Alright, my new method is to short at the close when the price at the close is less than the pivot point for the following day. In this case the pivot for VC tomorrow is 9.79 and the close of yesterday was 9.69, so I placed a short order at the close but I got filled at 9.67, no sweat.
I backtested this for the year of 2005 and it was successful for more than a 1% gain 80% of the time. The 20% losses however were sometimes 3-5%. I wanted to reduce the losses but didn't want to prevent myself from picking up a gain. So I had to test first the winning trades and how far away the price moved away from my purchase price (if buying at the close). With the winning trades there were only a few times where the price moved against me more than 15 cents (7/63), so those became losses of 15 cents. The average price move away from my purchase price on a winning trade using this strategy was only 5 cents, so thats something worth looking at as well.
I also looked at the losses and the average price move away from my purchase price for losses was 26 cents. So with winners average price move so low and the losers price move 5 times the average of the winners I knew I had to set a stop loss to prevent the losers from getting too big. So then I took the winning trades and figured out what was the average gain. Turns out the average gain was 24 cents. So how did I come up with 13 Cents for today? Well I looked at all the winners and tried to see what was the most common lowest gain (being as conservative as possible) and it was 13 cents. There are many gains above 13 cents so it is definately possible, but for today when the stock reaches 13 cents I will be watching it like a hawk to capture that gain or watch it get larger.
Reducing my losses to 15 cents and making some winners 15 cent losers (because I would have been stopped out) gave the following outcome:
Average Gain: 3.28%
Average Loss: 1.68%
Winning %: 72.84%
Max Gain: 8.96%
Max Loss: 2.63%
The last number is the most important one I wanted out of this testing. I want to make sure I don't suffer a huge one time loss like I had in september, twice. So I have an average win/loss ratio of 2:1 and a 72% chance of success. This was a strategy I was willing to take on. I will post all my trades with this strategy in this thread from now on. Before I kind of had haphazard trades and wasn't good about posting them. If you would like to see the spreadsheet for this strategy pm me and I'll email it to you, I don't want to post it to the site.
Accountant
