*Courtesy of Ilene
Stockspotter.com is an intriguing trading signal service developed by veteran trader John F. Ehlers, author of Rocket Science for Traders: Digital Signal Processing Applications. The StockSpotter service analyses over 3,000 stocks daily, provides daily short-term buy/sell signals, and then tracks its subsequent performance. Its features include:
1. Precision – Exact entry and exit timing for both long and short positions.
2. Simplicity – Easy to learn.
3. Accountability – 100% tracking and simulation of all trading signal performances.
4. Team Work — StockSpotter and you. Join forces in this time-saving approach to trade selection. While StockSpotter performs the analysis, you select the trades, manage position sizes, and, perhaps, design appropriate option strategies. For example, with options, the strategies employed might include buying of a long call (put), or a bull (bear) call spread (also known as a vertical spread), with one or two months until expiration.
For technical details, Dennis D. Peterson’s article in ‘Technical Analysis of Stocks & Commodities’ magazine explains more about how the system works. Here’s an excerpt:
What’s different and remarkable about the site is its openness about their performance. As you will see, equity curves and Monte Carlo simulations demonstrate how successful StockSpotter is in recommending trades. You can expect an average profit of 3.34% per trade using the highest-rated recommended trades. The maximum time of a position is 10 trading days. Alerts to exit a position may come earlier.
It’s not simple, but it’s all coded up and therefore the same algorithms are applied every day. At the heart of this system, the code wants to find trend retracements and locate the point where price will start to move with the trend again.
It starts with looking at all North American optionable stocks and eliminating those that do not meet minimum price and volume requirements. What the algorithms are looking for are stocks with a statistically interesting price. A probability density function (Pdf) is used to find a price that is statistically interesting, meaning it is at an extreme, and forStockSpotter, this means one that is at a three-sigma value. More details here.
The idea would be to use the StockSpottersignals as an indication of which direction a stock appears to be going, and devise an option strategy that will capture the move while possibly protecting against losses with carefully chosen hedges.