Predicting Closing Prices

[GeetPram]

Hello ET,

I wanted to get some feedback from the community. I have a strategy that I have developed and am in the process of automating. Basically, it spits out 4 potential closing prices for a stock that meets certain criteria.

For example, XYZ is at 50.00. I may have possible closing prices of 50.20, 50.25, 49.80, and 49.75. Depending on where the market is when the numbers are calculated, I would make trades based on trend and other indicators, and use those numbers as my targets. If XYZ was determined to be a long set-up, I would buy at 50 and look to exit at 50.20 or 50.25. Stop is based on ATR and a couple of other things.

I have found that roughly 60% of the time, the market closes on one of the numbers that my algo calculates. Usually there are 3-5 stocks per day that I trade this way.

My questions for you are:

1.) What do you think in general about predicting closing prices?
2.) What do you think about a 60% accuracy rate?
3.) If you think this isn't completely idiotic, would you trade it yourself or try to sell it? I have traded it myself with success for roughly a year, but I am looking to take the next step

 

[lindq]

Hello ET,

I wanted to get some feedback from the community. I have a strategy that I have developed and am in the process of automating. Basically, it spits out 4 potential closing prices for a stock that meets certain criteria.

For example, XYZ is at 50.00. I may have possible closing prices of 50.20, 50.25, 49.80, and 49.75. Depending on where the market is when the numbers are calculated, I would make trades based on trend and other indicators, and use those numbers as my targets. If XYZ was determined to be a long set-up, I would buy at 50 and look to exit at 50.20 or 50.25. Stop is based on ATR and a couple of other things.

I have found that roughly 60% of the time, the market closes on one of the numbers that my algo calculates. Usually there are 3-5 stocks per day that I trade this way.

My questions for you are:

1.) What do you think in general about predicting closing prices?
2.) What do you think about a 60% accuracy rate?
3.) If you think this isn't completely idiotic, would you trade it yourself or try to sell it? I have traded it myself with success for roughly a year, but I am looking to take the next step

The issue is what happens to the 40% that lose. If the average loss is close to or greater than your average win, then your 60% isn't worth the risk.

 

[BlueWaterSailor]

I have traded it myself with success for roughly a year

Do you have an actual, verifiable track record of this? Lots and lots of people "feel like" their methods are successful - at least until they actually record all the results. Nearly 100% of the time, the harsh bright light of reality turns those successes into failures.

If you find that you have a method that actually has positive returns and is scalable, I can't imagine why you'd want to sell it. If it sounds like it would be successful, but is not for a variety of more or less subtle reasons - well, there's a lot of guys on YouTube selling lots of variations of those.

 

[Amahrix]

1) How much do you generally gain?

2) What is holding period?

3) How do you currently manage losses?

4) What’s your biggest loss?

 

[ETJ]

Kinda like a one day ATM option. Should define the range with a 1 sigma(about 66%) accuracy.
It will frequently be correct, often a little wrong and infrequently very wrong. I can create the range from the ATM implied. I can simulate it for pretty much any timeframe and there are lot of option evaluation programs that will pretty much do it pretty easily.
The important question is can I make money from this alone or as part of a larger strategy.

Generally not alone because of friction - what would really be of some value is if your calculation drew from factors/variables not reflected in the implied and is the difference material after friction?

You are kind of asking the question - if I could forecast volatility would it be a profitable trade?
The answer would be dependent on how wrong is the implied - what instrument are available to me - do I have enough capital to make a difference - would my deployment of the capital impact the liquidity - how much is the friction? Beat that and you have a very valuable idea to someone making markets and possibly customers.
As you describe it the stock has a 0 return and that is pretty much what most people have found in the very short run.

 

[qlai]

Usually there are 3-5 stocks per day that I trade this way.

Does this mean these have shown to be more predictable or your algo picks the stocks to trade that day?

 

[jonahern]

Hello ET,

I wanted to get some feedback from the community. I have a strategy that I have developed and am in the process of automating. Basically, it spits out 4 potential closing prices for a stock that meets certain criteria.

For example, XYZ is at 50.00. I may have possible closing prices of 50.20, 50.25, 49.80, and 49.75. Depending on where the market is when the numbers are calculated, I would make trades based on trend and other indicators, and use those numbers as my targets. If XYZ was determined to be a long set-up, I would buy at 50 and look to exit at 50.20 or 50.25. Stop is based on ATR and a couple of other things.

I have found that roughly 60% of the time, the market closes on one of the numbers that my algo calculates. Usually there are 3-5 stocks per day that I trade this way.

My questions for you are:

1.) What do you think in general about predicting closing prices?
2.) What do you think about a 60% accuracy rate?
3.) If you think this isn't completely idiotic, would you trade it yourself or try to sell it? I have traded it myself with success for roughly a year, but I am looking to take the next step

1) trade it yourself. 2)start working on another strategy

 

[jonahern]

1.) What do you think in general about predicting closing prices?

I think prop traders make careers out of doing this?

 

[GeetPram]

Does this mean these have shown to be more predictable or your algo picks the stocks to trade that day?

The algo selects a group and then I manually look and decide which appear to be the most tradable.

 

[GeetPram]

The issue is what happens to the 40% that lose. If the average loss is close to or greater than your average win, then your 60% isn't worth the risk.

Right. The average winner is 1.3x the average loser.