Sectors to exclude

markd01 · May 28, 2011

Quote from dwpeters:

I have been ruling out the Chinese small caps recently. Too many frauds lately.

Have you found it specific to Chinese small caps; have you looked into excluding or taking smaller position sizes in:
a) other emerging market small caps,
b) or US based microcaps?

dwpeters · May 28, 2011

Quote from markd01:

Have you found it specific to Chinese small caps; have you looked into excluding or taking smaller position sizes in:
a) other emerging market small caps,
b) or US based microcaps?

Well I have two positions in Chinese companies that have been halted due to possible fraud. I'll wait at least until i can get out of these positions before I consider Chinese companies again. Other than that I don't really pay attention to where the company is, or what the company does.

I almost completely ignore the news. My backtests don't interpret it and I've found paying attention to the news is just likely to convince me to skip trades that are likely to be profitable. If the chart is unusual, then I may look at the news or just skip the trade.

Rol · May 28, 2011

Quote from markd01:

Rol, how many max concurrent positions per portfolio do you take to diversify away news related risk? Do you try to diversify individual accounts that you trade in, so if one of your accounts is relatively small compared to others, how many positions would you divide it into?

Does everyone else ignore news? How about trading around earnings, guidance revisions, secondary offerings, shorting announced mergers, shorting companies reported to have hired someone to find a buyer for self, etc?

I trade one account automated. The strategy currently allows a max number of concurrent positions of 25, which is a function of net equity, among other parameters. As equity grows, I plan to get it to around 50 or more.

Trying to trade around the news of the day can be extremely tricky discretionarily, IMHO. My strategy would be to wait for the dust to settle, and then try to trade a âdead cat bounceâ. The price changes will reflect the news anyway, so I just focus on price itself and leave the gun slinging to the experts. I do not want to try and be a hero. I track over 1000 symbols, so incorporating news would be a logistical nightmare.

Using news the way you are suggesting would have me running in circles. It would be more akin to trading based on fundamentals rather than technicals. Over the short term, fundamental trading is a losing proposition, IMHO. I rely on stock pricing as being inefficient over the short term, as that is where I find my edge to lie.

Rationalize · May 28, 2011

Based on recent posts, I would have to say -- why not just take single stock directional punts..

This is not mean reversion.

markd01 · May 29, 2011

Quote from Rationalize:

Based on recent posts, I would have to say -- why not just take single stock directional punts..

This is not mean reversion.

It's OK to disagree. But, in order to add to the discussion, would you please provide data that <I>rationalizes</I> futility of specific approaches described here?

Rationalize · May 30, 2011

Quote from markd01:

It's OK to disagree. But, in order to add to the discussion, would you please provide data that <I>rationalizes</I> futility of specific approaches described here?

Ok .. but there are some numerical details that should probably be discovered one's self.. not to be given away err .. for free..

Wouldn't you think that pairs should revert to a mean on a timeframe known before the trade? Otherwise, it might not be mean reversion - more like mean chasing .. punting a direction, extending and pretending?

Perhaps the trader needs to determine a mean based on a sample of data prior to entering a trade. Figuring out which sample of data? What timeframe? And testing it out. Not guessing. .. Maybe different pairs revert on different timeframes. Some on several timeframes...

What to trade? Lots to choose from.

Can range from boring ETF vs ETF vs Index Futures .. to Large Cap vs ETF, to Large Cap vs Large Cap, to Large Small, to Penny Stock vs Penny Stock etc... with a tendency to diverge that might follow that order.

There a lot of numerical work that can be done pre-trade to make this a low risk strategy. And if that's all too hard, kind of like "work" then the trader can always just punt on single stocks..

Buy AAPL, Yay! I'm an iTrader! [Not financial advise].