Long EGY at 6.25 (oversold)

21 Agu

It's been a minute, but with the big sell-off I didn't want to spread my capital too thin, and then with the sharp rise subsequently it's hard to find a decent stock that isn't overbought now. Plus with energy not being as correlated to everything else I'm holding, it helps diversify.

Will continue to add lots as long as it is oversold and sell each when it becomes both overbought and profitable. BONUS (though not factored into the trade profit calculations): it's going ex-div on its 1% per quarter dividend Friday.

3 Sep

Trade aktif

Added 1 lot at 5.895

4 Sep

Trade aktif

Added 1 lot before the close today at 5.745 (still oversold)

5 Sep

Trade aktif

Added 1 lot at 5.6269 just before the close.

6 Sep

Trade aktif

Added 1 lot at the close at 5.48 (still oversold)

8 Sep

Catatan

Why some people might be worried about a series of trades like this (buying an oil company stock RIGHT before oil prices tank), but I won't.

I'm in the middle of backtesting my system on this ticker's entire trading history back to 1999. I'm not very far along yet, so I wouldn't read TOO much into what I'm gonna say now, but there are some valuable takeaways from what I'm about to say about what's happened so far.

1) Stock down 95% - I'd have been up 21%

Stocks don't move in straight lines. I can't say that strongly enough. This stock opened in 1999 at 10.50. At this point in my backtest it's at 0.50/sh. That's a 95% loss in value. My system would have made 92 trades so far and is performing abysmally (so far) compared to other backtests. Its win rate is only 76% at this point. 22 trades are still open and have all lost anywhere from 43 to 95%. I'd have currently been holding 22 lots and at peak I would've been holding 30 lots, all losing or flat at that point...

And my total return is STILL +21% - that return is based on all the capital required to open 30 lots. It would actually be higher than that, because right now all 22 lots that haven't been closed are valued as 100% losses on my spreadsheet and some are 'only' down 42%, but I'm lazy and don't want to mess with exact values right now because the stock is over 5/share as I write this in real time. More than half of those "losing" trades were opened at values below Friday's closing price, so they will end up being winning trades, so why bother valuing them now, it's easier just to count them as 100% losses for now.

The key to what I'm doing is having the winners' gains making up for the losers losses (and then some, obviously) and there being far more winners than losers, even at this point in the test. I'm nearly certain that the win rate on this ticker will be above 90% when the backtest is done, though. And that's why I'm not worried about timing as far as the trades I'm actually in right now on this stock. If I can make money during a precipitous decline like this backtest so far, why should I worry if the stock is down 12% since I opened my first lot? Plus I'm getting 1% per quarter in dividends if I have to wait.

2) This shows the HUGE importance of using small lot sizes in what I do

The 4th trade I opened was at 10.50 and would be down 95% right now. Imagine if I had gotten excited over my first 3 trades that gained 43%, 46% and 54%, respectively, and had decided to bet everything on the 4th one after those tantalizing results? That trade would be down 95% and I'd have no money left to keep trading the next 88 trades that have made the money.

📣 DON'T OVEREXTEND WHEN YOU TRADE!!!📣
📣 DON'T OVEREXTEND WHEN YOU TRADE!!!📣
📣 DON'T OVEREXTEND WHEN YOU TRADE!!!📣

Nobody knows with 100% certainty where the market will take a stock, and especially not when. The market will ALWAYS have surprises. You can make educated guesses, but that's it.
That chart pattern that never failed before will eventually. That indicator that is ALWAYS right won't be. The absolute lock short will get bought out just when you open your trade. I don't claim to always be right, even if my system makes correct calls 90+% of the time. I have no idea where most stocks are headed when I buy them. I have ideas, but no certainty at all. What I rely on is the knowledge that if it goes up quickly, I'll make money quickly. If it goes down, I'll make some along the way (while I'm losing money along the way) and the winning will likely compensate for the losing along the way. It's liberating to know that unless a stock goes to zero VERY rapidly just after I start buying it, I'm probably going to make money in the end. How much just depends on how bumpy the ride is along the way and the overall direction the stock moves. I couldn't have that confidence if I sunk too much capital into an idea early on. DON'T BE GREEDY.

The key is being able to keep buying on the way down, and you can't if you run out of money first. If you need an incentive to keep some powder dry, I've found that the biggest wins on trades are usually at the bottoms of long losing streaks. You never know when the bottom is gonna happen, but you'll be sad you miss it if you run out of money before you get there.

3) You MUST have confidence in your trading system

After a 95% fall, how many people wouldn't have thrown in the towel. 15 years ago, I know I would have, because I did. I quit trading and had most of my trading capital parked in cash (making basically 0% for the better part of 5 years after the 2008 financial crisis (stupid, stupid, STUPID). I did that because I wasn't confident. I lost a TON of money in 2008 and when you don't have a system you have confidence in during a period like that you WILL bail out and do stupid things like I did. I didn't even have confidence in the long term upward trajectory of equity investing any more back then. I know better than most people I know what it feels like to have no idea what you're doing. And that is bad news if you are trading.

