# Scalping Lynas experiment



## Gringotts Bank (7 November 2011)

To be profitable, one needs to buy within 1.5c of the low price (or less), then sell at tomorrow's open.  That's a 3 price level window of opportunity.  Can it be done?

It's basically a depth reading exercise.  If it works, *will *yield 50-100% pa and extremely low drawdowns in bull/neutral conditions.

Paper trading to begin. I have bought $1.15, real volume, real time.  I can't prove it, and I don't care.  Neither should you!

A wider window exists if selling at close, up to 2.5c, but only in bull market conditions.  Anyway I'll start with the method as is.  Make it harder!


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## tech/a (7 November 2011)

How do you know that your 1.5c from the low of the day?
If you have an open lower than your buy price what do you do?
Do you have a stop?
How do you manage risk?--whats the strategy?
How do you justify the 50-100% claim?

_Wouldnt you be better off trying this at a support level rather than EVERY bar?

Like $1.10._


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## Gringotts Bank (7 November 2011)

tech/a said:


> How do you know that your 1.5c from the low of the day?
> If you have an open lower than your buy price what do you do?
> Do you have a stop?
> How do you manage risk?--whats the strategy?
> ...




You read the tape, and if you're wrong, you're wrong, and you won't get your 50-100%.  As I say, you have to be able to read the depth or you won't make those sort of returns.
O<C, no problem.  O>C, no problem.  Just read the depth.  
Time stop only.  EOD or tomorrow's open, and that is my risk management.  I've done the sums on that.
50-100%?  By backtesting.


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## skyQuake (7 November 2011)

Gringotts Bank said:


> You read the tape, and if you're wrong, you're wrong, and you won't get your 50-100%.  As I say, you have to be able to read the depth or you won't make those sort of returns.
> O<C, no problem.  O>C, no problem.  Just read the depth.
> Time stop only.  EOD or tomorrow's open, and that is my risk management.  I've done the sums on that.
> 50-100%?  By backtesting.




Why sell at tomorrow's open?


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## nioka (7 November 2011)

Anyone trying to trade LYC is competing with bots, shorters and manipulators on a grand scale. Until there is certainty regarding start up date this stock will continue to be the subject of much manilulation. To profit from trading LYC I find it necessary to buy after a couple of down days and be prepared to wait and hold until a price rise eventually shows up which gives a reasonable profit. There is no logic in the level of the SP from one day to the next.


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## Gringotts Bank (7 November 2011)

sky,  you have to sell some time.  Sell whenever you like.

You could put a .005 ProfitStop on it, but I can't backtest that without intraday data.  Could work quite nicely, I expect.

Absolutely nioka, you're competing with churning and manipulating bots a well as other traders and short sellers.  It's always like that, just harder with a short time frame.  I chose LYC because it IS the traders stock.  FMG a close second.


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## skyQuake (7 November 2011)

Gringotts Bank said:


> sky,  you have to sell some time.  Sell whenever you like.
> 
> You could put a .005 ProfitStop on it, but I can't backtest that without intraday data.  Could work quite nicely, I expect.
> 
> Absolutely nioka, you're competing with churning and manipulating bots a well as other traders and short sellers.  It's always like that, just harder with a short time frame.  I chose LYC because it IS the traders stock.  FMG a close second.




Alright, i read that as exit condition = tomorrow's open.

FYI, lynas trades in the US a bit overnight, so the next day's opening price is heavily influenced by where lynas closed in the US


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## tech/a (7 November 2011)

Will be interesting
Personally I think depth means little as sellers and buyers will hit at market.



> then sell at tomorrow's open




Condition for sell.



> Time stop only




When --how long.?


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## Gringotts Bank (7 November 2011)

tech/a said:


> Will be interesting
> Personally I think depth means little as sellers and buyers will hit at market.
> 
> 
> ...




Sell next open was the one and only sell condition.  That's a time stop, is it not?

Buy is whenever you feel you want to pull the trigger.  If you can get within 3 price levels of the low you will *rake it in.*  If....    Big if!

This past year, the one year return is >300%.  50-100% for longer term, and that's with a $50,000 each trade.
BUT it only works in certain market conditions.  The beauty is, the equity curve is VERY easy to trade.


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## tech/a (7 November 2011)

OK so you need to buy within 1.5c of the bottom on ANY DAY?

Dont know how you can do that?

Then sell on next open.


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## Gringotts Bank (7 November 2011)

Every day or every second day, yeh.

Well I did it today.  I bought at $1.15 (L= 1.135).

That's the experiment.  To see if it can be done.

I have a hunch I can do it.  Requires a bit of screen time, but once you've pulled the buy trigger you can switch your PC off for the day.


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## tech/a (7 November 2011)

So if (Hypothetically) it fell to say $1.12 (After you bought on the same day) would you sell on open still?


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## Gringotts Bank (7 November 2011)

yep.

The hardest days will be those where you have to decide whether to get in at open, because you expect the open will be the low.  

The easiest days will be the worst performing days.


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## Mistagear (7 November 2011)

Gringotts Bank said:


> You read the tape, and if you're wrong, you're wrong, and you won't get your 50-100%.
> 
> I've done the sums on that.
> 50-100%?  By backtesting.




Hi I'm interested to know why LYC now ?
Currently volatility is just over 6%, only 5 times in the last 12mths has it reached this low level, average has been around 10% plus it's been from a higher price range.
Trouble with backtesting is, the stock usually moves within the life-cycle, which I think LYC has, now in the mark down phase where trading opportunities may gradually decline as the stock nods off to sleep.
Dont get me wrong, 6% volatility is ok, but better if you are trading, leading into periods of expanding volatility rather than the other way around.
 Stock selection a whole subject on it's own..


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## Gringotts Bank (8 November 2011)

Mistagear said:


> Hi I'm interested to know why LYC now ?
> Currently volatility is just over 6%, only 5 times in the last 12mths has it reached this low level, average has been around 10% plus it's been from a higher price range.
> Trouble with backtesting is, the stock usually moves within the life-cycle, which I think LYC has, now in the mark down phase where trading opportunities may gradually decline as the stock nods off to sleep.
> Dont get me wrong, 6% volatility is ok, but better if you are trading, leading into periods of expanding volatility rather than the other way around.
> Stock selection a whole subject on it's own..




