Penny Stock Bullshit

I have managed to capture the “Pump” in my algorithm. The trouble is, all too often the stock opens up and goes rapidly downhill after that. Where it works it works well, but those occasions are far outnumbered by strings of crippling losses. Day after day.

So: more winners than losers? A bigger average win than loss?  Bollox, to put it politely.

I have made my code available on Quantconnect.

How does it work? The code seeks to profit from a stock which has gone nowhere on low volume for 5 to 10 days and then spikes on exponentially greater volume on the day of the pump. Or announcement. Or whatever.

A number of filters are provided which you can test for yourselves. Dollar volume, momentum, standard deviation of the close, a ratio of the hi/lo over a period. Those are the initial filters for the portfolio.

Once picked, no trade will be taken unless a number of conditions are satisfied:

#  Entry conditions:
# – We have no position in this stock
# – We haven’t traded this symbol today
# – Bar closed above our target
# – Before 10:30am (or whatever)
# – Cumulative Volume for the day (so far) exceeds average total dollar volume for past x              days

Minute bars are used and I have also tested bars by the second. The volatility of these stocks is such that stop losses are a problem – unless they are wide a number of exits (profit taking and stop loss) can be triggered on the same bar and that can lead to short positions.

There are options to close the trade out at the end of the day, or let it run and the stock either get stopped out or sold at one of the pre-programmed profit target levels. Profit targets can be altered.

The awful penny stock websites and chat rooms talk much of this “set-up” but in my back testing at least it looks to be a disastrous, loss making catastrophe.

Forget riding the Pump momentum. Momentum trading is for multi day or indeed multi month trades, not day trading. Or at least not in the context of penny stocks.  Not consistently.

Shorting the dumps may have more application. But I’m not sure I can be bothered to look at it much further.  It probably has more currency than long the pump..

If you are an insider and prepared to play the dirty game of manipulating the market or dealing ahead of announcements, then I would imagine you can profit handsomely.

Or if you study the fundamentals of which players are involved in which companies and only trade pumps orchestrated by known (successful) crooks whose shenanigans you follow and whose pumping record is good.  And only then if you manage to get advance notice or some inkling that a pump is imminent.

I do not believe you can profit consistently on fair and open methods.  Especially not using technical analysis alone.

I have concern for the countless people who are suckered into buying expensive products (crap) based on the myth of penny stock riches. I am even more concerned if the poor fools actually attempt to trade such systems and methods. God help them.

4 Comments

  1. I am very grateful for your comment and corroboration. Trouble is it SOUNDS so good an idea you just have to test it out. I believe that shorting can probably be made to work but I do not think I would enjoy the stress. Let us have coffee when all this isolation stuff is over?

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  2. Totally agree that trying to play follow the leader is a losing strategy. People don’t realize that the “leader” was in the stock 2 weeks ago. By the time the lay person is chasing the stock they are buying the leaders shares. He’ll hold 1000 shares to show “when he sold” in order to be “transparent” but in reality that 1000 shares is nothing compared to what he already sold.
    I’m working a couple angles. The first is how I set my scanner. I pull low float to get the volatility and only buy if there is news. None of this is ground breaking. What Im paper trading right now and testing is if I can play with 1000 shares and find the low floats that are moving up and down 10 to 20 cents with some regularity. The wins are not huge but I sell almost immediately if the stock goes down.

    The other angle what you mentioned. Finding a couple of pumpers and trying to understand there patterns. What does a stock do when they first “alert” and how many times and what are the catalyst for when it drops.

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    1. I haven’t looked at this for a bit. I am baffled by Sykes and his acolytes. Are they for real? Do they really make money on trading or just on marketing? Tim Grattini for instance sounds honest and earnest. In principal his methods seem to make sense. In practice when back testing they look to be utter crap. Am I missing something?

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