First off, I design all my own ideas when it comes to formulas.
I may use an existing 'out of the can' indicator, but I never use them as they were designed, I invariably always twist an 'out of the can' indicator into something else.
I have little faith in indicators as such but my opinion is they can have uses in other ways.
I'll try and explain...
First off I'm looking to buy quality stocks.
I identify them largely, initially by using T/A, by low volatility and the fact they run consistently, trend consistently, don't plunge often suddenly etc.
Many penny dreadful type stocks are best shorted I think, they are not good for consistency heading upward.
You can nearly always guarantee a crap stock will drop off a cliff.
The inverse being true, good stocks rarely drop off a cliff, but there are exceptions.
Also, quality stocks wont be in extended downtrends, but there are exceptions.
I trade probabilities, so those which are the exception, too bad, they get dumped from my watchlist regardless.
To find good trending stocks and low volatility I look primarily long term over the full life of the stock.
A new issue may only have been trading several months, so that becomes how long the lookback is.
Note: New issues are often the best contenders, after about 4-5 years they don't appear to perform so well, as a general rule.
Anyhow, my selections are done from a formula exploration, ie I run the exploration which pops up a list of contenders.
The exploration formula has a section with the lookback period and counts how many bars the stock has traded.
Another part looks at bars and identifies them as medium height, ie I don't always read close or open, but medium height.
Another section has filters for including or excluding contenders, eg, if it trades infrequently, is a warrant or option, if over the life of the stock it's trended more downward than upward, and identifies those highly volatile, only traded a few days, is below 10cents etc etc
The meat of the formula looks at price action, ie what has the stock done in terms of how price/bars behaves.
I'm not too much into volume, i've found volume short term gives too many conflicting signals, is unreliable, a red herring, distracting, confusing.
Price action is read looking at volatility, pullbacks, trending, how often hitting short term supports and resistance, ratios of gapping up and down, how often price collapses on volume spikes etc
I run this bunch of key things via the formulas, then i score them.
I score them long, medium and short term.
The long medium and short term scores are kept separate, they are there for me to pick which time frame i want, but mostly I look at long term.
Some criteria are only for short term, ie, the gapping ratio is a short term thing, it is not part of the long term score.
Anyhow, that's the basic nuts and bolts of it.
In answer to nutmeg's question, I've come to 40 positions as it spreads my risk to approx 2.5% per position.
If one position completely goes out of business and i loose everything, that's 2.5% of my portfolio.
I've found running 20 positions at the moment no effort at all.
As I probably only buy or sell maybe once every 2-3 weeks, this is very easy to manage.
Amibroker is very friendly when it comes to tracking positions.
I run a large spreadsheet for taxation purposes, I've used the same spreadsheet unaltered in terms of structure for several years and my accountant and i have no trouble quickly getting off it the end of years results for all my trading which includes the dividends which may fall into my lap.
I may use an existing 'out of the can' indicator, but I never use them as they were designed, I invariably always twist an 'out of the can' indicator into something else.
I have little faith in indicators as such but my opinion is they can have uses in other ways.
I'll try and explain...
First off I'm looking to buy quality stocks.
I identify them largely, initially by using T/A, by low volatility and the fact they run consistently, trend consistently, don't plunge often suddenly etc.
Many penny dreadful type stocks are best shorted I think, they are not good for consistency heading upward.
You can nearly always guarantee a crap stock will drop off a cliff.
The inverse being true, good stocks rarely drop off a cliff, but there are exceptions.
Also, quality stocks wont be in extended downtrends, but there are exceptions.
I trade probabilities, so those which are the exception, too bad, they get dumped from my watchlist regardless.
To find good trending stocks and low volatility I look primarily long term over the full life of the stock.
A new issue may only have been trading several months, so that becomes how long the lookback is.
Note: New issues are often the best contenders, after about 4-5 years they don't appear to perform so well, as a general rule.
Anyhow, my selections are done from a formula exploration, ie I run the exploration which pops up a list of contenders.
The exploration formula has a section with the lookback period and counts how many bars the stock has traded.
Another part looks at bars and identifies them as medium height, ie I don't always read close or open, but medium height.
Another section has filters for including or excluding contenders, eg, if it trades infrequently, is a warrant or option, if over the life of the stock it's trended more downward than upward, and identifies those highly volatile, only traded a few days, is below 10cents etc etc
The meat of the formula looks at price action, ie what has the stock done in terms of how price/bars behaves.
I'm not too much into volume, i've found volume short term gives too many conflicting signals, is unreliable, a red herring, distracting, confusing.
Price action is read looking at volatility, pullbacks, trending, how often hitting short term supports and resistance, ratios of gapping up and down, how often price collapses on volume spikes etc
I run this bunch of key things via the formulas, then i score them.
I score them long, medium and short term.
The long medium and short term scores are kept separate, they are there for me to pick which time frame i want, but mostly I look at long term.
Some criteria are only for short term, ie, the gapping ratio is a short term thing, it is not part of the long term score.
Anyhow, that's the basic nuts and bolts of it.
In answer to nutmeg's question, I've come to 40 positions as it spreads my risk to approx 2.5% per position.
If one position completely goes out of business and i loose everything, that's 2.5% of my portfolio.
I've found running 20 positions at the moment no effort at all.
As I probably only buy or sell maybe once every 2-3 weeks, this is very easy to manage.
Amibroker is very friendly when it comes to tracking positions.
I run a large spreadsheet for taxation purposes, I've used the same spreadsheet unaltered in terms of structure for several years and my accountant and i have no trouble quickly getting off it the end of years results for all my trading which includes the dividends which may fall into my lap.
