Pascal
11-14-2014, 05:16 AM
With the KOL short example, I want to point how easy a trader can try to make the data confirm his bias.
The idea to short KOL is simple: oil is down, which means that all other energy producing companies that compete with oil will have difficulties selling their products.
The second reasoning is that since China is slowing down, there is less need for coal.
We can see below that the EV pattern for KOL is rather negative. Good confirmation!
26895
In terms of settings, KOL failed at its 50MA and seems to be wanting to turn down. Therefore, the risk for a short trade seems limited.
26899
Indeed, if we run the BC for the past 50 days, we can see that stats look very good!
If I leave the analysis at this point, then I might fool myself.
26896
Indeed, all these settings look perfect, but 50 days is not long enough.
We can see below that KOL has been in a downtrend for at least two years.
26898
Hence, if we try the Breakout Calculator (BC) for a period of 450 days, using exactly the same settings, then we get much different results.
26897
At this point, the trade might still work, but I should not be too confident in this obvious trade.
If I could find this obvious trade, many other traders have found it too. The trade might be crowded! Or I might have to find settings that have also worked well in the past.
I therefore tested a breakdown below the lower level of the price envelope. The low limit is 16.5. I hence tested a break below 16.45, with a stop above the most recent high.
We can see now that both the 50D and the 500D testing periods give acceptable results, with a 6 days holding period.
2692226923
If I want to "ride the downtrend", then 15 days provide even better returns.
2692126920
The idea to short KOL is simple: oil is down, which means that all other energy producing companies that compete with oil will have difficulties selling their products.
The second reasoning is that since China is slowing down, there is less need for coal.
We can see below that the EV pattern for KOL is rather negative. Good confirmation!
26895
In terms of settings, KOL failed at its 50MA and seems to be wanting to turn down. Therefore, the risk for a short trade seems limited.
26899
Indeed, if we run the BC for the past 50 days, we can see that stats look very good!
If I leave the analysis at this point, then I might fool myself.
26896
Indeed, all these settings look perfect, but 50 days is not long enough.
We can see below that KOL has been in a downtrend for at least two years.
26898
Hence, if we try the Breakout Calculator (BC) for a period of 450 days, using exactly the same settings, then we get much different results.
26897
At this point, the trade might still work, but I should not be too confident in this obvious trade.
If I could find this obvious trade, many other traders have found it too. The trade might be crowded! Or I might have to find settings that have also worked well in the past.
I therefore tested a breakdown below the lower level of the price envelope. The low limit is 16.5. I hence tested a break below 16.45, with a stop above the most recent high.
We can see now that both the 50D and the 500D testing periods give acceptable results, with a 6 days holding period.
2692226923
If I want to "ride the downtrend", then 15 days provide even better returns.
2692126920