Mista, it backtests with far greater % returns than any other stock, even now.  
The other major plus for Lynas is liquidity.  FMG is a close second.  

I think you're right about life cycle but I still believe LYC is on a lot of radars, institutional and DT.  The equity curve is very telling.  It will let you know when to stop trading this way.  It can and will die at some point.

Currently in the queue at 1.16.  EDIT: ok bought now 1.16.


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## sammy84 (8 November 2011)

Gringotts Bank said:


> You read the tape, and if you're wrong, you're wrong, and you won't get your 50-100%.  As I say, you have to be able to read the depth or you won't make those sort of returns.
> O<C, no problem.  O>C, no problem.  Just read the depth.
> Time stop only.  EOD or tomorrow's open, and that is my risk management.  I've done the sums on that.
> 50-100%?  By backtesting.




Gringotts,

I'm very curious how you've back tested a strategy which has reading market depth as an entry criteria. 

Have you actually back tested your strategy, or just certain aspects of LYC?


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## Gringotts Bank (8 November 2011)

Just certain aspects.  Reading the depth is discretionary.  If you nail the low within 3 price levels you will make *big *%gains according to my backtests.

This is an experiment remember.  I'm experimenting with my depth reading.  I'm 1/1!


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## prawn_86 (8 November 2011)

Gringotts Bank said:


> Paper trading to begin. I have bought $1.15, real volume, real time.  I can't prove it, and I don't care.  Neither should you!






Gringotts Bank said:


> EDIT: ok bought now 1.16.




Hi GB,

Please note if you are going to post a trade journal you need to post both your entries and exits as close to possible as real time, this is required across all trade journal threads at ASF. 

I can see both entries but when did you exit the first trade and at what level?

Cheers


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## Gringotts Bank (8 November 2011)

Still paper trading prawn, but am using real volumes and times.  I'm only doing it for a week to see how my skills measure up.

Yesterday bought 1.15 sold today's open 1.16  +.86%
Today bought 1.16

$50,000 position size.  The sell is always next day's open.


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## tech/a (8 November 2011)

> The sell is always next day's open




So this is an over night day trade.

Why wouldnt you hold a trade if you were just to buy at open anyway?
Think it has merit but for me would need a few filters.
Like forget it if a down trend in place or Indexes belted over night.
Have you looked long and short?


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## Gringotts Bank (8 November 2011)

Exactly, no point selling if you expect to buy again at tomorrow's open.

SO, if I trade it for real, I will either trade every second day, or I will alternate with using FMG.  Or, if tomorrow's open comes and the depth is telling me to buy at open (because I expect O==L) then I let it ride another day.  For the purposes of this experiment, I'm selling at next Open.

Right now, the exit criteria could be a whole range of things, and what works best can be decided later on.   If I can read the tape within the specified markers for my entry, then I can do a few tests and decide on the best exit criteria.  The skill is *all *in timing the entry by reading the MD.  And I don't know if I can do that yet.


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## tech/a (8 November 2011)

> And I don't know if I can do that yet.




Dont know if I could be bothered.


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## nomore4s (8 November 2011)

The major problem I see is that your tape reading skills mean jack if holding overnight. Overnight moves have little to do with market action read from the tape the day before.

1 serious down night on overseas markets could cause serious problems as I can only really see smallish percentage returns from each trade.

Surely trading the SPI or one of the Asian indexes would give a better return? Without having to expose yourself to overnight risk. IE buy/sell on or near high/lows (pretty much same as you are saying you have the skill set to do here) and then sell on close.


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## Gringotts Bank (8 November 2011)

You're right but I'm sticking with the original criteria for the moment nomore4s - next open sell, so as not to confuse things.  This will still be profitable to the tune of 50-100+%, if my timing is correct, regardless of any overnight shocks.

In an earlier post on this thread I did actually mention that selling at same day close was much more profitable. (300+% in the first year).


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## Gringotts Bank (9 November 2011)

bid 1.17....filled at open


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## skyQuake (9 November 2011)

Gringotts Bank said:


> You're right but I'm sticking with the original criteria for the moment nomore4s - next open sell, so as not to confuse things.  This will still be profitable to the tune of 50-100+%, if my timing is correct, regardless of any overnight shocks.
> 
> In an earlier post on this thread I did actually mention that selling at same day close was much more profitable. (300+% in the first year).




The Sum of LYC's intraday Open to Close for the past year is -110%. While the stock is priced same as oct last year. Perhaps better idea to SELL 3 price levels from the high...

Holding o/n defeats the purpose of it.

Conversely, if you bought the close and sold the open for the past year, you would have made 124% from the opening gaps.


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## Gringotts Bank (9 November 2011)

skyQuake said:


> Conversely, if you bought the close and sold the open for the past year, you would have made 124% from the opening gaps.




No that's wrong.  You'd have made 13% even with full reinvestment of profits.

As for that first sentence, I have no idea what you're talking about.


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## skyQuake (9 November 2011)

Gringotts Bank said:


> No that's wrong.  You'd have made 13% even with full reinvestment of profits.
> 
> As for that first sentence, I have no idea what you're talking about.




You buy the open, sell the close. No compounding, just daily trades. You would have lost exactly 107% Meaning if u allocated $100 to each trade u'd be at $-107
Every day's p/l is 100*(open-close)/open

If you bought the close of each day and sold the next morning, with no compounding, you'd have made 129%

Data is with IRESS, date is 8th Nov 2010 to Now.


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## Gringotts Bank (9 November 2011)

skyQuake said:


> 1.  You buy the open, sell the close. No compounding, just daily trades. You would have lost exactly 107% Meaning if u allocated $100 to each trade u'd be at $-107
> Every day's p/l is 100*(open-close)/open
> 
> 2.  If you bought the close of each day and sold the next morning, with no compounding, you'd have made 129%
> ...




