Stock Picks And Results - How We Found Great Stocks To Short In The Recent Market Fall
Hello there. In this video, we're going to look at the results of short trading during the big market fall that we had recently.
And if we look at this day here it's Friday the 28th of February and this is the general market represented by SPY. We can see that the market has fallen very strongly. It's indisputably broken its uptrend.
And let's assume that here on Friday the 28th of February, we were considering going short and looking for a list of stocks that would give us good trading results for short trading.
So let's start with the website here. This is the database of stocks that includes the relative strength ranking for the symbol for the sector and for the industry. What we're seeing here is the current data on the website, but I do have the historic data here in a spreadsheet.
So this is the data that would have been on the website at that time. Let's sort by relative strength ranking for the sector ascending, so that we get the lowest-ranked sector, which we see is Conglomerates. And there's not very many stocks in this group, they're all low ranked stocks, we see here the relative strength ranking of the ticker itself.
So let's just grab those and go over to Amibroker. And here you see that I've already put these into a list called Case004. Here's the list we see here. And I have a very simple, the simplest possible trading system coded into Amibroker here, and all it's going to do is go long at the open and it will stay in that trade until either a 5% stop loss is hit or a 5% profit target is hit.
So there's only two outcomes. It either goes the wrong way and stops out or it goes the right way and hits a profit target.
Clearly this is a 50/50 proposition as far as the trading system is concerned. The probability of going 5% up or going 5% down is absolutely equal.
So we would expect to see that reflected in the results of back testing this system. We would therefore expect to see an equal number of winning and losing ,and we will expect to see virtually breakeven over the whole set of trades we're looking at.
Anything different from that result can only come from the inherent behavior of the stock list we've applied this system to. So let's take a look, if we run this back test here. To recap, Case004 is the list of symbols from the conglomerates sector, which is the lowest-ranked sector at the 28th of February. Which is when the market had been falling for a week.
So what I did next was to copy all the results of these trades, take them over to a spreadsheet, and paste them in here. So this data here is the data we've just seen in Amibroker. And at the top of this page, we have some summary data within Excel here, and we see that we have 77.98% winning trades. That's 78 percent nearly 80 percent.
It's so far away from 50-50 it's quite astonishing, really. When when you bear in mind that this simple trading system has done nothing but sell at the open with no further qualifications whatsoever, and you bear in mind that you would expect to see the results of trading like that 50-50. And the fact that we have 80% winning trades.
80% of trades reached 5% profit without reaching 5% stop-loss. It's an astonishing result. We see that the average winner is 8.83% -- remember, we're trading short so the minus figures are profit. The average loser is 11%. And the reason these aren't all 5% is that the exit occurred at the open of the next day. So these are the average results from the trades.
So let's look at another one. This time I want to select a sector to look at from the relative strength trend lines chart, because this has the added benefit that it allows us to look at where the sector relative strength has been, not just where it is.
On the 28th of February, we have Leisure, that's the one that I'm interested in. Leisure has been in an uptrend and pretty clearly the relative strength trendline has broken its uptrend.
So it's it's gone from a rising trend line in the middle of the chart and it's broken that trendline. So it potentially has a way to fall, making it potentially a good candidate for trading for finding short trades.
So back to our database of stocks, and we're looking for Leisure which is here. And we'll sort the relative strength of the tickers ascending, so that we get the lowest relative strength. And, as usual, what I did was just grab a screenful of stocks here, take them over to Amibroker, put them in the next watchlist.
Which is here. This is list Case006. And we'll set the list to caseoo6, take okay, run our backtest. Take all the results, once again copy them, take them over to Excel here. Case006, I've already pasted these in. And we can look at the summary data once again, in the same way.
And again we see that we have 76% winners. The average winner is 8.38%, the average loser is 11.8%. So the win-loss ratio is 0.71. But to have this high a frequency of winning trades, and winners and losers which are this close to each other, this similar in size, is really really surprising and a really good result.
Bearing in mind that we are expecting a 50/50 result when we deploy a 50/50 trading. And, once again, the fact that this result has given us 76% winning trades is purely down to the behavior of the stock list that we're applying this 50/50 system to.
Let's do one more. Back here on the relative strength trend lines, Banking looks like an Excellent choice under these circumstances.
It's already in a downtrend. It's had a pullback in that recent bounce, and has come down and broken back down to resume the downtrend.
So let's see what's happened with the stocks in the Banking sector. Okay, here's the Banking sector. The symbols are already sorted to give us the lowest ranking first. So, again, what I've done here is just taken this screenful of stocks over to Amibroker. And it's here PVBC, BAP.. Yes it's in Case008. So, again, we'll set that list here, run the backtest and this data is taken over to Excel.
And here it is, pasted in here. And, once again, we have the summary statistics up here. And, in this case, we get 68% winners and the win:loss rate is -- it's pretty much one-to-one -- it's 0.98.
So the winners and losers are almost exactly the same size, but 68% of the trades are winners.
So, again, the fact that we're getting a result like that from a 50/50 trading system tells us that it's the nature of the list of stocks which has given us this surprisingly good result.
And, finally, I have several of these put onto a comparison page. There's a few more here that we haven't gone through. We looked at I think it was 004, 006, and 008. I don't need to go through all these others. You can see that all these that I have actually done today have had a win rate that's mostly seventy percent or above. With a couple just below 70.
So it just shows us again, the power of selecting our stocks by relative strength ranking.
And this time we've seen what happen if we went short here -- and do bear in mind that we haven't finessed the market, we've just said okay i'll go short here. We haven't created a trading system with any finesse, we've simply said i'll go short tomorrow at the open.
In reality, we probably would have waited for a pullback and ended up going short here, instead of here, and the results would in all likelihood have been even better.
And, likewise, in all probability we would have had a trading system that is slightly better than 50/50. And we could have done even better with that, as well, with the probability of the trading system added to the probability which we've just witnessed that is inherent in the stock lists themselves.
So that's it for today. Thanks for listening, bye for now.