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.