1.  Yeh...so what?  That's got nothing to do with what I'm doing here.
2.  No, wrong.  13%.  Others here can confirm that, it takes 2 seconds to test.


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## skyQuake (9 November 2011)

Gringotts Bank said:


> 1.  Yeh...so what?  That's got nothing to do with what I'm doing here.




We'll get back to this later after 2.



> 2.  No, wrong.  13%.  Others here can confirm that, it takes 2 seconds to test.




okok lets start simple. Past 5 days results: Do you agree? 8.28% from overnight gaps in the past 5 days


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## Gringotts Bank (9 November 2011)

I agree it's been gapping up frequently in the last 5 days and that you would have made the same high gains you've indicated in your table.

And over a year, 13% gain (profits re-invested).


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## skyQuake (9 November 2011)

Please see attached excel file then. Colume E sum = 128.75% (overnight gap)

View attachment LYC data.xls


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## Logique (9 November 2011)

Mistagear said:


> Hi I'm interested to know why LYC now ?....which I think LYC has, now in the mark down phase where trading opportunities may gradually decline as the stock nods off to sleep. Dont get me wrong, 6% volatility is ok, but better if you are trading, leading into periods of expanding volatility rather than the other way around...



To be honest, this is what I thought also, with the exception that I'm still bullish on Lynas for the medium to long term. And maybe sooner than we think. The Malaysian govt wants Lynas, I little doubt it. 

But more power to you Gringotts if you can make the strategy work, your 13% return is not too dusty in these market conditions.


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## Gringotts Bank (9 November 2011)

skyQuake said:


> Please see attached excel file then. Colume E sum = 128.75% (overnight gap)
> 
> View attachment 45120




I get a positive result, and I can make it >13% if I change my position sizing and allow accumulation of profits, but nothing like 128%.   A third party can settle this.


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## nomore4s (9 November 2011)

Skyquake's figures look good to me. Can't run it through amibroker atm though.


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## skyQuake (9 November 2011)

Gringotts Bank said:


> I get a positive result, and I can make it >13% if I change my position sizing and allow accumulation of profits, but nothing like 128%.   A third party can settle this.




Thats a very basic excel query... Its not a strategy, but just a distribution of where the gains are in LYC


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## Gringotts Bank (10 November 2011)

Bought @ 1.145

sky, we're doing slightly different things.  Your comment was: 'why not just buy the close sell the open?', which I agree has worked well, especially this last week or so.  

Far greater gains are possible for anyone who can come within 3 ticks of the low, then sell at same day close (or next open).


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## prawn_86 (10 November 2011)

Gringotts Bank said:


> Bought @ 1.145




Once again (and last warning), if you are posting 'buys' you need to also post your 'sells' what price did you sell all your other (still open) open trades?

Its an ASF policy GB, so if i dont start seeing closed trade prices i'm going to have to close the thread sorry


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## Gringotts Bank (10 November 2011)

from a post on 8th!!!



Gringotts Bank said:


> *I'm sticking with the original criteria for the moment nomore4s - next open sell, so as not to confuse things.*  This will still be profitable to the tune of 50-100+%, if my timing is correct, regardless of any overnight shocks.
> 
> In an earlier post on this thread I did actually mention that selling at same day close was much more profitable. (300+% in the first year).




So yes, any stock I buy will be sold at next day's open.  Do I have to tell everyone today's open is $1.14?!!
That's the experiment:  BUY = read the depth, get within 3 ticks of the low
                                SELL = next open.

I have commented upon other exits but the rule is sell = next open.  I'll compile results after a week.


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## prawn_86 (10 November 2011)

Gringotts Bank said:


> I'll compile results after a week.




OK as long as you post a summary of all your entries and exits weekly that should be fine


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## Gringotts Bank (10 November 2011)

Summary to date

Trade size = $50,000 (paper trading at present)
S1 = sell next day's open
[S2 = sell same day's close, purely for comparison, I expect this to work out better].


Mon___B:1.15___S1:1.16___S2:1.15  
Tues___B:1.16___S1: 1.17___S2:1.15
Wed___B:1.17___S1: 1.14___S2:1.19
Thurs___B:1.145


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## satanoperca (10 November 2011)

How are you going to deal with slippage?

Cheers


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## Gringotts Bank (10 November 2011)

The buys are real volume/time.  No slippage.

I'm assuming no slippage at sell = next open or same day close because for a $50,000 amount, that shouldn't alter the price too much for LYC (historically, that is).


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## Gringotts Bank (11 November 2011)

bidding 1.20 to get filled at open

Buy 1.19.

Not really confident but we'll see.


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## Gringotts Bank (11 November 2011)

Mon___B:1.15___S1:1.16___S2:1.15
Tues___B:1.16___S1: 1.17___S2:1.15
Wed___B:1.17___S1: 1.14___S2:1.19
Thurs___B:1.145___S1:1.19___S2:1.17
Fri___B:1.19___


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## tech/a (11 November 2011)

*The problem GB*

Is that when you do a look back on a test you can define the low as its already there.
In realtime it isnt---your taking an intelligent guess.
Youll be wrong far more often as you just wont know where the low is until close.
Your realtime results will vary dramatically from testing.
As the test knows where the low is.

As time goes by youll definately see what I mean.


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## Gringotts Bank (11 November 2011)

tech after 5 days I'm well within the boundaries I set.

Mon - B = +.015 from low
Tues - B = +.01 from low
Wed - B = +.01 from low
Thurs - B = +.005 from low
Fri - B = likely+.015  ? wait and see.

--Using same day close = sell, profits are negligible at $90.
--Using next open = sell, profit is $2000, which is 4% return on capital in a week (depending on how Monday goes of course).

Yes, this is about intelligent guessing.  Isn't everything?


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## tech/a (11 November 2011)

Gringotts Bank said:


> tech after 5 days I'm well within the boundaries I set.
> 
> Mon - B = +.015 from low
> Tues - B = +.01 from low
> ...




