Sadly, there has been no development so far by which I have managed to turn Penny Stocking from a Pig’s Ear into a Silk Purse.
Since Timmay reports that he and his Students are “Crushing It” in the current environment, that means that I have failed to understand his system or systems or that I have failed to implement it or them correctly. Mea Culpa – I shall continue my labours.
I reached out to Timmay yesterday via Linked In and Twitter to see whether he would be interested in co-operating with my endeavors, but sadly I have received no reply as yet. Too busy “crushing it” no doubt but perhaps he will respond when markets have quietened down a bit.
I am aware that Mr Sykes has a variety of methods which he teaches to his earnest students and I decided to back test one of these. The breakout.
The theory is that if a penny stock opens sharply higher or trends sharply higher during the trading day on good volume, the momentum will continue for a period and the trader can capture some segment of the uptrend.
Timmay and his students report remarkable trading ratios: 75% of trades are winners and in addition, the average winning trade exceeds the average losing trade when measured as an absolute percentage of the account equity. The holy grail.
I have worked hard to recreate a version of this strategy in Quantconnect, which has the enormous advantage of providing tick, second and minute data. Thus enabling a reasonably accurate picture of fills and slippage.
I have made my code available at Quantconnect for anybody who wants to help me improve it. Had my efforts resulted in resounding success, I would doubtless have selfishly kept it to myself but now I am shamefacedly putting my tail between my legs and admitting my inadequacy.
Timmay and his students are “crushing it”. I am not. Hopefully someone will come to my rescue.
As you will see from my code, there are any number of variables which can be experimented with in the attempt to “crushit”.
The extent of the breakout can be varied. Should we look for a 30% breakout above yesterdays close? 100% perhaps?
How should we filter our list of candidates? Should the un-adjusted share price be below $5? Should the dollar volume traded yesterday by between zero and $5m? Should volume be measured over a period rather than based on yesterday only? Should we include or exclude Nasdaq, the NYSE, OTC?
What time of day should we enter a trade? Any time before the close? Prior to 11 am only? When should we exit and on what basis? How should we set our stop loss and at what level? We need to give the trade room, but not too much.
How and when should we take profits and at what level? Should we exit some or all of a winning position after a 10% unrealised gain? 5%? 100%?
Should we re-enter a trade after being stopped out?
I have been back testing trading strategies for many, many years. I understand the pitfalls and the limitations. I understand that there is no exact science but equally, if a trading methodology has legs, then I certainly ought to see those legs (even if only in some rudimentary fashion) using back testing. So far I have not. Seen those legs. Any of them.
Back testing is quantitative. It is not a vague examination of charts, spotting patterns in clouds in the sky. If there is a repeatable and reliable pattern and you can describe it, then the iron discipline of back testing will tell you whether (in the past at least) basing entry and exit points on those patterns will yield a profit,
Not too much can be said about the future, but if you have identified some structural, profitable and repeatable market feature, then you are in with a fighting chance.
I have not yet reached such a stage with Penny Stocking.