Stock Market Student

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Last post I ended up with a screener backtest of short term industry strength defined by

The results were as shown below holding all stocks meeting the screen criteria with weekly rebalance:



After playing around with different ranking systems I ended up settling on one called "Fourth Generation with Unfollowed Smallcaps".  The ranking system is shown below:



For those people that have not been reading past posts, My universe is defined as follows:



The ranking system consists of fundamental and technical formulae combined with user-assigned weightings.  The system applies a ranking from 0 to 100 for each stock in the universe with 100 being the best stock choice and  0 being the worst.  Using the screen backtest I can now select how many stocks I want to hold based on the ranking system.  Below is a consolidation of the backtest results for different numbers of stocks plotted in EXCEL.

This is the magic of Portfolio123 ranking systems.  300% return was turned into several thousand percent returns, not including commissions or slippage, but does include a full dose of 20-20 hindsight.  So you can't expect similar results going forward.  But it does give a nice positive bias to one's trading.  This screen may be useful for short term traders wanting to identify a small number of stocks for further analysis on a weekly basis.

The following can be found on Portfolio123:

Screen:  http://www.portfolio123.com/screen_summary.jsp?mt=1&screenid=20956

Stock Universe:  http://www.portfolio123.com/screen_summary.jsp?mt=7&screenid=20173

Ranking System:  http://www.portfolio123.com/app/ranking-system/59261

Unfortunately this doesn't help me on my quest for a long term trading system... but it was a fun exercise anyways.

Now back to the grind.

Sphere: Related Content                              Stumble It!

Purpose

• I manage to develop a system that trades a basket of stocks starting with $100K;
• the system has low drawdown (less than 20%);
• the system has sufficient profit per trade so that slippage and commission are a non-factor;
• annual performace is much better than a typical basket of mutual funds.  Otherwise what is the point to going to this effort?

Tools

In my younger days I once had a desire to learn how to paint as a hobby so I signed up for watercolor classes at the Ottawa School of Art.  At the first class my teacher made it known that I had to purchase the same tools that he used as a professional artist.  This included expensive paint brushes, top of the line paint and specific brand of paper as well as a host of other miscellaneous equipment.  Even though I was a complete novice and this was my first art class I was expected to spend a lot of money on supplies!

My teacher's rationale was as follows:  you are either an artist or not an artist.  If you are an artist then you must use proper tools.  There is no point to using cheap brushes, paints and paper because you won't be able to perform the techniques I am going to teach you and also, as a teacher I won't be able to assist you because I am not familiar with your instruments.  Furthermore, everything you learn will have to be re-learned once you finally migrate to good brushes, paints and paper.

With this in mind I would like to say that the same rationale applies to my blog except that I am not a teacher, but a student of the markets.  By the way, if you find someone who claims to be a teacher (or expert) on trading then run for the hills because you are about to lose all your money.

I do make an effort to make this blog as general as possible for the general audience so that everyone can follow along.  But if you want to develop a similar trading system then you will need to get a subscription to www.portfolio123.com.  I highly recommend Portfolio123 as a professional platform for stock trading. 

Portfolio123 has both fundamental and technical analysis data for U.S. stocks dating back to 2001.  All data is maintained at the website so you don't have to worry about spending hours every week downloading current data and finding bad quotes.

Portfolio123 takes pride in maintaining a historical database that is essentially void of historical bias, survivorship issues, etc.  The only negative comment I have regarding the service is that the database only goes back 7 years.  They are working on getting additional 10 years of back data but have been promising this for some time.

By the way I don't earn a single cent from making this endorsement.  Portfolio123 is such a good website I just have to spread the word.

About myself

Now let's get started!