Not a critisism just an observation.
One of the reasons people find their systems dont work in R/T like they do in testing.
But 5 days is hardly a statistically significant time period. I have a feeling (and time will tell) that one very bad day where the low turns much lower and the next days low gaps badly lower could wipe out all gains.

But so far so good and good on you for putting it up!

No not a guess but can be an anticipation.
A guess is a floppy point of maybe---this is it.
Anticipation is -----From here if this happens do this---if not do this.


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## Gringotts Bank (11 November 2011)

I wouldn't call this a system, but a strategy based upon system backtesting (because of the need for discretion on entry).

--Entry is discretionary so long as it's <+.015 from LOW, then it will make you 100's of percent pa.  Last year it was 300%.
--Exit is defined.  

Even though next open was a better exit this week, historically, exiting the same close is far more profitable.

A large chunk of stocks will make you good money if you can buy near the day's low and sell at close.  What made Lynas different to almost all other stocks is the sort of profit it returned if you got within 3 ticks of the low.  This trend will definitely end when LYC either 1. morphs into a blue chip or 2. falls off the radar.  But that point will be very obvious, and it won't hurt the bottom line.

Given that the day's range is often set by 11am, the screen time devoted to picking an entry is fairly minimal.  If I was to trade it for real, I would definitely sell at close.  I want to try my hand at a few days where the range is much higher.  This week has been low in volatility.  A trade size of $30,000-$50,000  is required to gain maximum % return benefit without risking slippage.

Not liking today's entry, however...


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## skc (11 November 2011)

Gringotts Bank said:


> Not liking today's entry, however...




So you bought today at $1.19 and a low as of now is $1.16. This means your discretionary entry has failed to meet your criteria (within 1.5c of low).

Should you simply sell whenever price moves against you by 2c? Would that change your profitability?


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## Gringotts Bank (11 November 2011)

skc said:


> So you bought today at $1.19 and a low as of now is $1.16. This means your discretionary entry has failed to meet your criteria (within 1.5c of low).
> 
> Should you simply sell whenever price moves against you by 2c? Would that change your profitability?




Correct, and that means this trade is highly likely to be a loser (based on history), even though the price has come back to 1.175 now.

A 2c stop loss intraday would change things definitely, but I can't test that without intraday data.  

The large, large percentage of profitable trades are going to come when C>O, obviously.  But that can happen with an open that gaps lower then finishes higher, even if ROC(c,1) is < 0.


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## sinner (11 November 2011)

Gringotts Bank said:


> Correct, and that means this trade is highly likely to be a loser (based on history), even though the price has come back to 1.175 now.
> 
> A 2c stop loss intraday would change things definitely, but I can't test that without intraday data.
> 
> The large, large percentage of profitable trades are going to come when C>O, obviously.  But that can happen with an open that gaps lower then finishes higher, even if ROC(c,1) is < 0.




I am with skc on this, but would take it logically even further:

If you aren't using a 4 tick stop (based on your criteria) then you aren't actually betting on what you've said you are betting on, rather you're just putting on an intraday, long-only, price action exhaustion strategy without any stops.

My guess is if you use stops to verify your supposed trading hypothesis "I'll be profitable if I can buy LOD+3 ticks", you'll find the results vastly different *which essentially means your hypothesis is either wrong or you need to re-make a new hypothesis with inputs from the old one*.

As a note, without intraday data to test your actual hypothesis (incl MAE type measurements on intraday and cyclically adjusted basis) you certainly aren't making even an *intelligent* guess.


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## Gringotts Bank (11 November 2011)

sinner said:


> rather you're just putting on an intraday, long-only, price action exhaustion strategy without any stops.




That's exactly what I'm doing, except there is a stop.  The stop is a time stop (ie. EOD).  Where's the problem?

I suggest you read my entry and exit criteria - they're actually very simple.


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## sinner (11 November 2011)

Gringotts Bank said:


> That's exactly what I'm doing.  The stop is a time stop (ie. EOD).  Where's the problem?




No problem with the execution, just the description.

If you think you are actually buying LOD+3 then every trade should realistically have a entry point-4 stop loss.

On the other hand if "exactly what you're doing" (sic) is buying downside exhaustion, then all that stuff about LOD+3 is just jibber jabber and not even remotely related to your trading hypothesis.

As a note, there is no stop in the form of a contingent order, what you are in fact describing is an "exit". If the market suffers from an unexpected malfunction, or your internet dies a minute before market close or whatever, there is no contingent order or server side exit in place, therefore it's not a stop.

(which means your system should have rules on what to do if you can't exit safely EOD).


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## sinner (11 November 2011)

Gringotts Bank said:


> I suggest you read my entry and exit criteria - they're actually very simple.




Sorry, I have read the whole thread multiple times and have been following it since you started it.

I must be rather daft because I'm still not getting it, other than the broad concept, which  I understand well enough.

Can you actually define, algorithmically, what is the entry and exit criteria?


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## Gringotts Bank (11 November 2011)

sinner said:


> No problem with the execution, just the description.
> 
> 1. If you think you are actually buying LOD+3 then every trade should realistically have a entry point-4 stop loss.
> 
> ...




1.  According to whom?  You?  I don't HAVE to have a 4 point stop anywhere thanks very much.

2.  Buying downside exhaustion.  Yep.  Well done.  LYC offers much greater opportunities for capturing downside exhaustion than any other stock.

3.  So now I have to have contingent order too huh?  According to whom?  You again?  Suffice to say if YOUR internet goes down, you might have problems also.

$. You're obviously having a bad day.  Go and annoy someone else.  None of your complaints is valid.


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## sinner (11 November 2011)

Gringotts Bank said:


> 1.  According to whom?  You?  I don't HAVE to have a 4 point stop anywhere thanks very much.




See this is what I don't understand then?

If you buy what you expect is LOD+3, and it goes below your entry point by 4 ticks, obviously your hypothesis is wrong, wouldn't you want to exit?



> 3.  So now I have to have contingent order too huh?  According to whom?  You again?  Suffice to say if YOUR internet goes down, you might have problems also.




