Wed 12 Jul 2006
There can be (or should be) a distinction between “setup” for a trade, and the “entry” signal for a trade. For example, with our PowerRatings, having a high rating might not be the only criteria for entry… instead, you may want to consider a high rating a “setup”, and then wait for a entry signal (e.g., the price moving in your favor) before plunging into a position.
This could be accomplished several ways, and should be tested before using (after all, maybe this extra step causes you to lose money). One way would be to watch the shares at open, and only go long if they’ve already started an upside move. Another way would be to place a stop buy order just above the close of the prior day — if the price goes down, your stop buy never gets filled;if it goes up, you get filled, though you may face more slippage with a stop order.
If you don’t get into a position on the first day of trading, you can adjust your stop down, re-asses your intentions, change the size of your order, or cancel it outright. This comes back to whether or not a signal is still as strong if the rating is high from one day to the next… Refer to the data you collect to determine your rules to optimize your risk/reward.
I remember reading about a specific day-trading entry rule… Around 10:30 am look to see what hi/low is set in the first hour of trading. You then put a stop order just above the high of the opening range as a breakout entry. You might be able to do something similar to improve the success rate, or lower the cost or frequency of failures in dealing with the PowerRatings entry signals.
July 12th, 2006 at 5:55 pm
This is great strategizing. I’m afraid that a week just doesn’t give me enough time to fully test things out with PowerRatings and really try a few trades on for size with a virtual account and see how things look at the end of a few weeks/months/quarters, employing different strategies with different accounts. Do you think I’d be nuts to invest $150 – $200 in PowerRatings just to play around with various strategies? Has this week been enough to scare you away from PowerRatings or do you think that it’s just a handy tool that I haven’t figured out how to work yet?