Z-Score Trading Strategy

Using R-programming, for the purpose of illustration, I am customising a mean reversion trading strategy which involves the use of  z-score:

  • z-score >2.25: overbought (“sell signals”)
  • z-score<-2.25: oversold (“buy signals”)

High-level visualization of the proposed trading strategy (using OKA Corporation as an example):

Slide1

There may be a number of trading signals that have been generated based on the above set of rules. However, the number of trading actions (i.e actual buy or sell transaction) may be far less if it is assumed that one does not buy what one already owns, as well as one does not sell what one does not have. Moving forward, there is a need to (i) back-test this strategy; (ii) benchmark against other trading strategies; and (iii) optimization of this trading strategy.

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES

How High Can It Go?

Whilst Malaysian-listed concrete manufacturer OKA Corporation Berhad continues its uptrend trajectory, one should be aware of potential signs for reversal:

  1. It has been trading “free bars” (i.e above the upper range of Keltner Channel);
  2. Declining volume vs rising price:
  3. Two overbought signals in RSI;
  4. Divergence in MACD – declining MACD line vs rising price

OKA_TA_Review_Jun 17 PNG.png

One should also consider the recent insider trades (whereby there were some disposals by the insiders):

InsiderTrades.png

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES

Practising Risk Management

When comes to stock trading, there is nothing more imperative than adopting solid risk management procedures. Most people tend to forget Buffett’s two rules: Rule 1 – Do not lose money. Rule 2 – Do not forget Rule 1. Continue reading “Practising Risk Management”