No dude, you don't have to. But it's not really a stop without it. I generally use contingent orders for both stops and take profit if I feel an unexpected technical fault would cause me undue stress. Generally, this means intraday leverage always has stops and tp in place! 



> $. You're obviously having a bad day.  Go and annoy someone else.  None of your complaints is valid.




Jeez dude, no need to jump down my throat, I was just sharing my thoughts. For the record, I'm having a great day.

Here's an example of a range exhaustion model



> 1. Calculate the daily 20 period average range.
> 2. Today’s range must expand to exceed #1.
> 3. The 2-day combined range must expand to exceed 2.2 times of #1.
> 4. Go long at market if the market is trading in the lower portion of the 2-day range.
> ...



(h/t NeoTicker)

When I look at that, it seems to have components covering entry, exit and contingencies. Do you see the difference between that simply defined model and your first post? I am still not sure exactly how you define LOD+3?

I posted in this thread because I thought there was some valuable information about exhaustion that could be shared amongst traders, much like the last time I tried to share my thoughts in one of your systems threads. Let me clarify, that other than that, I really don't care how your system works or performs and have no reason to "complain" about your system. Any such perceived "complaints" were solely considered for your benefit.

If you feel I'm annoying you, then I'm happy to no longer try and assist in your threads.


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## Gringotts Bank (11 November 2011)

sinner said:


> See this is what I don't understand then?
> 
> 1.  If you buy what you expect is LOD+3, and it goes below your entry point by 4 ticks, obviously your hypothesis is wrong, wouldn't you want to exit?
> 
> 2.  I am still not sure exactly how you define LOD+3?




1. A 4 tick stop loss on my discretionary entry might make sense, but I have no way of testing that without intraday data, so I don't know if it would be profitable.  What I *do* know with certainty is that if I can get within 3 ticks of the low, then sell at close each day, then I will make a very high % return.  As I have stated this is not a system, it is a discretionary strategy based upon backtests.  LYC is a very good stock to try to trade this way.

2. How I define it: Low + 3 ticks = Low + .015   How much more simple could it be?


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## sinner (11 November 2011)

Gringotts Bank said:


> 2. How I define it: Low + 3 ticks = Low + .015   How much more simple could it be?






Help me out here GB, I must be really stupid.

How are you actually calculating what you call "Low". Because what I call LOD (Low of Day) is actually something that isn't completely defined until the market closes.

Is what you call "Low" a variable you calculate before the market opens and then you attempt a limit long at around that price, as is the case in the "range exhaustion" model I posted?

Do you wait X seconds/minutes/hours for an intraday low to form and then buy limit long at that price if it goes there again?

Otherwise, how can you possibly define it? At 10:00:01, in hypothetical stock AAA, the OHLC values are identical. O=$1, H=$1, L=$1, C=$1. If AAA then goes down 1 tick, you would still be buying within "3 ticks of the intraday LOD", which has me confused. i.e. given everything you've said, I would still have trouble coding this into a discretionary entry signal.


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## Gringotts Bank (11 November 2011)

Low is not defined till the EOD.  Right.

My backtests are done using EOD data where my entry is defined as L+.015.  The tests assume that I will be able to get within 3 ticks of _what I anticipate_ will be the low for the day.  A strategy based upon a tested system.  Not a system in itself.

*If *that entry can be achieved, (using my discretionary reading of the market depth), then the % gains *will *be very very high, much higher than for almost every other stock traded the same way.  That's what makes LYC special (at the moment). There's nothing too special about the strategy itself.  

The whole idea of this thread is to 1.  see if I could do it, and 2. let other people know that if they have good depth reading skills, then this is the stock to trade, and one very good way of trading it.


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## tech/a (11 November 2011)

Sinner.
He guesses it.
Well he tries to work out from depth and a bit of tape reading
where he believes the low of the day is.
He is attempting to get it withing 3 price points (1.5C).
Some days he will get it exact.
Others within the boundaries and others plain wrong.
Its these that concern me as your waiting then until next open to get out of a bad position.

I see it as simple in its idea but far from simple in practice for the reasons I have already stated.

But no harm done its good to test an exercise like this as its how most traders come up with one.

My and your personal view (I maybe wrong) is it has limited upside because we can see the issues--as we see the issues.


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## skc (11 November 2011)

I don't need back test to tell me if I buy close enough to the low of the day, sell at the close on an instrument that has good enough range I'd be doing pretty good.

Problem is you can't actually backtest the performance. As the key performance driver is simply your ability to pick the bottom.

Even with intraday data, the best test you could do is to find out what your performance is if you are 4, 5, 6 etc ticks away from the low. And augment that with say a 1, 2, 3 or 4 tick stop.

You can forward test your skill in picking (or getting close to) the bottom - which is basically what you are doing now. Say with practice you get it right 75% of the time. But surely by that stage you will need to add a stop component to the 25% of time where you got it wrong.

And if you can acquire the skill to find the low so efficiently, I wouldn't use that skill on LYC (which is usbjected to company specific tail-end risks - i.e. trading halt any minute). You should just take it to the various index futures...


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## Gringotts Bank (11 November 2011)

skc said:


> I don't need back test to tell me if I buy close enough to the low of the day, sell at the close on an instrument that has good enough range I'd be doing pretty good.
> 
> Problem is you can't actually backtest the performance. As the key performance driver is simply your ability to pick the bottom.
> 
> ...




skc, it helps greatly to know in advance what sort of returns you can get if you can pick the bottom.  It helps to know which stock to trade this way (some it doesn't work on).  And it helps to know how close to the Low you have to get to be profitable.  All these things are backtestable.  

When tested, they tell me:
1. the returns are huge if you can read the depth to within 3 price levels of the low on LYC.
2.  the returns are pretty close to zero tending negative if you are 4 or greater levels away - in other words, if a low of 1.16 has been already printed, don't buy at 1.19, put in a buy at 1.175 and hope to get filled.  Otherwise leave it for that day.  

Futures would be a better instrument, as you say.  This thread is about how one might trade a stock intraday.


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## sinner (11 November 2011)

tech/a said:


> Sinner.
> He guesses it.
> Well he tries to work out from depth and a bit of tape reading
> where he believes the low of the day is.




