Selecting from several securities

(18 posts)

  1. RickT
    Member

    Good afternoon

    I have several strategies that have tested over the past 11 years to return an average annual growth rate of up to 32%. I use these strategies against ETFs and mutual funds. However, even though they have tested well, I still have a problem. I only have a finite amount of money and can not buy all the securities that exhibit a buy signal on any given day. So my question is

    How do you select which security to buy when you have several to choose from?

    I don't know if this has been covered elsewhere in this forum, but if it has, please give me a lead and I will find it. Otherwise, I would like to hear from any of you that have a viable solution.

    Thanks

    Rick

    Posted 2 years ago #

  2. Donato
    Member

    Flip a coin. Even the richest man in the world does not buy every security that looks good every day.

    Seriously though, it sounds like your backtesting has a flaw. You are unable to fund it. Maybe a rich partner is in order.

    Do remember, the more you fine tune the strategies, the more likely they are fail you.

    Posted 2 years ago #

  3. RickT
    Member

    My backtesting may very well have a flaw, but my question remains.

    When you have several securities to choose from because they are all showing BUY signals, how do you choose? In a statistical based system, there MUST be a method that gives you an edge. Granted, that method will not work 100% of the time, but it should still provide an edge. And isn't that what any of our systems is trying to do?

    Posted 2 years ago #

  4. Donato
    Member

    Since we don't know what your strategies are, we cannot give you an answer. But (if you are going long) you may want to consider things like which sectors show the most strength, which equities are at key levels (like 25, 50, & 100), and my all time favorite, using just good old fashioned support and resistance.

    Interestingly enough, you are asking perhaps the single most difficult question to answer for someone trying to enter the market.

    Personally, I also like charts that look "clean", you know, charts that move in an orderly manner. With few wide daily swings or opening gaps.

    Good Luck

    Posted 2 years ago #

  5. roughbert
    Member

    Rick, are you telling us that you don't trust your own strategies, or that they come out exactly the same (in which case I don't trust them!)?

    BTW your 32% means nothing unless it is qualified by the method used to calculate it, and even if it is still 32% it means nothing unless you can state your strategy so others can back-test!

    Strange that everybody has a certain money-maker up their sleeve which is a secret.

    Even back-testing is only a comparative tool - you cannot calculate what your actual returns would have been because you simply do not know what price you would have paid.

    People mostly use the closing price on the day a signal was generated. How often can you go long after such an "up" day at the previous day's closing price? Equally, a reversal signal may trigger closing a long and opening a short position in the same stock. Ten to one the model uses the previous day's closing price for both.

    Many "trading systems" also conveniently forget to account for broker commissions too. It's a disgrace! And one which I once tried even allows itself to cancel the previous day's trading signal on the following day.

    So when you go making claims for your method, you are joining a pretty unsavory peer group, and the only way to show you are different is - full disclosure.

    Posted 2 years ago #

  6. RickT
    Member

    roughbert

    Appreciate your comments, however, where did you think that I do not trust my strategies? And although you questions and comments are valid, they detract from my original question.

    What I find interesting here is that some are mistaking strategy for system. Maybe I am one of those who is mistaken. To me, a strategy is nothing more than a BUY/SELL/HOLD evaluator. It analyzes a security and indicates what should be done with it. A system, however, when built around one or more strategies, will indicate how much to buy, how much to sell, which of several 'buy candidates' should be bought, etc. It is more than just a strategy.

    Although my strategy has good returns (and I will stand behind the returns that my strategies have given in backtest), my system may not. I contend that before one can develop a good system, they must start with a good strategy. It is fruitless to develop a system around 1 or more strategies that are erroneous. I believe my strategies are good so I am now working on incorporating them into a system.

    Whether my strategies have superior returns or terrible ones has no bearing on my original question. Whether my strategies use moving averages, RSI, stochastics, or some other indicators also has no bearing on my original question. My original question was

    When given multiple securities that have BUY indications, how do you all go about selecting which one to actually purchase?

    For example, is it the one that has the greater delta between it and its 200 day moving average, or the one that has the greatest RSI, or ???? If it is an indicator or combination of indicators, they can be added to the system to enhance and fortify the main strategy.

    I appreciate all comments, buy especially those that go towaqrds answering my question.

    Rick

    Posted 2 years ago #

  7. Donato
    Member

    Rough . . .
    You tried!