Thus was born what I do now. One of the first things I started doing as I waded SLOWLY back first into paper trading, is going back as I developed different systems and strategies and testing them in worst case scenarios. Now you can't re-create the feelings of watching your retirement saving evaporate to the tune of 1000s of dollars a day in real life - there's just no way to do that paper trading or backtesting. But I'm a data guy. I have learned that people lie, numbers don't. I listened to the talking heads talking about another Great Depression back then instead of looking at the opportunity. Your headspace is EVERYTHING in trading. Don't forget that and don't think you can't be shaken because you can. I had ridden out the dot com bubble and I thought I was invincible after that. 2008 SHOOK me. Something will come along that will shake us all again (but hopefully not). You have to know that whatever system you use, be it stop-losses or whatever, will keep you level headed when the sh!t hits the fan.

I've found mine with this. I've tested it on stocks that have lost 90+ of their value, and on good ones that endured the inflation crisis of the early 80s, the oil embargo, dot com, wars, 2008 financial crisis, etc. And knowing it would have held up in all those moments is encouraging. The biggest takeaway I learned from that - have large enough capital reserves. I doubled what I expected from my capital reserves and halved the size of my trading portfolio after "stress testing" my system. Whatever your system is, stress test it to death or you will fail in dark times, even if your system doesn't. Learning that you are most often the weakest link is a difficult, but important lesson to learn. An ironclad belief in data (not hunches) and its use in your system is critical.

12 Sep

Catatan

Here are the results of my 31+ year backtest (1993-now) for my system on this stock.
I am stunned. I would expect trading a tech stock to show these types of results, I would not expect it from a small cap oil company.

For comparison purposes, the stock is down 51% from its 1993 IPO price on a buy and hold basis through 9/9 when I finished the backtest.

Total trades: 753
Winning trades: 747
Losing (so far) trades: 6 ( 5 of those were opened in the last 12 trading days)

Win rate = 99.2%

Average gain per lot traded (includes "losing" trades) = +10.92%
That number is skewed by some ridiculous gains from when the stock was trading below $1

Median gain per lot = +7.14% (better real estimate of a “typical” trade)

HOWEVER:
25% of ALL trades taken over the 31 year span gained over 12.7% and many were not when the stock was super cheap.
-In the last 12 months, 7 closed trades gained over 10%. That’s 1 in 4 trades in that time span, and includes a +17% and a +19% trade.
-1 out of every 10 trades throughout the entire test period gained over 20%, the largest being +250% gain in 31 trading days, followed almost immediately by a +133% and a +211% in 11 days each. Certainly not typical, but they’d have been booked nonetheless.

Average holding period per lot = 101 days (skewed higher by a few VERY long trades)
Median holding period per lot = 11 days (more “typical” trade)
Most common holding period = 5 trading days

68% of trades closed within 20 trading days (1 month)
19% - almost 1 in every 5 trades - closed within 5 days (1 week)

Average gain per lot per day held = .101%

Average annualized return (gain/lot/day x 252 trading days) = 25.5%

Using median trade data to factor out atypical really big wins and really long holding periods would look like this:

7.14% in 11 days (both median values)

Largest # of lots held simultaneously - 31

Again, these posts are for edutainment and not investment advice. However, with any trades using my system, very large drawdowns can and inevitably do happen from time to time, so consider yourself warned if you decide to do what I do.

17 Sep

Trade aktif

Just sold the 2 most recent lots for 5.72 at the open because EGY is overbought as of yesterday. I got sidetracked at the close yesterday and didn't realize they were overbought then so that's why I sold them this morning.

Lot 4 (5.6269) = +1.7% in 7 days
Lot 5 (5.48) = +4.4% in 6 days

17 Sep

Trade aktif

Still overbought so I sold Lot 3 (5.745) at the close for 5.885
+2.4% gain in 8 days

Still holding the first 2 lots - 5.895 and 6.25

2 Okt

Trade aktif

Sold 1 of the 2 remaining lots (the 5.895 lot) for 6.025.
Gain = +2.2% in 21 trading days

Still holding the 6.25 lot

3 Okt

Trading ditutup: target tercapai

TRADE CLOSED

Sold final/original lot at 6.28 at the close today for a gain of +0.5% in 30 trading days.

3 Okt

Catatan

Trade summary for my records:

Wins - 5 Losses - 0

+0.5% in 30 trading days
+2.2% in 21 days
+2.4% in 8 days
+1.7% in 7 days
+4.4% in 6 days

Avg gain per lot = +2.2%
Avg hold per lot = 14.4 days
Gain per lot per day held = +.153%
Annualized return per lot per day held = +38.6%