DSO: Daily Stock Oscillation ... a continuation of DSA2
We're trying to identify stocks whose daily price movements were dramatic. Stocks whose price oscillated violently throughout the day.
>So you could buy and sell on the same day?
Yes. Earlier we measured this daily stock activity by calculating DSA = (High - Low)/Open, expressed as a percentage.
... with variations on this magic formula.
Now I want to take a different tack, assuming we've picked some such stock.
>Don't tell me! You're going to describe a buy & sell strategy, right?
You're SO schmart! Anyway, it goes like this:
>And your stock will always increase by 1%? You're dreaming!
For example, we might buy at $25 and hope to sell at $25.25 (that's $25 + 1%).
- We always buy at the Open.
- We decide on some UP percentage, like 1% above the Open.
- We put in a sell order at $Open + 1%.
Wait! I'm not finished! We cover ourselves if the stock goes down, like so:
>Surprise! You've just lost money on those two days.
For example, we might buy at $25 and sell at $24.50 (that's $25 - 2%) to limit our losses.
- Again, we buy at the Open.
- We decide on some DOWN percentage, like 2% below the Open.
- We put in a sell order at $Open - 2%.
I'm still not finished!
It may be that the stock never reaches Open + 1% or drop to Open - 2%. In that case we sell at the Close.
The idea is to always buy at the Open and sell sometime during the day. We never own any stock at day's end.
If the stock first drops to below Open - 2% then we sell and lose money ... as in Figures 2 and 3.
When we put in a sell at Open + 1% we may also put in a sell order at Open - 2% ... if the stock is dropping. (We want to avoid a 10% loss in a day!)
But maybe we sell before we buy.
Maybe we miss out on selling at Open + 1% because the stock frst dropped to Open -2% ... like so
Don't be so hasty in dismissing the idea. Let's look at it more closely.
We have to ask: "How often does the stock price drop below Open - 2%?
as well as: "How often does the stock price rise above Open + 1%?
>And the answer is ... ?
That depends upon the stock we pick. The idea is to look for a stock which rarely drops below our DOWN percentage, but often rises above our UP percentage.
Of course, it'll also depends upon what we choose for the UP and DOWN percentages. There's nothing sacred about +1% or -2%.
Also, it'd be nice to find a stock where rising above our UP percentage usually occurs first ... then we selll and couldn't care less about any subsequent drop in price.
>Are there such stocks? I mean, where it often rises above ... but rarely drops below?
Yeah. PETM, over the past three months, dropped below (Open - 2%) just 43% of the time
but rose above (Open + 1%) a healthy 72% of the time.
>Shouldn't the percentages add to 100%?
No, because they often BOTH happen ... as in Figure 3.
On those days when we have to sell because the stock dropped below (Open - 2%), we call them Losers.
When the stock rises above (Open + 1%) ... they're Winners. Here are a few stocks:
Remember that we're looking for stocks where the Losers percentage is small compared to the Winners percentage.
Then, even if we lose on them by selling early (at a loss), we can make up those losses when we sell an (Open + 1%).
>Yeah, sure. I still think you're dreaming.
Just remember that we don't know that the drop to (Open - 2%) will happen before the rise to (Open + 1%) (as occurs in Figure 3).
The percentage Losers counts the days when the Low was more than 2% below the Open.
That may have occurred after a rise to 1% above the Open, in which case we would have sold at a profit.
See Figure 1? If the Low for the day was under (Open - 2%) it'd count as a Loser, yet that day we sold before that Low was reached.
I'll wake you up when I've made a bundle.
|Stock||Pct. Losers||Pct. Winners
Okay, we're going to test this magic strategy on a particularly appropriate stock: DRYS.
>Uh ... huh? What's so special about DRYS?
Remember that we're looking for unusual stocks that have HUGE daily oscillations. We'd like to make money even when the stock is dropping like a rock.
We saw that in DSA2. It's lost much of its value over the past month:
Note that, in "good times", we'd just buy-and-hold, expecting the stock to increase
... but we're talking "bad" times. Look at this stock. It ended down
It would have been a great day to buy-at-the-open then sell shortly thereafter.