Thanks tech.



> My and your personal view (I maybe wrong) is it has limited upside because we can see the issues--as we see the issues.




Agreed. 

Ok GB I think I understand it better now.

I've got some questions for you, not necessarily as in I want answers (just in case you think I'm being rude again), but rather to help you think about the strategy:
* What are the average returns of the strategy if you run it only when LYC is >200MA?
* What are the average returns of the strategy if you run it only when LYC is <200MA?
* What are average returns if you only run it when todays Close is N (also test N*2, N*3) ticks (ATRs?) higher (also test lower) than yesterdays Close?
* What's the (average 1, 5, 20 day) correlation of LYC (or whatever stock you choose) to the index? Are returns better or worse if you only trade on high (or low) correlation? Above or below 200MA?
* Are returns better if you use a time based exit of 2 instead of 1? Usually they are.
* Are returns better if you exit using a favourable price (e.g. highest high of last 2 days?) instead of a time based exit? Usually they aren't but sometimes a real edge can be found using favourable price exits.


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## skc (11 November 2011)

Gringotts Bank said:


> skc, it helps greatly to know in advance what sort of returns you can get if you can pick the bottom.  It helps to know which stock to trade this way (some it doesn't work on).  And it helps to know how close to the Low you have to get to be profitable.  All these things are backtestable.
> 
> When tested, they tell me:
> 1. the returns are huge if you can read the depth to within 3 price levels of the low on LYC.
> ...




Can you tell what is the degree of return vs accuracy? 

I suppose if you have 250 trades per year and each correct pick gives you 15 ticks on average. While an incorrect pick yields a loss of (say) 4 ticks (assuming a stop), you can quickly work out what is the "breakeven" accuracy required?


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## Gringotts Bank (11 November 2011)

skc said:


> Can you tell what is the degree of return vs accuracy?
> 
> I suppose if you have 250 trades per year and each correct pick gives you 15 ticks on average. While an incorrect pick yields a loss of (say) 4 ticks (assuming a stop), you can quickly work out what is the "breakeven" accuracy required?




Now you're talking.  That's the real crux of it, and the reason for me paper trading it.  The answer is no, not until I have traded it for some weeks.

I expect that if 300% pa and miniscule drawdowns is the result of getting *all* trades within .015, and I get 4 out of 5 right in every week, then I should be able to do ok.  This will be determined by two things - 1. my ability to pick the bottom consistently (so far so good), and 2. what sort of size losses occur when I don't pick it.  I have a feeling the odds would be in my favour.


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## Gringotts Bank (11 November 2011)

Mon___B:1.15___S1:1.16___S2:1.15
Tues___B:1.16___S1: 1.17___S2:1.15
Wed___B:1.17___S1: 1.14___S2:1.19
Thurs___B:1.145___S1:1.19___S2:1.17
Fri___B:1.19___ S1:????____S2:1.205

Today I missed the entry, but got lucky with a strong close.

Both exit methods (S1 and S2) profited across the week, which was a pretty dud week for LYC all up.

S1: $2000+ potentially
S2: $700


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## skc (11 November 2011)

Gringotts Bank said:


> Now you're talking.  That's the real crux of it, and the reason for me paper trading it.  The answer is no, not until I have traded it for some weeks.
> 
> I expect that if 300% pa and miniscule drawdowns is the result of getting *all* trades within .015, and I get 4 out of 5 right in every week, then I should be able to do ok.  This will be determined by two things - 1. my ability to pick the bottom consistently (so far so good), and 2. what sort of size losses occur when I don't pick it.  I have a feeling the odds would be in my favour.




Exactly why you need a stop. By having a stop you elminate the size of loss variable. 

Since your hypothesis is to pick bottom within 1.5c of LOD, then the most logical action is to have a stop at 2c below entry. If the stop is hit, put that pick in the failed basket.

If you know the average return of a correct pick (which really is just daily close - LOD - 1.5c) and you know the definite loss of an incorrect pick, you can easily plot the curve of pick accuracy vs return. 

Surely you have the data to do this now?!


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## sinner (11 November 2011)

Gringotts Bank said:


> 1. my ability to pick the bottom consistently (so far so good)




Cool GB, wish you all the best with this, as the range over the last eight trading days in LYC has been quite narrow I am interested to see how you go once it expands again.


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## Gringotts Bank (11 November 2011)

skc:  Yeh well that's what sinner was saying, and I agreed it made sense.  Just that I don't have intraday data for LYC. to test it properly. 

If anyone has intraday data going back say 1 month on LYC, please consider emailing it to me and I can do just that.


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## Gringotts Bank (11 November 2011)

sinner said:


> Cool GB, wish you all the best with this, as the range over the last eight trading days in LYC has been quite narrow I am interested to see how you go once it expands again.




Thanks.  Yeh big ranging days will be a good test.  I'll get onto answering those other questions when I've tested them.


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## sinner (11 November 2011)

> Since your hypothesis is to pick bottom within 1.5c of LOD, then the most logical action is to have a stop at 2c below entry. If the stop is hit, put that pick in the failed basket.
> 
> If you know the average return of a correct pick (which really is just daily close - LOD - 1.5c) and you know the definite loss of an incorrect pick, you can easily plot the curve of pick accuracy vs return.




The thing is though skc, as I said...using stops will vastly alter the performance of this method, almost certainly to prove the hypothesis "LOD+3 (with stops)" to be unprofitable. i.e. You can't pick bottoms without a crystal ball. (who would have guessed?)

My guess is this will be because stops tend to eliminate any ancillary gains that may come from holding till close even if the pick was wrong. i.e. taking a loss versus taking part in the 1 day returns of an up trending stock will generally be the losing strategy. As GB pointed out, if you pick at LOD >3 then negative returns are correlated with how far from LOD you actually picked when it comes time to close (rather than guaranteed loss - unless you enter multiple times per day).

Am I saying this to put GB or his idea down? No, not really. I can't give GB the intraday data he wants, but I can give him my thoughts on what will happen using intraday data based on similar experiments, that's all.


