Been working hard lately on a new trading system for stocks, possibly futures as well. As hard as it sometimes seems to be, I have to understand that price movement in one direction doesnt continue on forever. My bad experiece over the years seems to be centered around holding on to equity positions for too long, either watching a bad postion get worse or a good position reverse and evaporate my gains.
To keep things easy I am working on simple moving average two line crossover systems, both simple moving averages and exponential moving averages. I've developed an excel spreadsheet that imports daily data and plots the price charts as well as any combination of price, simple moving average and exponential moving averages. My premise for lazy trading is based on only closing price signals and taking a reversal position on open the following morning. Based on backtesting any of these combinations, the plan is to find the best combo for each stock and use it to get me into or out of positions based on the best results attainable. So far, things look promising, and time be willing, I'll see if I can share it. Fortuneately my skills with excel are such that I can easily changes the variables and see the results instantly. I know, I know, there are probably canned programs out there that will do that for you (Amibroker for sure), but what fun is that when you dont really understand what is going on in the black box. With excel, I can see everything right in front of me.
My idea is to run the system around mostly low priced stocks, under $10, and to take a position each time based upon a fixed amount, maybe $5,000. So, in other words, a $1 stock would be bought or sold at 5,000 shares, a $3 stock at about 1,500 shares. No preference for going long or short would be taken. The whole idea, and where I think the easy money lies, is riding the trends for as long as the system allows me to, without excessive whipsawing. Initially, I think no more than 60% of the entire portfolio should be invested in the system, so that for example, a total $50,000 portfolio would have no more than $30,000 in the system, therefore at $5,000 per trade, no more than 6 positions should be running at a time. All for now, we'll see where this heads and report later. Comments welcomed!
