Breaking the Pattern Day Trading Barrier

expiated

expiated

Back when I was trading stocks in 2008 to 2010, I would often purchase an equity at some point during the day and ride it up to profitability at the close—often alerted to its potential by unusually high volume—only to see it gap down the next morning and never return to the level at which I bought it.

As a result, during that period I was only a break even trader. With what I knew then, I was never able to design a stock screen/filter that would return equities “guaranteed” to continue climbing the next day. In essence, FINRA’s pattern day trading rule was a barrier that prevented me from becoming a profitable trader by using my ability to select assets that would close the day higher than where I bought them.

However, it appears to me that what I have learned trading foreign currency pairs from 2015 to today might just have handed me the key to cracking that nut from ten years ago. This journal is where I will evaluate just how valid/reliable this potentially rewarding approach to stock trading actually is, or is not.
 
Purchased Thursday, November 14, 2019

ScreenHunter_7103 Nov. 18 07.22.jpg


Purchased Friday, November 15, 2019

ScreenHunter_7104 Nov. 18 07.30.jpg


PURCHASED TODAY:
MDCO 56.68
WU 26.89
CZZ 16.81
FLXN 16.08
 
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Monday, November 18, 2019

So, just thinking about this initially, I'm wondering if something like pocketing profits after a 3% to 6% gain, and abandoning positions after a -1% loss might work.

ScreenHunter_7106 Nov. 18 17.38.jpg
(Picks from Thursday, Friday, and Today.)
 
remogul92 said:
How did you determine your stock selection?
More...
If you check out Post #70 from the “Anyone use moving average indicators?” thread, you will find that the most experienced contributors to this forum tend to view the principles on which I base my trading as essentially garbage, or to be more specific, as...
  1. Just wrong
  2. Resting on a lack of understanding
  3. Missing the point
  4. Mistaken
  5. Based on false premises
  6. Ignoring basic fallacies
  7. Basically nonsense
So please bear this in mind as you read the following…

I cannot tell you exactly how I determine my stock selection because if the technique turns out to be valid (it is still under investigation) I would be giving away something for free that I consider to be golden. However, in general, my trading is based on the theory that:
  1. A trader should approach the markets in the same manner that meteorologist approach weather forecasting, by collecting precise, up-to-date quantitative information and then interpreting that data to make accurate predictions about future price action.
  2. And the absolute best barometer for predicting the direction in which an asset might ultimately be headed is a moving average.
  3. However, in my experience, using the standard 10-, 20-, 50-, 100-, or 200-period moving averages for this purpose is not the way to go. I’ve concluded the logical way to go about this is to carry out a painstaking process of testing each and every moving average which might potentially reflect the direction price is ultimately headed (given a particular time frame) until one has eliminated all but the single best moving average for this purpose—the one that performs the job more accurately and more reliably than all others, which I now call the “directional bias line” or DBL.
  4. In essence, my goal is to develop trading systems based almost entirely on mathematical odds and statistical probability. So in addition to the use of moving averages, I have replaced the readings meteorologist take with respect to temperature, humidity, direction of air current, barometric pressure, cloud formation, and wind velocity with readings related to price ranges, trend lines, horizontal support and resistance levels, reoccurring price patterns, and market structure; all in an attempt to mimic the equations and wave function representations comprising the various computer models relied on by weather reporters. (I totally reject the use of lower panel indicators such as MACD, RSI, CCI, ADX, and stochastic oscillators; as well as the use of Elliot waves, harmonic patterns, or Fibonacci ratios.)
However, when it comes to the method I am currently testing for selecting stocks (my approach was originally designed to trade Forex) the two most important factors are the selection of three key DBLs, each representing or reflecting its own particular time frame, and the use of reoccurring price patterns. (I’m a very simple man, so I tend to use very simple systems.)
 
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TUESDAY / NOVEMBER 19, 2019 /7:00 A.M. PST

Thirty minutes after the NY session opened, DG is a candidate for pocketing whatever profit is available. So is FR.

SUM is up to $23.81—a 7% gain so far.

PDD and WTR look to be hopeless causes. My choice would be to abandon these positions and eat the losses.

YIKES!!! MDCO has exploded to $71.78. I'd cash in right here! It might go a lot higher depending on the strength of the fundamentals, but my system is not based on that. I'm a speculator—not an investor. I'd be satisfied with a 27% gain any day!

TODAY'S TENTATIVE PICKS:
GNTX 28.55
XPO 84.27
JEC 94.20
FSS 33.03

(I'll have to see where they are toward the end of the day.)
 
