tonyvd
4 posts
msg #98857
- Ignore tonyvd |
2/2/2011 4:52:18 AM
Here is how:
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Filter: close between 0.001 and 0.01
Backtesting parameters:
Start / End date = 09/29/2010 - 01/28/2011
Stop loss: 100%
Profit stop: 100%
Max holding days: 1000
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The idea behind this filter was simple: subpennies have limited downside (< 1 cent) and astronomical upside ($$)
What if you just buy them, and wait until they either expire worthless (in most cases) or explode (in rare cases).
Is this a profitable strategy?
The backtesting suggests it is EXTREMELY profitable. The period does not matter: any 4 month period gives the same insane gains. Is this too good to be true?
I am afraid it is. It is caused by a severe bug or database error: the backtesting algorithm purchases stocks at penny values when these stocks did not exist yet (before they started trading). You can verify this by sorting the Gain/Loss column of the "Trades" table, and inspecting the charts of the entries with very high gains (>10000%).
Some examples:
EWEM - Trigger date: Oct 6 Entry price =$0.01 Exit date Dec 8 Exit Price = $40.43 Gain 403,900 %
This is an ETF that started trading at 40.43 on Dec 8.
EWAC Trigger Jan 12 @ $0.01 Exit Jan 13 @ $40.74 Gain 478,135 %
ETF started trading on Jan 12 @ 40.74
XVIX - Trigger Oct 27 @ 0.01 Exit Dec 1 @ 25.13 Gain = 208,816 %
ETN that started trading on Dec 1
GNOM - Trigger Nov 11 @ $0.006 Exit Nov 12 @ $7.67 Gain 135,000 %
Stock that started trading on Nov 12 @ 7.67
Most of the erroneous trades involve ETFs and ETN, but also there are OTC Pink listings (like GNOM).
These errors prevent me from correctly backtesting my penny and subpenny filters.
Any thoughts ?
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barrylange26
6 posts
msg #98862
- Ignore barrylange26 |
2/2/2011 9:14:20 AM
Just a guess as I have not tried it, but would adding this to your buy screen filter out what does not exist?
and Volume above 5000
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Eman93
4,750 posts
msg #98864
- Ignore Eman93 |
2/2/2011 2:14:53 PM
gotta watch for reverse spits also... sf dose not adjust.
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tonyvd
4 posts
msg #98865
- Ignore tonyvd |
2/2/2011 2:40:14 PM
EMAN - Thanks for the suggestion. The problem is that SF shows perfectly good looking penny-like activity in the period before the stock was actually trading: high volumes that are different every day. So you can not filter them out by volume. There are open, an close prices that change every day as wel. So it looks like real data from an unrelated penny stock is present during the period when the "high gain" stock wasn't trading yet.
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tonyvd
4 posts
msg #98866
- Ignore tonyvd |
2/2/2011 2:44:51 PM
Sorry EMAN- the above post was a response to Barry' suggestion (Thank you, Barry!).
Thank you for the additional warning regarding reverse splits. Am I correct to assume that they would typically result in (bogus) gains of 200-300%?
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jimvin
173 posts
msg #98869
- Ignore jimvin |
2/2/2011 5:00:01 PM
Pennies, and especially sub-pennies are (in my experience) very hard to trade; few brokers want to deal with them. There are many horror stories on the Net of people trying to trade penneis and being frustrated at the processing of their orders. That being said, here is a link to one of the better discussions of a search for a penny-stock broker:
http://chromainvesting.com/2010/03/15/finding-the-best-online-broker-for-penny-stocks-and-the-small-investor/
Note that ChoiceTrade has elimianted its IRA fees since that article was written; here is an updated reveiw of their service offerings:
http://www.brokeragereview.net/choicetrade-review/
Of all the brokers I've researched it appears to be the most penny-friendly.
[Disclaimer: I do not have an account with ChoiceTrade, am not employed by them and receive no remuneration for posting this information. I am, however, seriously considering trading pennies and sub-pennies in the near future (2-3 months) and if I do, I will be opening an account with them.]
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barrylange26
6 posts
msg #98873
- Ignore barrylange26 |
2/3/2011 3:49:06 AM
I've been using Fidelity to trade OTCBB. You have to call and specifically request the OTCBB option be enabled on your account, and agree to a risk statement. Only 7.95 per trade. I've been very pleased with their performance.
And, I've tried a few more indicators in that filter, but I can't get the ROI any lower than around 9K%. Still picking up on ones that don't exist yet.
My only advice with pennies is that you make sure the average volume is there. Most folks accumilate pennies over time, up into the million share range, then are unable to unload them when needed due to the low volume, and end up holding the bag all the way back down to nothing.
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barrylange26
6 posts
msg #98874
- Ignore barrylange26 |
2/3/2011 4:08:11 AM
This looks like it heading in the right direction:
Name
Sub-penny buy
StartDate
12/31/2009
EndDate
2/2/2011
Win(%)
79%
Lose(%)
21%
W/LRatio
3.88:1
Reward/Risk
119.75
ROI(%)
5084.15%
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mystiq
650 posts
msg #98895
- Ignore mystiq
modified |
2/3/2011 10:02:21 PM
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tonyvd
4 posts
msg #98898
- Ignore tonyvd |
2/4/2011 12:36:08 AM
It looks like I have found a workaround for the backtesting errors caused by non-existing stock prices.
Add the following filter to one of your Exit Triggers:
And volume is above average volume(20) 1 day ago
The price increase resulting from a stock starting to trade at $$ levels while its bogus price history is in the penny domain is associated with a large drop in volume (penny stocks have much higher volumes than $$ stocks).
Now we can study the real profitability of buying penny stocks ...
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