Help and FAQ

Table of Contents 1. Description of the Full Service Daily File 2. Using stop-loss orders  3. How to use sorting of the list of potentially bullish stocks? 4. How do we use the list of potentially bullish small stocks? 5. How do we use the list of potentially bearish stocks? 6. It is hard to identify two stocks with maximum % price drops. What to do? 7. What to do if one has a lot of money for trading? 8. What to do if one has little money for trading? 9. How do we buy and sell stocks using the Basic Trading Strategy?

Elena Ilina Service Manager Hi, I am Elena. I've been working at STTA Consulting since 1999. I am a mathematician and an actuary and I am always ready to answer your questions about our trading strategies. Write me now I am always ready to help you.

1. Full Service Daily File
This file (see example) contains the lists of potentially bullish (bearish) stocks. We expect upside (downside)  moves during the next 2 - 5 days. All these stocks are oversold (overbought) in different time frames. The stocks are sorted. The first stock in the list is the most bullish (bearish), and so on.

However, these stocks are potentially bullish or bearish! We consider price dynamics of these stocks during the next trading day. The stocks become bullish (bearish) in all time frames if at the next day market closing the prices drop (rise) under (above) levels which are shown on the page. Go back to the main page to find the links to learn more about stock selection and trading strategies. Full description of our methods you can find the book Short-Term Trading Strategies.

Page description
File #: This is the file number in our database. It can be useful to keep tracks of strategy performance. Every US market trading day this number is increasing.

Day of Analysis: Every trading day after market closing our computers analyze stock dynamics. This is the day of analysis. We are using the format YYMMDD. So, 990312 means March 12, 1999. 

Ticker Line: This is the list of ticker symbols separated by commas. It is convenient for various online stock quote services. You can highlight this line and transfer it (using "Copy" and  "Paste" commands) into the text window of your quote service.

Table: The list of stocks with Bullish and Very Bullish levels. These levels should be considered at the end of the next trading day. The stocks are sorted, as mentioned above.

AMPLITUDE is the average intraday stock price amplitude

A = <(MAX - MIN)/2>

The averaging is performed over the last 20 trading days. It can be used for calculations of the optimal stop-loss levels (see question 2 for details).

Bullish and Very Bullish price levels indicate 95 and 90% levels of the Clo0 price (closing price on the day of analysis). These levels can be used for selecting stocks for Low Risk-1 and Low Risk-2 strategies. Click here for details.

Potentially Bullish Small Stocks
This file is identical to the list of potentially bullish stocks. The only difference is the stock price range (from 0 to $10). Attention: these stocks are very volatile.

Potentially Bearish Stocks
These stocks are overbought in different time frames. The stocks are sorted. The first one is the most bearish, etc.

They become bearish if on the morning of the next day after analysis (day #1) their prices go up further.  5% rise is a good point to open a short position and closing the position at the market closing of day #3 or #4. 

However, history analysis shows that there is more "softer" sell-short strategy. It assumes selling short two stocks from the list with maximal rise at the opening (day #1: Ope1/Clo0 = max ) and closing position at the market closing of day #3. This strategy has a good and very stable quarterly returns even for the bull market. 

Current Trading Portfolio
This is the list of stocks which have been recently selected using the Basic Trading Strategy. 

2. Using Stop-Loss Orders

We have shown (http://www.basicsoftrading.com) that the optimal placing of the stop loss order is about S = P - 5*A, where P is the stock purchase price and A is the average intraday price amplitude. Let us show an example:

Suppose we bought a stock at P = $30. The amplitude of this stock A = 0.5. We place a stop-loss order to sell at

S = 30 - 5*0.5 = 27.5

The risk to return ratio is close to the ratio without stop orders The average return does not suffer much (-12%). This stop can prevent a big loss of the trading capital.

One can use higher stop-loss orders like S = P - 4*A but expected return is less in this case (-18%). 

One can also place stop orders very close to P like S = P - 0.5*A. The risk return ratio is small in this case.

Where to place the optimal stop order? It depends on the market condition and trader's habits and experience. The average returns and the risk to return ratios do not change much after -4A. It is much more important to not place a stop loss order in the vicinity of P - 1.5*A, where the risk to return ratio is maximal.