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expiated said:
If you check out Post #70 from the “Anyone use moving average indicators?” thread, you will find that the most experienced contributors to this forum tend to view the principles on which I base my trading as essentially garbage, or to be more specific, as...
  1. Just wrong
  2. Resting on a lack of understanding
  3. Missing the point
  4. Mistaken
  5. Based on false premises
  6. Ignoring basic fallacies
  7. Basically nonsense
So please bear this in mind as you read the following…

I cannot tell you exactly how I determine my stock selection because if the technique turns out to be valid (it is still under investigation) I would be giving away something for free that I consider to be golden. However, in general, my trading is based on the theory that:
  1. A trader should approach the markets in the same manner that meteorologist approach weather forecasting, by collecting precise, up-to-date quantitative information and then interpreting that data to make accurate predictions about future price action.
  2. And the absolute best barometer for predicting the direction in which an asset might ultimately be headed is a moving average.
  3. However, in my experience, using the standard 10-, 20-, 50-, 100-, or 200-period moving averages for this purpose is not the way to go. I’ve concluded the logical way to go about this is to carry out a painstaking process of testing each and every moving average which might potentially reflect the direction price is ultimately headed (given a particular time frame) until one has eliminated all but the single best moving average for this purpose—the one that performs the job more accurately and more reliably than all others, which I now call the “directional bias line” or DBL.
  4. In essence, my goal is to develop trading systems based almost entirely on mathematical odds and statistical probability. So in addition to the use of moving averages, I have replaced the readings meteorologist take with respect to temperature, humidity, direction of air current, barometric pressure, cloud formation, and wind velocity with readings related to price ranges, trend lines, horizontal support and resistance levels, reoccurring price patterns, and market structure; all in an attempt to mimic the equations and wave function representations comprising the various computer models relied on by weather reporters. (I totally reject the use of lower panel indicators such as MACD, RSI, CCI, ADX, and stochastic oscillators; as well as the use of Elliot waves, harmonic patterns, or Fibonacci ratios.)
However, when it comes to the method I am currently testing for selecting stocks (my approach was originally designed to trade Forex) the two most important factors are the selection of three key DBLs, each representing or reflecting its own particular time frame, and the use of reoccurring price patterns. (I’m a very simple man, so I tend to use very simple systems.)
More...

Thanks for the reply. I respect your secret on your method. We all have our trade secrets.

Regarding your number 3 above. I have heard where traders intentionally don’t use the standard or generally used settings for averages, timeframes, etc. but instead use personalized or what they call “exotic” settings that others don’t use. Their belief is that it gives them an edge. They swear by it.

I see nothing wrong with that. From your screen shot above it looks like you’ve got more stocks in the green than in the red. That should speak for your method in and of itself.
 
expiated said:
TODAY'S TENTATIVE PICKS:
GNTX 28.55
XPO 84.27
JEC 94.20
FSS 33.03
(I'll have to see where they are toward the end of the day.)
More...
XPO did not make the final cut.

My TC2000 demo chart indicates that INXN closed the day at $85.61, up 5% from where I would have purchased it. So I will be curious to see if the stock climbs any higher, or if it would have made sense to be satisfied exiting the position with a 5% gain. (The same with LPG.)
 
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One of the problems with most all of my past stock screens was that if the market dropped, so did all, or almost all, of my picks. That did not seem to happen today, though of course, today was mixed in that the NASDAQ seemed to fare okay. However, the ultimate test will come when all three of the major indices are down several days in a row.
 
Here's a hint on how to using a MA. I will not tell you the actual values that I use since I don't want to give away for free what someone like JH has written 100 pages on that you must read through to find.

1) A an EMA is better than an MA

2) A higher EMA can be used instead of a higher time frame chart within a lower time frame chart to determine what is going on with a higher time frame to avoid clutter and know instantly whats happening.

3) The correct values put in an EMA will actually align with price movement.

4) If price movement does not align with the EMA, don't trade.

5) If price is going above and below the EMA in sideways movement, don't trade.

6) To avoid the issue you brought up in your last post about how most stocks will fall when the stock market falls, I trade ES futures instead of individual stocks. This eliminates 3 issues. The problem of going long a stock when the market is falling since you can just short the market itself. The problem of the pattern day trading rule, since you can now trade at night and with enough margin without needing $ 25,000 to hold overnight. The problem of the SEC halting the stock due to accounting fraud, since you can't stop the whole market.
 
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