I have been playing around developing a system of my own, as I feel this is the best way to truly understand what is going on.
As I am a software developer, and have access to asx data, I decided to write my own program that would search the stocks and run them against certain criteria.
My trading system to date is -
Run program at 3:30pm each afternoom
Stocks are examined for the following criteria:
- sp gained more than 5% throughout the current day
- my purchase ($3000), is less than 1% of total volume for the day
- stock has had positive growth over the last 3 days, of which each day is less than today's gains
- each of the last 3 days closed within 2 increment of the day's high
- total volume today is greater than 5 times the average of the last 3 days
- sp gain today is less than 20%
- last sale price was within 1 increment of the day's high
The program takes approx 5 minutes to run.
On completion I then have a list, usually consisting of 5-12 stocks. This list is ordered in terms of volume, then market turnover. I manually watch these stocks for the next 10 minutes, as the market draws to a close, concentrating on the top 3.
If any of the top 3 enjoy any further gains, I take this as buying pressure, and make my purchase accordingly. Usually at about 3:55pm.
On open the next morning, I sell the stock once it triggers an exit alarm.
- stock has remained within 1 increment after 1 hour has passed, and volume is low compaired to previous day
- stock has opened lower by less than or equal to 2 increments
- stock is climbing, but has started to retrace
- end of the day has come
I have been paper trading this for 2 months, and have the following outcomes:
Win ratio - 70%
Average Win Amount - 4.5% (incl. brokerage)
Average Loss Amount - 6% (incl. brockerage)
Based on the above outcomes, the average profit per trade is 1.35%.
From simple mathematical analysis, if I increase the win ratio, increase the average win amount or decrease the average loss amount, then the system would return a much higher profit per trade.
I have in the last 2 weeks gained confidence in my system, and decided to get my feet wet, only to find that I have had 1 win out of 10 trades. This equates to an average of a loss of -4.95% per trade. That hurts....
One thing I have noticed myself is that most stocks returned by my program are in the range of $0.04 - $1.00. This results in fast movements through increments. When it works its great (some paper trades 30% in one day), when it fails its bad (have lost 8% by going to get a glass of water...).
Can anyone please provide some constructive points about how I can improve this system, or where the nearest bin is so I can start again...