We're hoping for lots of days like that ... during a bear market, especially for a stock like DRYS.
Okay, here we go:
|March 24/08||Buy 500 @ $59.90||Sold 500 @ $60.50||Profit = $279.52
|March 25/08||Buy 500 @ $62.21||Sold 500 @ $62.83||Profit = $291.07
|March 26/08||Buy 500 @ $61.55||Sold 500 @ $62.17||Profit = $287.77
|March 27/08||Buy 500 @ $65.60||Sold 500 @ $66.26||Profit = $308.02
|March 28/08||Buy 500 @ $66.26||Sold 500 @ $64.93||Profit = -$682.58
|Total Profit (after deducting 2 x $9.99 = $19.98 trading fees each day) = $483.30|
Note that we always sold at 1% more than the $Buy
... even if the stock increased beyond that, which it often did !!
>So what would have happened had you just bought 500 shares at $59.90, then ...?
Then sold at the Close, at the end of the week? I wish you hadn't asked that question.
Anyway, that's an interesting strategy, don't you think? Especially if you pick a violently oscillating stock and ...
>Did you hear my question? What would have happened had you just bought 500 ...?
Yeah, yeah, I heard your question. It happened to be a very good week for DRYS ... up almost 4% for the week:
Maybe I should have tested it on a bad week. That's what I'm looking for, right? A strategy that works in DOWN markets and ...
Then, too, selling at Open + 1% was too early and I missed out on those big gains at the start of the day. Had I increased that to, say, 2%, then DSO would have made me ...
But ... uh, here's another of those shipping companies: Diana Shipping
The +1% and -2% ritual would have made me $558.10 whereas buy-and-hold would give me only $245.02. See? It works!!
On three of those five days the stock dropped but I limited my losses to 2% and I made money on the last day even when it dropped significantly ... and ...
After buying at the Open, my problem is to track the prices and sell when it increases by 1% or decreases by 2% (whichever comes first).
That's a pain ... so I got me this spreadsheet that'll capture the prices minute-by-minute and plot them as well as the Upper and Lower sell prices.
It looks like this:
- Type in six Yahoo stock symbols
- Type in Upper and Lower prices for each
- Type in how often you want to collect prices (every minute?)
- Type in how long you want the collection to last (8 hours?)
- Click the button called Chart Prices
>Zzz ... huh? And it works?
Well ... uh, or your money back.
Click on the picture to download the spreadsheet and try it yourself.
I should point out that you'll get 600 prices. If you ask for prices every minute, that's 600 minutes of 10 hours worth.
If you ask for prices every 2 minutes it'd be 20 hours worth and every 3 minutes ...
>Ya! I get it! But the market isn't open for 10 hours!
That's true, but you can stop the collection of prices at day's end (when you've got the Closing price) by hitting the Esc key, then start again the next day from where you left off.
In that case you'll get another 600 prices.
I should also point out that the prices are downloaded from Yahoo and they're 15-20 minutes delayed.
You can indicate how long you want the collection to last ... so the collection stops after 600 prices or after the time you specify
(8 hours?), whichever comes first.
>I'd stick in 7 hours, then I'd get the entire day's worth of prices ... every minute.
Go ahead, but you may want to start before the market opens. That way, the first few points plotted are yesterday's Closing price.
Oh, I forgot to mention that there's a button called Select Upper & Lower.
You can type in a couple of percentages (just above that button) and click the button to set the Upper and Lower prices according to those two percentages.
I should point out, however, that the Upper and Lower prices will be (for example) 1% higher and 2% lower than the prices which appear in cells D7 to D12 when you click the button.
If, for example, D7 has the price 30.33 at the time you click the button, the Upper price for that stock will be set to 1.01*30.33 or 31.59.
So you may want to wait until you get the Opening price before you click that button.
>But I may want to select my own Upper and Lower!
Didn't I say you could do that ... in step #2, above? You're not listening!
Did I mention that a big red or green dot appears the first time the price crosses either the Upper or Lower price.
I might also mention that it's a pretty lousy spreadsheet ... as it ties up my PC while it's churning.