The Student Loan Ranger

Not so much a roundup this week, more of an evaluation of the patterns and indicators I've been seeing this week. Had a quick glance at a video of me evaluating a long in TSO at $14.82 earlier this week (it hit $18 on Friday). Anyway, there will be plenty more opportunities so I won't be bitter about it.

For those that regularly check here, you will notice a little difference in my chart setups at the moment. Mainly a second price chart comprised of the Heikin Ashi candlesticks, 100ema and the Parabolic SAR. The Ashi is great for checking removing choppy patches and charts, and it shows consolidation periods better in my opinion. The SAR is a terrific indicator from what I am finding, so I'm doing a test here.

I'm going to go through the chart of Alcoa and using the corresponding mid-candle price on the actual price chart, in the lead up to this week we can use the following in terms of support and resistance levels:



We get the following entries using solely the parabolic SAR:
[NOTE: Consider each position size 200 shares]

Parabolic Entry/Exit P/L results:

Now on a technical level, trading using support resistance, candlesticks and moving averages, we get the following trades:

With the following results:

[NOTE: These values should be in $ not £]
[Subtract 20% to account for hesistancy/late entries etc: $880]

Quick statistics:

• We made 53% more trades using the Parabolic SAR indicator.
• The Parabolic SAR gave 2 more losers than winners, however profits nearly double losses.
• Losses only accounted for roughly 10% of the total trade returns using traditional methods.
• At no point using traditional methods would we have been at a loss.
• Despite half the trades, the second method gave over double the profits.
  
• The Parabolic SAR gave the largest profit return at $254.
• Sup/Res methods gave us the largest loss, albeit the only one on that system, at $110.

Very interesting I think. I was going to do the same for other stocks, but that just took me 1.5hrs to compile so might not be worth it. Ideally, we would use a combination of both, interestingly, the SAR seems to prevent losses very consistently. Although winners might not run as long, the SAR is a good early indicator to close or enter a trade, which must be used alongside the other methods and practices of technical analysis.

If commissions are a big thing for you, then trading the SAR method is probably not a great idea. I factored in $8 as commissions for each entry and exit during this experiment. The most blatant thing about these results, well, from the physical "hit the button" point of view, is that I factored in a 20% loss to the results. I did this for the following:

• You will never exactly hit the bottom and you will never hit the top
• Most traders will wait another 2-3 sticks for confirmation
• If a trade instantly goes against you and you see a loss on the blotter, you might close out
• Technical difficulties
• Distractions

This equates to missing 1 trade from 5, which I think is a realistic ratio.

In terms of the solid patterns I saw in this chart, the wedge formation beginning at open on the 5th, that lasted until 14:30 on the 7th was the most powerful indicator. Also the prevailing resistance level displayed in the 'lead-up' chart was the most influential horizontal price, slightly outpowering the initial support line. The overall large downward trend line was struck twice with good drops following it.

The double bottom from 5th open to 8th open was also a great indicator. There were a few double bottoms and double tops near the faster lined MAs, especially on the 6th and 7th, in the scheme of things these are better ignored, but both would have given over $45 in profits, thus are profitable, but risk reward wasn't that great in each occasion.