Why I Stopped Trading the Stitts Holy Grail

There are a few reasons I stopped trading the Stitts Holy Grail stock trading pullback system.  Perhaps others will have more success.

In the last post I showed the simulation results for the Stitts Holy Grail stock trading system.  If you were quick enough and a Portfolio123 member you would have been able to copy the system rules.  Although I had some success with the system there were a few turn-offs.

(1) A significant number of the stocks were on my broker's "suspicious trading" list.  These stocks were barred from being traded online.  I had to phone up the broker for each order entry.  This is something I didn't want to do considering I have a fairly demanding day job.

(2) I got burned on a few trades, enough to make me think twice about continuing.  (See below for an example NYSE trade).

(3) I like to screen the stocks manually - I subscribe to the Warren Buffet day-trading quote:  "If you wouldn't hold a stock long term then don't even think about holding a stock for ten minutes".   Before buying a stock I would have a look at the company business.  If I really liked what I saw I would put more money into the stock than the system warranted. If I didn't like what I saw I generally didn't participate in the trade.  Invariably when I bought a stock, it would experience a substantial drawdown the first day.   Greed and fear, the two emotions that fuel the markets, often got the better of me when trading this system.

(4) The markets started to act in an uncharacteristic fashion around the beginning of 2007.  I found that pullback systems of this type were not working like they did before.  I think this was a foretelling of general market conditions to come...

As a result I decided to stop trading Stitts Holy Grail.  The liquidity level was set too low for me - perhaps a personal thing, I'm not sure.  I felt that the market makers were making their lunch off my trading.  So now I trade stock systems with much higher liquidity and profit per trade so that I am less affected by unusual slippage and suspicious trading activity.

Now when I develop stock trading systems I set the average daily volume to a minimum of $500K averaged over three months, significantly higher than most other system developers at Portfolio123.  (Typical at P123 is $100K averaged over 20 days.).  I also set a minimum Market Capitalization of $100M.  I find $20M too low.

Example trade:

I got substantially burnt on this stock both on the buy and sell fills.  The stock was ATS and unfortunately doesn't seem to exist anymore under this symbol name so I can't go back and check  the daily history.  But on the buy side I lost approximately 15% in "slippage".  For the sell the stock closed the previous day at $2.33 (or thereabouts).  This stock traded on the NYSE so I was under the assumption that I would get the opening price when I put in a market order prior to the market open.  Well maybe I did get the opening price ($2.16) on the NYSE but according to YAHOO (1 day graph) the stock never went below $2.30.  I complained to the broker and got the following response:

Your order filled at the NYSE opening price when the NYSE opened ATS for trading at 8:32:35CT. Quote providers will pick up market data beginning at 8:30CT regardless of whether the primary exchange is open or not. However a day order will be active when the primary exchange opens for trading.

We cannot direct route orders to the NYSE. Your order will be filled off the best bid and offer when the NYSE is open for trading. Please reply if there is anything else we may assist you with.

   Seq ID    Date    Time    Exg    Price    Size    Condition    Bid    Bid Exg    Ask    Ask Exg    Sizes
    389994    10/29    08:33:05                     2.39    NYSE     2.48    NYSE    1x1
    389735    10/29    08:33:05                B(#37), A(#37)     2.34    NYSE     2.50    NYSE    1x8
    389726    10/29    08:33:05                     2.34    NYSE     2.38    NYSE    1x1
    389590    10/29    08:33:04                B(#37), A(#37)     2.33    NYSE     2.50    NYSE    41x9
    365299    10/29    08:32:50                     2.33    NYSE     2.38    NYSE    41x1
    43369    10/29    08:32:50    NYSE     2.33    900    Auto                    
    364652    10/29    08:32:49                     2.33    NYSE     2.35    NYSE    41x1
    364651    10/29    08:32:49                     2.33    NYSE     2.39    NYSE    41x1
    41943    10/29    08:32:45    NYSE     2.30    100                        
    355333    10/29    08:32:44                   2.25    NYSE     2.33    NYSE    1x9
    354601    10/29    08:32:44                 B(#37), A(#37)     2.16    NYSE     2.33    NYSE    26x10
    354598    10/29    08:32:44                 B(#37), A(#37)     2.17    NYSE     2.33    NYSE    5x10
    337760    10/29    08:32:35                 B(#37), A(#37)     2.17    NYSE     2.33    NYSE    5x10
    39044    10/29    08:32:35    NYSE     2.16    25400                        
    336961    10/29    08:32:35                 B(#37), A(#37)     2.17    NYSE     2.33    NYSE    2x10
    336935    10/29    08:32:35                 B(#37), A(#37)     2.15    NYSE     2.33    NYSE    200x10
    336516    10/29    08:32:35                 B(#37), A(#37)     2.15    NYSE     2.59    NYSE    200x18
    336515    10/29    08:32:35              B(OpnQte), A(OpnQte)   2.15   NYSE   2.59  NYSE  200x18

Now that a long time has passed since this trade occurred I am able to re-examine it without the previous emotions.  It appears that the sell volume at the opening was substantially larger than the normal trading volume.   At the time I felt like I had been "financially raped" by market makers and decided it wasn't worth the anguish.  (I had worse slippage on the buy side).

Steve, the Stock Market Student