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## Gringotts Bank (14 November 2011)

B:1.22 at open.  Sorry slightly late!


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## Gringotts Bank (15 November 2011)

Bid at 1.21

B:1.21


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## Gringotts Bank (15 November 2011)

update

Mon___B:1.15___S1:1.16___S2:1.15
Tues___B:1.16___S1: 1.17___S2:1.15
Wed___B:1.17___S1: 1.14___S2:1.19
Thurs___B:1.145___S1:1.19___S2:1.17
Fri___B:1.19___ S1:1.21___S2:1.205
Mon___B:1.22___S1:1.21___S2:1.225
Tues___B:1.21___

*Paper traded profit:  $2345*, represents 4.7% return on capital.  Doesn't include today, which looks ok at the moment.  Calculation based on closing price = sell.

From now on I'll just post the closing price as the sell.


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## Gringotts Bank (16 November 2011)

Mon___B:1.15___S1:1.16___S2:1.15
Tues___B:1.16___S1: 1.17___S2:1.15
Wed___B:1.17___S1: 1.14___S2:1.19
Thurs___B:1.145___S1:1.19___S2:1.17
Fri___B:1.19___ S1:1.21___S2:1.205
Mon___B:1.22___S1:1.21___S2:1.225
Tues___B:1.21___S:1.22

Paper profit at yesterday's close: $2758

Bid:1.245 <amended twice

B:1.245


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## skc (16 November 2011)

Gringotts Bank said:


> Paper profit at yesterday's close: $2758




Is this before or after brokerage commission? If after, what's the commission rate?


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## Gringotts Bank (16 November 2011)

Ah yes, let's subtract $55 per trade .  [note that my backtests did include commission]

That comes to $1980.  Not quite so glamorous now.  Still, 4% in just over a week is good if I can keep it going.

The big IF will be when I start putting my own money down.  Psychological factors will come into play.


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## investorpaul (16 November 2011)

Gringotts Bank said:


> Ah yes, let's subtract $55 per trade .  [note that my backtests did include commission]
> 
> That comes to $1980.  Not quite so glamorous now.  Still, 4% in just over a week is good if I can keep it going.
> 
> The big IF will be when I start putting my own money down.  Psychological factors will come into play.




You need to get a more cost effective broker!

Even if you were with Commsec you would only be paying $19.95 each way. A saving of over $15 per completed trade. 

on IB you would save even more


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## sammy84 (16 November 2011)

investorpaul said:


> You need to get a more cost effective broker!
> 
> Even if you were with Commsec you would only be paying $19.95 each way. A saving of over $15 per completed trade.
> 
> on IB you would save even more




From memory each position is $50k, which is the brokerage comsec would charge. Makes me think GB is using comsec or something similar. Not the broker to be using when scalping.


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## Gringotts Bank (16 November 2011)

yep 50k*.11%=$55.

Getting smashed today.  Poor entry will wipe off a lot of profit.


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## nomore4s (16 November 2011)

Gringotts Bank said:


> yep 50k*.11%=$55.
> 
> Getting smashed today.  Poor entry will wipe off a lot of profit.




One thing I don't understand is a lot of your entries have been on or close to open, which to me sort of defeats the aim of trying to read the tape for entries.

It seems to me any sort of strength overnight and you are looking to enter as soon as possible, which might be okay if the market plays along but the last week or so we have seen the markets strong opens wiped out by very weak closes, looking at a XAO chart it is very obvious we are at a fairly strong resistance point and we are really struggling to push through it, so entering early on overnight strength doesn't seem like the best strategy to me.

The other thing I would be looking into if trading this stock in this manner would be - if the XAO has a strong open how often is LYC's high printed in the first hour or so and if a weak open how often is the low printed in the first hour or so.

ATM it appears to me that your entries really are just guess work. While I agree this strategy has the potential to be profitable I would be looking for more data/stats to support my entries and ways to incorporate stops and maybe even targets to reduce losses and maximise profits. Under the current set up I really feel 1 or 2 bad days could wipe out 1 or 2 weeks of profit.


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## investorpaul (16 November 2011)

sammy84 said:


> From memory each position is $50k, which is the brokerage comsec would charge. Makes me think GB is using comsec or something similar. Not the broker to be using when scalping.




Yer I forgot he would be above the limit for the $19.95 trades.

I dont use IB but assume they would still be cheaper on a $50k trade.


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## tech/a (17 November 2011)

Agree with no more fours

I think there are many small things that can be done that have the potential for substantial improvement.


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## Gringotts Bank (17 November 2011)

nomore4s said:


> One thing I don't understand is a lot of your entries have been on or close to open, which to me sort of defeats the aim of trying to read the tape for entries.
> 
> It seems to me any sort of strength overnight and you are looking to enter as soon as possible, which might be okay if the market plays along but the last week or so we have seen the markets strong opens wiped out by very weak closes, looking at a XAO chart it is very obvious we are at a fairly strong resistance point and we are really struggling to push through it, so entering early on overnight strength doesn't seem like the best strategy to me.
> 
> ...




I do study the depth carefully pre-open nomore4s, and it's just been coincidence that I have been entering at or near the day's open.  Today I won't be - atm, I'm bid at $1.15, but might change in the next few minutes.  I'm also considering implementing that 4 level stop, which would have saved some money yesterday.  I'm limited by lack of intraday data.


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## Gringotts Bank (17 November 2011)

Mon___B:1.15___S1:1.16___S2:1.15
Tues___B:1.16___S1: 1.17___S2:1.15
Wed___B:1.17___S1: 1.14___S2:1.19
Thurs___B:1.145___S1:1.19___S2:1.17
Fri___B:1.19___ S1:1.21___S2:1.205
Mon___B:1.22___S1:1.21___S2:1.225
Tues___B:1.21___S:1.22
Wed___B:1.245___S:1.20

Summary paper profits: $62

Bid: 1.16


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## Gringotts Bank (17 November 2011)

bid: 1.185


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## Punta (17 November 2011)

For the newbs out here, any tips on how might you go about reading market depth to determine whether the price is near the daily low?  

