Monday, February 05, 2007

Small Changes Large Differences

Recently I modified my Blow-Off Bottom (BOB) filter to select stocks that are in the 15 to 35 dollar range. Ordinarily I would use highest volume for stock selection - but I know from years of observation that the volume that accompanies a BOB does not necessarily have to be huge - consequently there is a possibility that I will be selecting stocks that are just as likely to go down as up. And that is exactly what happened when I began back testing the new BOB filter.

Using highest volume as the selection criteria I obtained a 53% win rate (just barely better than luck), a .9 Risk/Reward ratio, and a -10% ROI. But because of what I know about blow-off bottoms I changed the selection criteria to the highest Average True Range(10). Using the highest ATR changed the results to a respectable 68% win rate, a 4.07 Risk/Reward ratio, and a 81% ROI.

So if you are back testing a filter and your main method of selecting stocks to trade using that filter seems to be failing - look for another means of selection. It is possible that there are other dynamics in play.

Here is BOB Version 1 -

/* V1*/
show stocks where close is between 15 and 35
and average volume(90) > 500000
and close 2 days ago < open 2 days ago
and close 1 day ago < open 1 day ago
/* V1*/
and low 1 day ago < low 2 days ago
and volume 1 day ago > volume 2 days ago
and close > open
and low > low 1 day ago
and low 1 day ago < low 2 days ago
and draw ema(8)
and draw ema(21)
/* V1*/
and add column average true range(10)
and sort on column 5 descending

I add "V1" remarks ahead of the lines that I changed or added from one filter to another. That helps me remember where I made the change.

Today's top three selections by ATR are CIEN, APKT, and MRVL. I do not currently have positions in any of these stocks but I might by day's end.


Red Hue said...


Thanks for sharing this....I was wondering when you have time if you could run this scan on a period when the market was down? (assuming the results you showed were during the recent up market of the last several months)

Thanks again...enjoying your website!

Red Hue


Small changes could make history totality different.