The amplitudes can be also used for estimation of the risk of particular trade. The larger a ratio A/P, the larger the risk of trading this stock.

Detailed study of using stop and limit orders for trading one can find on our site http://www.basicsoftrading.com

3. How to use sorting of the list of potentially bullish stocks?
Our list of potentially bullish stocks is sorted.The first stock in the list is the most bullish. We are buying the stocks with maximum % price drops during the next trading day. However, sometimes the % price drops are very close to each other. In this case we prefer to buy stocks which are closer to the top of the list.

4.  How do we use the list of potentially bullish small stocks
We look at this list every day. We buy stocks only in case when we see something extremely bullish. The price drop during the trading day should be more than 10 - 15%. These stocks are very volatile and do not spend a significant part of our trading capital for this game. We consider this list as an additional trading tool.

5.  How do we use the list of potentially bearish stocks
We look at this list every morning after market opening. To use sell-short strategy we buy two stocks from the list with maximal ratio Ope1/Clo0.  If the opening price of some stock from the list is more than 5 - 10% higher than its closing price on the previous day we consider this stock as a VERY GOOD candidate for selling short. It is a good idea to check the latest news. If the reason of the positive stock price move is already published then we consider this as a good sign.

We do not hold these stocks for a long time. If we see some significant pullback (5-10%) we are covering our short selling. It is a dangerous game to hold these stocks for a long period if the market is rising. For the falling market (the trend is negative within 16 - 32 last days)  we can hold stocks longer but in this case we always use stop orders.

6.  It is hard to identify two stocks with maximum % price drops.
     What to do?
We do not worry much about that. The computer analysis shows that performance of the stock with maximum % price drop during the trading day (the first stock) and performance of the second stock are very similar as one can see from the History File. The third stock is also doing very well in the long run.

When to buy stocks? We are trying to buy stocks during the last minutes of the trading day. 5 or 10 minutes - it does not matter. One day we are buying at lower prices than the closing price. On another day we are buying at higher prices. The average purchase price is very close to the average closing price.

7.  What to do if one has a lot of money for trading?
We would buy many stocks from our daily list with maximum % price drops during the trading day #1. Three, four or more. The strategy should work well in this case. The historical returns of these stocks are very similar and this diversification can help significantly reduce risk/return ratio.

8.  What to do if one has little money for trading?
We would use ideas of the Trading Strategy for Busy People. The frequency of trading is not very high and the average return per trade (for equal transaction costs) is higher. We would select stocks  with very high growth potentials. We would also avoid buying stocks when the market is bearish. We publish  the plot of -GP parameter for the Dow Jones which can be useful to determine the possible direction of the market move.

9. How do we buy and sell stocks using the Basic Trading Strategy?

How we buy stocks (at the market closing of day #1).
1. 30-40 minutes before market closing open the list of potentially bullish stocks.
2. Highlight and copy the line with the list of tickers. Use the right mouse button to copy (for PC users).
3. Open Yahoo quote web site (http://quote.yahoo.com/).
4. Paste copied list into the quote text box.
5. Get quotes.
6. Yahoo gives % change of price and does not care how many tickers one has entered. Choose 5-6 stocks with maximum % price drops.
7. Check the news, charts, fundamentals, message boards, ... and decide which stocks look good to buy. We remember that bad news are not bad if they are already published.
8. Open  real time quote service and type selected tickers into quote page.
9.  3 - 5 minutes before the market closing, place the order to buy stocks (limit or market - it depends on the bid-ask spread).

How we sell stocks (at the market opening of day #4)
1. Before market opening check SP 500 futures and other market news.
2. Check news of the companies.
3. If something is bad - place the sell order "at market" before market opening.
4. If market is bullish and there are no bad news from the company - wait for the market opening.
5. Be ready to sell. Fill out the sell order form ("at market") and wait to pres a key.
6. After market opening watch the stock. Try to catch the first morning maximum (usually in 5-10 minutes after opening)
7. If the stock goes down - sell immediately!
8. If the stock goes up and up and we do not have time to watch the stock we place a stop order and check stock by noon. By the end of trading day we always sell stocks to have money for buying other stocks from the new list.