The "dead cat bounce" is price action after a panic drop over one or more periods - generally price jumps and then resumes the decline soon after.
One of my readers - IIO - pointed me to another site where a guy is using a filter he calls the Rocket and on first glance it appeared to be similar to my BOB. But it isn't.
The difference between the "Rocket" and BOB is that the Rocket was founded on a price basis including percentage decline and BOB was developed on a volume basis. That's why I'm always insistent that volume on the second day of the triad be higher than on the first, and for a set-up - significantly higher. The BOB was also designed for a sustained rally because it was originally conceived to support swing trading. The Rocket was designed to catch the proverbial dead cat bounce and as such works extremely well.
There is a great difference between price based filter and a volume based filter so while the two filters may appear to be similar they are as far apart as night and day. I discovered BOB when I was doing an extensive analysis of the effect of volume on the next and subsequent day price changes.
The guy on that Blog keeps his code secret so I derived a filter from the several charts he had on the site containing stocks he attributed to the filter he named "the Rocket". I call this one - what else - Dead Cat Bounce -
show stocks where close is between 1 and 35
and average volume(90) > 150000
and close 1 day ago is more than 8% < close 2 days ago
and close is more than 5% < close 1 days ago
For the current test period (11/06 - 03/06) the back test saw 67 stocks (based on taking the highest volume stock when two or more were selected on a single day) and produced a win rate of 41% with a 263% ROI and a 4-day net of 4.23 and a 30-day net of -1.71%.
Except for the win rate that's impressive. Then for the known good period 10/06 - 02/06 the back test saw 66 stocks and produced a win rate of 42% with a 509% ROI and a 4-day net of 6.33 and a 30-day net of -.01%.
This period was also a little lacking in the win rate department but if anyone were to use this filter and actually play the stocks that are output I suggest you set the stop close - the stock is either going to go up immediately or decline immediately and in the later case you want out quickly. Also this ROI is based on the fact that the highest volume stock each day of all stocks output was used for the test. I suggest that you adopt that approach also.
The code is clear - it is looking for deep declines in the stock market and it wants them over two days. I'm sure there are ways to modify this to raise the win percentage some but I have to say - for that kind of ROI I'll take a few stop outs.
I'm going to play with this for awhile and if I can find a lower risk solution I'll let you know.
Also stop by Stock Monster - I read some yesterday and even if the guy doesn't share his code he does share his picks, writes well, and writes often.