Are We There Yet?

Jesse Livermore on Paper Trading...

It is like the old story of the man who was going to fight a duel the next day. His second asked him, "Are you a good shot?" "Well," said the duelist, "I can snap the stem of a wine glass at twenty paces," and he looked modest. "That's all very well," said the unimpressed second. "But can you snap the stem of the wineglass while the wineglass is pointing a loaded pistol straight at your heart?"

__________________________________________________________

Linus Empathy

There's no doubt that a trending market will soon be upon us. When that is, I don't know. The challenge is to keep the losses to a minimum during trend-less periods when using a method the requires a longer trend to produce worthwhile gains.



The hindsight-biased CMI 3.0 missed key opportunities earlier in the year, although this, I believe, has been resolved with the final version of Cheetum Market Indicator. How's that for confidence in the grip of quicksand? Although the final version has not been released, the current CMI is doing a good job of mirroring the signals of the new method.

This week's QID trade just happened to be a day or two late and several dollars short. Transitions between a QID trade and QLD trade are not always pretty, but eventually do pay off over the course of the trade. This is why I check the status of the system daily but don't pay attention to the market on a daily basis unless I have a some sort of short-term trade in the works, such as the 2% Solution. Games like these keep the little chimps in the back seat quiet.

____________________________________________________________

Paper Trading the 2% Solution

Earlier in the week I took the challenge to buy a stock at the open for five consecutive days in order to achieve a 2% gain within the day, preferably within the first few minutes of the day. 2% is actually 1.7%...just go with it for now! Running a screen to extract some good candidates to buy, I actually came up with four stocks and one leveraged ETF. I decided to paper trade these using the actual opening price, so that may not reflect a true opening price, although it has been close in the past when doing this for real. So how did the challenge turn out by the end of the week? Glad you asked.

The rules for this trade were simple: buy at the open, set a stop 1.7% below the open price, and sell if the price moves up 1.7%. Simply put, I am betting that the chosen stocks make 1.7% before they lose 1.7%. The same four stocks were bought each day. I disregarded the leveraged ETF(DRN) for the test , and used GLNG, CPLA, SNDA, and KITD. Criteria for the stock selection can be found in the related post below.



The colorful chart says this was a success...this time. A cumulative gain of 3.4% for the week, not including commissions, was attained. Not too shabby for such a lousy week...and such a tight stop. For the week, 14 of 20 trades (70%) were winners, average trade duration for the 14 winning trades was 48 minutes, and the average drawdown for the winning trades was 0.7%.

Best to have a quick trigger finger, a big day-trading account, and a low commission brokerage service.

Must have been lucky this week...so I'll try again next week while we wait for the next great market trend. Let's go with KITD, AREX, GLNG, and INT. The only change I'll make will be to have the option not trade on a day that looks real bad like Thursday of this week.

When this 2% day-trading gimmick blows up and I get a face full of banana stew, the 2% Solution will become piranha food.




Related post : Return of the 2% Solution.