Unisys: An Expected Trading Success

I changed my screening a little to find stocks with higher betas, but still heavily capitalized and very liquid. I also decided I would avoid stocks with ridiculously high or low P/Es. (Why? Just because.) One of the stocks that surfaced was Unisys, which is so old-school and boring I figured it would be a waste of time. But this analysis tool I built is so easy to use, I figured, “what the hey”, and I am glad I did. Running the Touch SMA analysis proved an unexpected success for this Unisys Trade. The details:

Unisys Trade Statistics

  • Company Name: Unisys Corp
  • Symbol: UIS
  • Market Cap: $1.3B
  • 3M Average Daily Volume: ~551000 shares
  • Time Period Analyzed:  November 2009  – 21 July 2014
  • Number of trading days: 1689
  • Number of trades from this signal: 73
  • Number of winning trades: 30
  • Number of losing trades: 43
  • Average Win per share: $3.56
  • Average Loss per share: -$0.75
  • Max Win per Share traded: $52.50
  • Max Loss per share traded: -$1.51
  • Max Drawdown: 34%

Trading Strategy for Unisys

Like the Noble Corp trade I posted earlier this week, this trade is a modification of my Touch SMA strategy I’ve been testing the last month or so. (See herehere here.) This trade has 3 setups. First, the price 2 days ago must be below the moving average. Second, the price yesterday has to be above the moving average and third, the close yesterday has to be above the open yesterday. I also added a trailing stop to this trade. (If it is not obvious, this is a Long-Only trade.

The optimal Moving Average length is 9 days, the Profit Target is 160% of the entry price, and the stop-loss trigger is 95% of the entry price. I normally test starting the first of January 2009, (for reasons why, see here), but UIS wasn’t trading above $10 till the end of November that year, so I didn’t trade it.

I’m not wild about the size of the drawdown, but even the famous Turtles accepted drawdowns as high as 40%.

Comparison of Trade to Buy & Hold

This trade is in the market a third as long as Buy & Hold would be. As it happens, no one in their right mind would have bought & held UIS over the time period tested, because it would be a negative trade. However, this strategy I used started with a $10,000 account and generated $37,000 in profits after subtracting fees, commissions and Cap Gains taxes.

If you’d be interested in video demonstrating the spreadsheet I use to do these analyses, drop me a note or leave a comment.

A Noble Trade in Noble Corp

This trade in Noble Corp, (symbol NE), is in the market only 219 days since January 2, 2009. By comparison, a Buy & Hold trade in NE was in the market for 2013 days. I love trades that beat B&H, and I love ’em even more when they keep my cash free for other uses 90% of the time.

Here’s the details:

Trade Statistics

  • Company Name: Noble Corp PLC
  • Symbol: NE
  • Market Cap: $8.4B
  • 3M Average Daily Volume: ~3.3M shares
  • Time Period Analyzed: 1 Jan 2009  – 21 July 2014
  • Number of trading days: 1396
  • Number of trades from this signal: 172
  • Number of winning trades: 76
  • Number of losing trades: 96
  • Average Win per share: $0.73
  • Average Loss per share: -$0.27
  • Max Win per Share traded: $2.02
  • Max Loss per share traded: -$0.46
  • Max Drawdown: 15%

Trading Strategy for Noble Corp PLC

This trade is a modification of my Touch SMA strategy I’ve been testing the last month or so. (See here, here & here.) This trade has 3 setups. First, the price 2 days ago must be below the moving average. Second, the price yesterday has to be above the moving average and third, the close yesterday has to be above the open yesterday. I also added a trailing stop to this trade. (If it is not obvious, this is a Long-Only trade.

Noble Corp has a higher volatility than the stocks I’ve been testing; the beta, (as of this writing), is 1.86. I don’t have any concerns about trading a higher beta stock, since I have a tight stop-loss and a trailing stop.

The optimal trading strategy here is a 4 Day Simple Moving Average, a stop-loss 1% below the entry price, a profit target of 105% of the entry price, and a trailing stop.