I don't think you mentioned it in the thread, but it would seem like grail territory if you can do that...??


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## Gringotts Bank (17 November 2011)

Bid: 1.20 - I guess I'm being a bit too cautious given what happened yesterday.  Memory is a very powerful thing - better off without it when it comes to trading.   I'll probably miss the trade altogether today.

Punta, let me see if I can do it first before I offer any comment!  Hey how did your meeting with the fund go?


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## Punta (17 November 2011)

Gringotts Bank said:


> Punta, let me see if I can do it first before I offer any comment!  Hey how did your meeting with the fund go?





Was good mate. They offered to set me up on their simulator.  

I took your advice and I'm actually in the process of coding automated strategies using IB's java API to paper trade.  For me this involves learning java, so it's going to take a wee while.  Again, following advice here, I figure I am best off getting this going first before wasting anyone else's time....


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## Gringotts Bank (17 November 2011)

Congrats, that must feel good to be offered that opportunity.


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## nomore4s (17 November 2011)

Punta said:


> For the newbs out here, any tips on how might you go about reading market depth to determine whether the price is near the daily low?
> 
> I don't think you mentioned it in the thread, but it would seem like grail territory if you can do that...??




My personal view is it is very hard if not next to impossible on stocks, especially in the Australian markets. Even on futures markets where you have enough movement and volume to give you something to read it is very very hard to use the market depth as a stand alone signal for entry and exits.



Gringotts Bank said:


> Bid: 1.20 - I guess I'm being a bit too cautious given what happened yesterday.  Memory is a very powerful thing - better off without it when it comes to trading.   I'll probably miss the trade altogether today.




I'm guessing you've missed the low for today.


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## sinner (17 November 2011)

nomore4s said:


> The other thing I would be looking into if trading this stock in this manner would be - if the XAO has a strong open how often is LYC's high printed in the first hour or so and if a weak open how often is the low printed in the first hour or so.




Yep.


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## Punta (17 November 2011)

Gringotts Bank said:


> Congrats, that must feel good to be offered that opportunity.




Yeah thanks and thanks for the previos advice/comments too.

Now tell me how to spot the day's low coming!!!!

One thing you could do with this strategy is get historical intraday and backtest it properly, assuming the metrics you read are included in the historical intraday.  You can get 1-year of NYSE intraday for about $100, and you could know whether your system is going to work, a lot faster than forward testing?


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## skc (17 November 2011)

GB, take a trial of Spark which has market depth replay function (can't remember how far back the history goes).

IMHO it is obviously difficult to pick the low of the day (or close enough to it), and if you can do that with any degree of accuracy, LYC is probably the wrong instrument to exploit that skill anyway.



nomore4s said:


> I'm guessing you've missed the low for today.




You never know...


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## nomore4s (17 November 2011)

skc said:


> You never know...




Hahaha but if you do get in at a new low now it probably means you've missed the high for the day. Either way probably not a trade GB should be making.


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## Gringotts Bank (17 November 2011)

I've had a trial of spark already skc, some time back and it has two very useful features for day trading.  One as you mention is the replay of intraday, going back one month.  The other is the time stamp on the depth orders, where new orders look greener/redder in colour then old ones.  Fresh orders coming into the buy side was always a good sign. Maybe I can get another trial on a different IP address! 

punta I have an old set of intraday data from weblink, duration one month.  Unfortunately it is chock full of useless data that makes testing impossible.  If I had some sort of way of cleaning it up I could use it but I can't.  Another spark trial might be in order.

I'm thinking of a different way of doing this, because today for eg. is taking up way too much screen time to be any fun... and I have to go to work soon.


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## nomore4s (17 November 2011)

nomore4s said:


> Hahaha but if you do get in at a new low now it probably means you've missed the high for the day. Either way probably not a trade GB should be making.




Maybe not, everything has rallied hard on HK open, be interesting to see if it is sustained.


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## skc (17 November 2011)

nomore4s said:


> Maybe not, everything has rallied hard on HK open, be interesting to see if it is sustained.




On a day like today best trying to pick lows of AZT or PRU...


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## Wysiwyg (17 November 2011)

> GB, take a trial of Spark which has market depth replay function (can't remember how far back the history goes).



I notice Iguana2 (Spark) is not a website now. I don't think they have folded up but a redirection to their new site would be good for business.


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## Gringotts Bank (17 November 2011)

Mon___B:1.15___S1:1.16___S2:1.15
Tues___B:1.16___S1: 1.17___S2:1.15
Wed___B:1.17___S1: 1.14___S2:1.19
Thurs___B:1.145___S1:1.19___S2:1.17
Fri___B:1.19___ S1:1.21___S2:1.205
Mon___B:1.22___S1:1.21___S2:1.225
Tues___B:1.21___S:1.22
Wed___B:1.245___S:1.20
Thurs___bid:1.20 -- only 120 shares went through at this price at 12.43

Summary paper profits: $62


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## Gringotts Bank (18 November 2011)

Bid:1.19


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## Gringotts Bank (18 November 2011)

B:1.225


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## Gringotts Bank (20 November 2011)

...and sold 1.21.

Paper loss:  -$660 over 2 week period (= 1.3% drawdown)


Comments:   Had I nailed the low+.015 each day, the profit would have been $2061.98 over the 2 weeks, so I was well ahead of the curve at the end of my first week before blowing up.  $2061 in 2 weeks equates to 282% when compounded over 1 year.  Two bad days took me well into negative territory.  

Reasons for draw down:  No excuses.  Main reason behind the bad trades was impatience.  On the two negative days, the slow decline in SP and the extended hours of screen staring got too much and I just decided to pull the trigger.  4-5 hours of looking at market depth of just one stock is too hard and I wouldn't opt to do it this way again.  

I think I might have done better just reading the depth, and buying/selling as the depth dictates, allowing me to leave the screen if/when I feel like it.  It must be fun, and this experiment wasn't particularly fun.  I'll start a different thread and see if I can make it work.  It will be much simpler.


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