Introducing: Rabbit, the fearful stock trader

Since	SPY	me
JA 28	+2.7%	+0.4%
JA 20	+2.3%	+1.1%
JA 01	+4.3%	−0.4%
DE 20	+5.5%	−1.5%

Okay, settle down, you rutabagas in the back row.  Carrots, be quiet!  I have some announcements to make.  The state of the trading program is not good.  No matter how you slice it, I would have been better off buying SPY than trying to do swing trading.  My total gain since 2010 DE 20 is -1.5%; last week it was -1.7% so it’s getting better, but it needs to get better faster in order to justify this hobby!

Obviously, my trading difficulties have nothing to do with the selection of jots and tittles used in these blog posts, so that is why it is very important that I change the jots and tittles at this time in order to improve trading profitability.  First off, the dates: it is time to start using Distinctly Canadian dates.  Yes, I realize that “2010 DE 20” is butt-ugly, but it’s Truly Canadian® because it’s just as ugly in French as it is in English.  For now I’ll be including dotted underlines so you can hover your mouse over the abbreviation to find out what MA means (MArch?  MAy?  MAssachusetts?  Master of Arts?  Moving Average?  Yo-yo MA?) but really it’s time to get with the program and learn these codes so you’ll know how long ago your canned kumquats expired.

Next issue: how to measure the gains.  Previously I was using +0.05%/day to describe a stock that rose 1% across twenty market days.  Note that this symbolism uses only ASCII characters with no Unicode.  We certainly cannot allow that!  So I will now use 5‱ instead of 0.05%/day.  The symbol ‱ is pronounced “bips”.

What happens if I buy a stock and then sell it the same day?  The %/day denominator is zero, which doesn’t make any sense.  So I will now add 3 to the denominator, which avoids zeroes and also covers the three days of fallow time after selling a stock and before I can buy another.  To make 10% per year, the average investment must produce 4.4‱, so any investment that produces 5‱ or more is making a positive contribution.  (This assumes that about ⅟₁₀ of the money is typically idle, but actually it’s been more like 2%‒7% in recent times.)

* * * * *

I spent much of the week playing around with super-high stop prices, which prevent large losses but make small losses more likely than gains.  No risk, no reward!  Clearly, heading for the break-even stop as soon as possible is no recipe for making money.  Underwater stops that aren’t far enough underwater to prevent stop-outs are just throwing money away.  I started using super-high stops in order to prepare for the Imminent Correction, but it seems the market has shrugged off its correction fears and will be continuing higher, so I need a way to calculate stop prices that are lower and riskier and thus more profitable.  I looked at Google Scholar but it didn’t help much.  One paper suggests that profit is maximized when no stops are used, but the paper’s authors admit that this is “unrealistic”.  Another says that I should use the “Kase Dev-Stop”, named for Cynthia Ann Kase who just happens to be the author of this paper in which she is naming the formula after herself (or, more charitably, after her company).  She says to use 1× the standard deviation for new purchases, 3× when things get going, 2× when you start to get sick of a stock.  Price charts that show standard deviations are offered by stockcharts.com; they also show the Parabolic SAR (pSAR) which seems to give much the same answer as 3× std.dev and is more widely available at other websites, such as at Yahoo.

I don’t like the standard pSAR(0.02) because it takes too long to get to break-even, typically seven days or more.  Instead, I use pSAR(0.20) which is much more aggressive and typically gets to break-even after only five days.  Also it has the nice property that it will often stop me out of a stock *during* a day whose closing loss would cause MACD to say “sell” for the next day, thus yielding increased profits.  Anything more aggressive than pSAR(0.20) seems to be unsafe, frequently causing stop-outs for stocks that I would prefer to have kept.

New rule: Use pSAR(0.20) to set the stop prices, at least for the first five days.  In the following table, grey indicates a gain that I didn’t get because I had already sold the stock.

Stock Symbol	Hold Days		Closing ‱							Stop ‱			Commentary
			Fri	Mon	Tue	Wed	Thu	Fri		Actual	Rule
JNK	51		5	6	6	6	5	6		5	4		Sold because MACD < 0.1.
DRETF	35⁺		5	5	5	8	7	8		n/a	n/a		Can’t have a stop because it’s a pink-sheet grey-market foreign stock.  Bought more of it on Wed.
GGG	8		33	33	5	−12	−8	−7		17	13		Old rule is better for these longer-term holdings.  Gave this a 2% stop because it seemed to be on the way down.  Win!
BAGL	3		−51	−46	−53	−57	−33	−29		−47	−58		New rule loses slightly more money on this loser stock that just went down every day after I bought it.
SE	8⁺		−13	23	30	22	14	13		5	7		New rule says I should have sold on Fri and taken 7‱.  We’ll see.
FLIR	7⁺		14	38	93	80	78	61		38	31		Doing well!
TNA	0			−48	130	87	88	83		1	0		New rule says I should still be holding it; by now it would have a break-even stop price.
IRF	1					55	11	25		11	−1		New rule says I should still be holding it, with a barely-underwater stop.
BAL	1					39	−72	−126		−2	−93		New rule is riskier!  It said to hold until Fri. and then lose a lot!
ETN	2⁺						13	23		0	−28		Doing okay.
GIII	2⁺						−33	−58		−80	−105		This stock is highly volatile.  (Insert joke about unstable fashion designers and their companies.)  Shouldn’t have bought it; too jumpy.
TTWO	1						0	−2		−30	−169		Should still be holding it, although it’s awfully volatile.
ATML	1⁺							−10		n/a	−215		Hopefully it will go up again.
MKL	1⁺							−8		n/a	−84		A sedate stock that doesn’t need a lot of water above its stop.
(Average)										7	8		(Using Friday’s close if not sold yet)

For stocks I still own, the stop has been lowered from the “Actual” number to the “Rule” number, which overall puts an additional 0.6% of my money at risk but hopefully will improve returns.

New rule: Don’t buy stocks that require more than 5% stop for their first day.  Too risky!  Buying such stocks but not giving them what they need just leads to losses!  This rule would have prevented the purchase of BAGL, BAL, GIII, TTWO, and ATML.  Revised average gain using both new rules would be 18‱ which is pretty good.

The figure at right is my latest attempt to describe what’s in the account.  Already-sold stocks are lowercase and have dates to indicate when their money will rejoin cash.  I would like to have an overlay showing how much of the money is at risk due to sell-stops, but I can’t figure out how to get OpenOffice to draw pie charts with multiple data ranges.

Tomorrow: buy CAT.  (Mrraow!)  It's now in its eighth day of uptrend, so the pSAR stop is only 3% below purchase price.  MACD says I should have bought on Wednesday, when the price was only 0.6% lower.  It's up 93% over the last year, of which ITA captured 73% but MACD got only 37%.  What could *possibly* go wrong???