    Rick . . .
    I have not found any indicator that repeatedly works well, so I don't use any. Using one indicator as a signal and another as a trigger works better, or so I understand. The only thing that really works for me is learning how to read candlesticks, combined with strict money management, throw in your basic support and resistance, then look at the trend in various time frames.

    If you don't want to explain your strategy so we can actually answer your question, due to time or any other reason, maybe you could just give us a few of the picks your system gives you. Then we could give you our opinion on what we think of them. That might help give you some insight on the strength of your picks.

    Otherwise, we've got nothing to work with to answer your question. Remember, there is no Holy Grail to picking equities; that is why it is called speculation.

    Posted 2 years ago #

  8. roughbert
    Member

    Rick, I was assuming that you have calculated the return on each of your strategies. If two of them come up "buy" and you have only enough cash for one, why not go with the one which gives the best return.

    BTW, if you don't want aspects of your question discussed, leave them out! This helps to concentrate the attention of your audience on what you consider to be the important part.

    Posted 2 years ago #

  9. craig7
    Member

    Rick, you have asked a challenging question. I am like most people that have already commented. I do not use indicators as any part of a buy, hold, or sell strategy. I purely use the price for triggers on buy, hold, and sell. Do understand that I do use indicators, but only to help confirm the price and this may seem odd since I consider myself a technical trader.

    To try to answer your question, I believe you can drive yourself crazy by trying to figure out which stock to buy with multiple stocks from which to choose for the best trades. I believe a lot depends on which sector the stock comes from. Another factor may be the Beta on any give stock. I do not believe that there is an indicator or anything else that can tell you which stock will move more than the other stocks.

    I trade ETFs and I do so to help make life easier for myself. If several of the different Index Funds trigger a buy and I have limited funds at the time, I will choose the leveraged funds to get the largest bang for my buck. In your case, if using a screener and several stocks trigger alerts, you have to decide which has the best risk/reward ratio based on your expected target for each stock. It also will be wise to see which sector each stock resides in. Which sector is stronger or weaker that the others? Where is support or resistance for each stock?

    One thing I want to point out. You think no one is answering your question, when I believe you actually are getting the answer. You seem to be looking for that Holy Grail of indicators, strategy, or system and there is no such thing. That is what makes trading difficult. I have tried zillions of indicators and played around many strategies and systems over the years. Nothing has proven worth the time I spent trying to develop the perfect strategy or system.

    http://www.etf-technical-analysis.com

    Posted 2 years ago #

  10. jeffshepherd
    Member

    Rick,

    You are asking "How do you select which security to buy when you have several to choose from?"

    Do you mean how do you choose which security will give you the greatest return over a certain period of time? If so then you will only know the answer at the end of that period. Having said that, some fundimental analysis of the securities in question might give you a better clue as to which security has the better potential???

    Posted 2 years ago #

  11. RickT
    Member

    All

    I am starting to understand the problem with my request. So I will try to restate and give some examples.

    I am developing a completely automated system. I have developed and used extensively a semi-automated investment system that has done me well over the last 20 years. But, I am trying to gain more of an edge as well as leave the human element out of it. That also leaves fundamental analysis out.

    If we take one of my strategies, on any given day it might alert me to several securities that are flashing a buy signal. That buy signal might come from moving averages, or donchian channels, or RSI signals - it really does not matter. What matters is that there are several BUY candidates.

    Because I can not buy all of the securities that are buy candidates on any given day due to not enough $$, I have to prioritize which of those securities will be bought. And I want to do this with whatever statistical method would give me the greatest edge, or the greatest chance of succeeding. Granted, the success or failure of any security can only be known after the fact, but if we can work with an edge, even though it does not succeed 100% of the time because there is no such thing as the holy grail of investing, we have a greater chance of making more $$ than if we just blindly choose which to buy when we have several choices.

    Tom Lydon has a method which he has presented (although I can not find it at the moment). Larry Connors has a different method which he has published. The Turtles had yet a third method. I have used risk/reward ratios, volatility, portfolio co-variance, portfolio semi-covariance, all with varying degrees of success.

    I am constantly searching and refining my methods. That is not to say that I am curve fitting or over optimizing. My methods tend to be simple and I will be happy to present them here when I have designed my latest system. I have more research material than I can shake a stick at and having been a systems analyst in a previous life am well acquainted with design and implementation strategies.

    So, before I begin a correlation study to determine what statistical values have led to high growth securities (I do not really want to perform that study - it is very time intensive), I am asking one of the communities that I know about what their techniques are. I have also asked other communities of which I am a member.