Comparison of Trade to Buy & Hold

Buy & Hold obviously has only one trade during the same time period. The first trade in this strategy occurred on Jan 9, 2009 when the price was $24.01. The last trade occurred on July 15 when the price was 32.51. Starting with a $10,000 account, I was able to buy 416 shares. During that time period, B&H generated a net profit of $13,540.19 whereas my strategy generated $16,701.35. Both amounts are net of commissions, fees and taxes. I assumed a 28% Cap Gains tax rate on the short-term trading, and a 7.56% Long Term Cap Gains tax-rate on Buy & Hold.

Given that this strategy strategy is in cash 90% of the time, and still beats B&H, I would consider it wildly successful. It’s certainly not profitably enough to live on, but – if you consider that this generated $6700 on a $10,000 investment over a period of only 219 days, that’s a pretty terrific return. Obviously, I would need to combine this strategy with 10 or 20 others to keep my money working all the time, but this kind of strategy is just what is needed in a successful fund.

If there are any details about this strategy I didn’t cover, or you have any questions about it, drop me a note or leave a comment.

Trading Strategy for Steelcase Industries (SCS) Beats Buy & Hold

Steelcase Industries

Continuing analysis with the “Touch Moving Average” tool I built, today I report on Steelcase Industries performance. I have a trade strategy for SCS that beats Buy & Hold, albeit only by about 15%. Here’s the details:

Trade Statistics

  • Company Name: Steelcase Industries
  • Symbol: SCS
  • Market Cap: $1.94B
  • 1M Average Daily Volume: ~1M shares
  • Time Period Analyzed: 1 Jan 2009  – 11 July 2014
  • Number of trading days: 1402
  • Number of trades from this signal: 26
  • Number of winning trades: 12
  • Number of losing trades: 14
  • Average Win per share: $2.07
  • Average Loss per share: -$0.72
  • Max Win per Share traded: $3.74
  • Max Loss per share traded: -$1.54
  • Max Drawdown: 27%

Trading Strategy for Steelcase Industries

This is another iteration of my “Touch the SMA” strategy. Briefly, the strategy works like this: Wait for a touch of the SMA, then wait for a close higher than the day it touched the SMA. When that happens, BUY at the Open the next day.

In this case, the optimum strategy for SCS is to use a 34 Day Simple Moving Average as the trigger. I set a Profit Target of 127% of the opening price and a Stop-Loss Trigger of 90% of the opening price.

This is a long-only “channel” trade, which means that the expectation is that the stock trades inside a channel without significant breakouts.  This is a fairly wide channel I set here for SCS, which is why we have higher-than-normal Max Drawdown numbers.

  • The maximum number of consecutive losing trades is 4.
  • The maximum number of consecutive winning trades is also 4.
  • Average losses are about a third of the average wins, which is why this trade makes money even though only 46% of the trades are winners.
  • The expectancy of this trade is 2.45 when executed exactly according to my rules.

Results of Simulations

I ran a simulation using this strategy starting with a $10,000 account. I traded the maximum number of shares allowed for my account size, traded the signal every time it occurred since 1 January 2009, subtracted $13/00 for every account and assumed a 28% capital gains tax rate. After all that, the net account value was just under $30,000.

By comparison, using a Buy & Hold strategy for SCS, starting at the same time frame with the same starting capital resulted in a net account value of about $26,000. (I assumed a 7.5% long-term capital gains tax rate.) So, this is a marginally profitable strategy. I’m not crazy about this because I am much more conservative about my drawdowns, but I present it here for your edification because – in spite of my reservations – it still beats Buy & Hold.

Standard disclaimer: just because this trade worked in the past is absolutely no guarantee it will work in the future.

If you’d like more information about this trade or about using the analysis tool in your own trading, contact me.

XLP Swing Strategy

XLP: Consumer Staples ETF

Continuing with my study of stocks with the same general characteristics, this high expectancy XLP swing strategy is a Long Only trade. Average Time in Market is 28 days per trade.

