

(1) Use cheap online broker.
(2) Be patient.
---
--
Ill do some more figures and report back if interested.

Tech,
I recommend CommSec (19.95 per trade for small parcels), as much as they can be a pain they are the cheapest and most efficient imo. One options trade a quarter and you get their full platform, otherwise the basic level is free. You can just buy a $0.001c option if you want for about net $36 brokerage to keep it going per qtr. There's a link here on ASF to the old ProTrader platform that's better than their new one, pm me for help if you need it.

Looking forward to the results, not a bad time to ride these.

[wombat40]

tech u say the cheapest and best charting software is amibroker....ur rite it is....but the learning curve unless ur a comp geek is so bloody long.....u can lose ur money before u get the gist of it....

i reckon u have to give out a warning that unless ur prepared to put in hard yards with the software then dont bother.....people here give black box systems a hard time but u dont have to code them....

i cant see why more people use charts like incredible charts and fcharts that take away the time factor and u can get straight into it.....its not the gobbligook formulas that make money....as we know...

mark

[tech/a]

its not the gobbligook formulas that make money....as we know...

True but its the ability to test wether our ideas will be profitable in the long run and give us a blueprint to work with.To be able to give us the ability to improve our trading without waiting years to find out that the changes didnt work or made little difference.

Took me 6 yrs to be competent and I'm still learning.
Most expect to make a wage from trading this expectation is un realistic if you dont spend the time learning your new chosen career.
Fundamental OR Technical or BOTH.