    The answers and general tone of those answers lead me to believe that this may be a new area of investing to some of you and that it may not be deemed important enough for others. That is OK. In that case, consider that I have started a discussion from which we all may learn.

    I am NOT trying to find a holy grail. I am only trying to increase my investing edge. That is why we spend time developing investing systems - to increase that edge in order to maximize our profits.

    Thanks

    Rick

    Posted 2 years ago #

  12. Donato
    Member

    Rick . .
    We will all be interested if you get an answer you consider acceptable from another forum.

    There is something I'm curious about, something that has conspicuously been missing from this thread . . . How do you determine your exit from a position?

    Posted 2 years ago #

  13. RickT
    Member

    Actually, exits have been missing because they were not the subject of my inquiry. But,

    My exits are determined within my systems and vary based on the strategy in use. Some of my moving average strategies use the moving average value while others use % stops. My donchian channel strategies use atr stops. Some others of my stratgies use RSI values. I have also used profit levels to determine the exit point. And I have a system that uses the prioritized list of securities to buy and sell based on the position in that list. That list is prioritized based on a reward/risk ratio and has been performing quite well.

    I can not take credit in full for any of the strategies that I have been analyzing because they are either someone else's or they have been built on the work of someone else. However, I will take credit for how I tie those strategies into my investing system even though the building blocks have their basis in the work of others.

    Thanks for asking

    Rick

    Posted 2 years ago #

  14. craig7
    Member

    Rick, I wish you success. I understand the frustration. I, like you, have tried various methods to improve performance. However, unlike you, I have given up. I commend you on your effort and tenacity. Keep it up!

    I have subscribed in the past to the Stock and Commodities Magazine and every month you could submerse yourself in other’s methods, strategies, and systems. I have about gone bonkers trying to understand other people’s methods and trying to build my own. There is another Forum I am part of that uses TAZ (Traders Action Zone = area in between two moving averages). It has proven quite effective in selecting opportunities.

    Posted 2 years ago #

  15. Donato
    Member

    Hi Craig . . .
    I did a quick search on using the Traders Action Zone for trading. From what little I saw, that looks like a methodology that fits right in with my style of trading. Can you recommend a site (or sites) that you consider good or have benefited from?

    Thanks

    Posted 2 years ago #

  16. craig7
    Member

    Donato, I use TAZ as a part of my analysis that I do on my Web Site. I was amazed how useful it is. I found out about TAZ at http://www.chartwatchers.com. The idea behind the method is when price moves into the area between two moving averages, it is either support or resistance relative to the positioning of the moving averages and price.

    Many people use a 30-day and 50-day moving average. Others use a variation of that. I actually love Fibonacci in everything I do. I use a 13 and 55-day Exponential Moving Averages. I also implement a 233-day EMA and play off the 55 and 233-day EMA for the long-term trades.

    In a bull market when the 13-day EMA is above the 55-day EMA and the price moves below the 13-day EMA is an alert. When that happens, you wait for confirmation. I use candlestick charting and use it to help in identifying potential change in direction. I look for an up close and/or a higher low. Once the price moves a little higher, I place a stop just under the previous low. You want to see the price break the previous high for a couple points profit. You repeat the process as the market continues to trend higher.

    I hope this helps a little. You can also check out my site at http://www.etf-technical-analysis.com.

    Posted 2 years ago #

  17. Donato
    Member

    Hi Craig . . .
    Thanks a bunch. Chartwatchers was one of the web sites I quickly looked through and flagged for further study. I ended up spending the whole afternoon getting familiar with TAZ. It really ties up a few areas in my swing trading where I was just winging it; you know, where I was trying to do the right thing, but couldn't actually put a trading rule to it.

    If you look at the seventh post down from the top, you'll see I try to keep it rather basic and simple. It got to the point where I don't use any indicators and only want price and volume on my charts. But I think I'm ready to throw up a couple of trendlines to keep the candles company.

    I'll be sure to check out your web site also . . .

    Thanks Again

    Posted 2 years ago #

  18. craig7
    Member

    Donato, I am like you. At one time, I was using too many indicators. I was trying my best to find that indicator that would tell me what to buy, when to buy, and when to sell. I finally realized that the more simple it is, the better. I use EMA, trend lines, support/resistance levels, candlesticks, MACD, Slow Stochastic, and volume. Oh yeah, TAZ. I also implement Elliott Wave and Fibonacci. That is it! I only use MACD and Slow Stochastic as a confirmation more than anything else.

    Posted 2 years ago #

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