Trade Statistics

  • Company Name: Consumer Staples Select SPDR ETF
  • Symbol: XLP
  • Time Period Tested: 1 Jan 2009 – 3 July 2014
  • Number of trading days: 1396
  • Number of trades from this signal: 53
  • Number of winning trades: 33
  • Number of losing trades: 20
  • Average Win per winning trade: $1.48
  • Average Loss per losing trade: -$0.65
  • Max Win per Share traded: $2.16
  • Max Loss per share traded: $0.86

Trade Overview

My goal was to select stocks which are relatively stable in price so as to minimize the opportunity for nasty surprises. I screened for stocks with a 52 Week Price Range between $10-$100, a Market Cap greater than $500M, and Average Daily Volume greater than 1M shares and which pay a dividend.

This trade is a Long Only strategy. The basic setup is to begin watching the stock after it has closed below its 25 Day Simple Moving Average (25D SMA) and then – once it closes above that price – Buy at the Open on the next day.

I set a Stop-Loss trigger of 2.5% and a profit target of 5%. Once either target was hit, I automatically closed the trade at that price. If I used a trailing stop, I could possibly improve the profitability of this trade, but I did not do any testing or calculations with that in mind.

  • The maximum number of consecutive losing trades is 5; the maximum drawdown percentage during the period tested is 10%.
  • The maximum number of consecutive winning trades is 9.
  • The expectancy of this trade is 3.72.

Results of Simulations

I ran a simulation using this strategy starting with a $10,000 account. I traded the maximum number of shares allowed for my account size, traded the signal every time it occurred since February 2009, and plowed all profits back into the trading account. By 18 June 2014, the account value was just over $31,000.

This trade has me in the market 1652 days out of 1977 possible days, (83%). I don’t like being in the market that much, but it’s hard to argue with success.

Given my selection criteria, this proves it is historically a fairly safe and predictable trade. (And of course, just because it worked in the past is absolutely no guarantee it’ll work in the future.)

Counterpoint & Conclusion

The market has been on a 5+ year bull run during the time I ran this simulation, so it would make sense that a long-only strategy would prosper. So is it my strategy that made money, or is it merely the bull market that made money? For the sake of fairness, I compared this Long Only strategy to a “Buy & Hold” strategy over the same period of time.

Over the same time period:

  • “Buy & Hold” would be worth a little less than $21,000, for a profit of $11,322
  • This Long Only system would be worth a little more than $31,000, for a profit of $21,000 over the same period
  • “Buy & Hold” had a max drawdown of 10%
  • Long Only had a max drawdown of 10%

This strategy doubles the return on the ole’ “Buy and Hold” strategy, so the result is not merely the result of market performance or general market conditions.

Send me a note if you’d like the details on this strategy.

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BBBY Long Swing Trade – Update

I have an update to the BBBY Long Swing trade I posted about previously. I spent a little time playing with different length moving averages as the trigger, and found that a 10 Day Simple Moving Average is a good deal better than the 20 Day average I used in the original strategy. The 10 Day is actually the sweet spot – much better than anything else I tested.

Here’s the Stats:

  • Starting Equity $10,000.00
  • Trades 136
  • Winners 71
  • Losers 65
  • % Winners 52%
  • Avg Win per Share per Trade $2.50
  • Avg Loss per Share per Trade  ($1.07)
  • Max Shares 1000
  • Total Win/Share $177.31
  • Total Loss/Share ($69.46)
  • Avg P/L per Trade $522.76
  • Expectancy 2.55
  • Max Consec Winners 5
  • Max Consec Losers 5
  • Max Win/Share $3.80
  • Max Loss/Share ($1.54)
  • Max Drawdown 8%
  • Days in Market 1060
  • Ending Equity $71,095.51

The negative differences between this trade and the 20 Day swing trade are:

  • This system is in the market more than the 20 Day Swing Trade – 1060 days versus 973 days
  • Average Loss is higher
  • Max Drawdown is slightly higher

All in all, I think this is an improvement on the original strategy, even though it has a slightly higher risk.

As always, if you’d like the details of this trade, drop me a note: