LONG PXS (oversold, strong trend, 4 down days)
Updated
I always like trades where 2 different systems both say "buy". My usual system is the reason I'm taking the trade, and per usual, I'll keep buying lots as long as it is oversold and sell when they become overbought and profitable.That said, there are 2 other reasons I like this trade.
First, PXS is in a strong uptrend that began last September. "The trend is your friend" is the most ironclad piece of chart analysis advice that's ever been given, in my opinion. Trading is a percentages and probabilities game and trading with a trend (unless a stock is MASSIVELY overbought) always improves your odds. Trading stocks above their 200d MA is a simple way to determine this, but frankly the eyeball test works best for me. A trend has to be very strong to be immediately visible glancing at a chart, and those offer the best opportunities for the mean reversion trading I do.
Secondly, I am a big fan of Larry Connors and much of what I do has its roots in his ideas. A variation of one of his strategies is a very simple one, that yields solid and consistent results. 4 out of 5 days down is a strategy that overlaps what I do, but also gives a stronger signal when it coincides with what my personal analysis says. Basically, if a stock is down 4 out of the last 5 trading days, and is below its 5d SMA, buy. Sell signals can be one of two - sell when the close is above the 5d SMA or when the stock hits a 5 day high. Now that isn't Connors' original plan (you can look it up if you want to get the original) but I've found both exit strategies to work well, especially when they both signal at once.
So here with PXS we have ✅oversold based on my algorithm, ✅ strong uptrend, and ✅ 4/5 down all saying "green light" for this trade. I'll enter on Monday, as long as the open is around the Friday close price. I prefer to look for these near the close and buy then, but I've been busy lately and the weekend was the first chance I've had to look for some new ideas.
As always, this is just a log of my trading ideas and isn't investment advice. I wish you luck if you choose to trade it yourself, but do your own due diligence!
First, PXS is in a strong uptrend that began last September. "The trend is your friend" is the most ironclad piece of chart analysis advice that's ever been given, in my opinion. Trading is a percentages and probabilities game and trading with a trend (unless a stock is MASSIVELY overbought) always improves your odds. Trading stocks above their 200d MA is a simple way to determine this, but frankly the eyeball test works best for me. A trend has to be very strong to be immediately visible glancing at a chart, and those offer the best opportunities for the mean reversion trading I do.
Secondly, I am a big fan of Larry Connors and much of what I do has its roots in his ideas. A variation of one of his strategies is a very simple one, that yields solid and consistent results. 4 out of 5 days down is a strategy that overlaps what I do, but also gives a stronger signal when it coincides with what my personal analysis says. Basically, if a stock is down 4 out of the last 5 trading days, and is below its 5d SMA, buy. Sell signals can be one of two - sell when the close is above the 5d SMA or when the stock hits a 5 day high. Now that isn't Connors' original plan (you can look it up if you want to get the original) but I've found both exit strategies to work well, especially when they both signal at once.
So here with PXS we have ✅oversold based on my algorithm, ✅ strong uptrend, and ✅ 4/5 down all saying "green light" for this trade. I'll enter on Monday, as long as the open is around the Friday close price. I prefer to look for these near the close and buy then, but I've been busy lately and the weekend was the first chance I've had to look for some new ideas.
As always, this is just a log of my trading ideas and isn't investment advice. I wish you luck if you choose to trade it yourself, but do your own due diligence!
Note
Got a partial fill at 5.20 just after the open today and I'm hoping to get the rest filled at some point during the day today. If not, I'll fill out the lot at the close as long as it hasn't run up too much by then.Note
Filled lot 1 at 5.20 and will add another lot if lower at the close.Trade active
Added another lot just before the close at 5.17Note
I just got done backtesting my system on this ticker and here are the results for the stock's entire existence (around 9 yrs):
241-9* (9 lots still open with 6 of those currently down at least 58%) = 96.4% win rate
Average return on each of those 250 lots traded (Including the current losers): +11.3%
Median return per trade = +7.6%
Total return for all trades = 28.3x lot size
Max # of lots held at once = 28
Average hold length = 88 trading days (but the median is only 14.5) - this is skewed by the fact that 6 of the 9 open lots have been open around 8 years
Return per day held (including losses from the 9 "losers" = +.129% (+32.5% annualized)
Total return for buy and hold since PSX went public = negative 69.7%
Note
I meant PXS in the last line of the previous commentTrade active
Added lot 3 before the close at 5.12Trade active
Still oversold yesterday so I added lot 4 at 5.04. I thought I updated it yesterday but I guess not.Note
I shouldn't have included Connors in my original analysis, because I'm not trading the stock that way, but I feel obligated to update based on that to at least illustrate how his system works. I don't know why the 5d SMA doesn't show up on the new chart section above, but with Connors' system, every red bar would have been a purchase because . No close yet above the 5d SMA or a 5 day high since the trade was initiated, so basically if you followed his rules, you'd be holding six lots purchased at 5.20, 5.20, 5.11, 5.05, 5.04, 5.01 so far. You could argue that since it was below the 5d SMA and was part of a 4 of 5 down days streak, the higher 5.11 close last Friday (8/30) should have been purchased. I've always only added on lower closes, though.Note
On the Connors trade it would have added again at 4.95 at the close today. Not oversold based on my algo, so I'm not actually adding any more yet.Trade active
Added 1 lot at 4.915 at the close.Trade active
Added 1 lot at the close at 4.81 - oversoldNote
Back to Connors (I'm really annoyed I combined these two in the same idea). sorry if this is confusing to everyone following this. With the Connors system, 3 more lots would have been added on 9/4 at 4.91, 9/5 at 4.80 and 9/10 at 4.80. For simplicity's sake, I'll use a 5 day high close as the exit signal, which would have occurred on 9/11 at 5.02. The average return on all lots combined would have been +0.21%. Not great but considering that down streak it wasn't bad. OK thank God I'm done with that example. All other updates will be about the actual trade.Trade active
I added 1 lot at 4.94 at the close today because it's oversold again. It's a good sign, though, that this most recent oversold signal is at a higher price (4.94) than the last one (4.81). Usually, that tends to make the probability higher that the next signal (once it stops being oversold this time) is overbought. Again, that's not always true, but probabilities are what I trade on.
Current lots held (in price order): 5.20, 5.17, 5.12, 5.04, 4.94, 4.915, 4.81
Trade active
Added another lot at 4.675 before the close today because it's oversold again.
Current lots held (in price order): 5.20, 5.17, 5.12, 5.04, 4.94, 4.915, 4.81, 4.675
Trade active
Added another lot at 4.62 - still oversold.
Current lots held (in price order): 5.20, 5.17, 5.12, 5.04, 4.94, 4.915, 4.81, 4.675, 4.62
Trade active
Added another lot at 4.325 since it's oversold again.
Current lots held (in price order): 5.20, 5.17, 5.12, 5.04, 4.94, 4.915, 4.81, 4.675, 4.62, 4.325
Note
Added another lot at 4.26 -- oversold again.
Current lots held (in price order): 5.20, 5.17, 5.12, 5.04, 4.94, 4.915, 4.81, 4.675, 4.62, 4.325, 4.26
Note
Not that many have been following this series of trades, but I have a mea culpa. I forgot to update this yesterday. I bought another lot at the close yesterday at 4.16 since it was oversold again. Feel free to disregard the results from this lot's performance as a result of my lateness in posting this, should the stock pop on (alleged) earnings today.
I'm not thrilled that this has become my single largest holding, but I go where the market takes me.
That said, it's trading at a ridiculously low valuation (P/E 1.5 vs, TTM earnings). This makes it (I think) either a takeover candidate, take private candidate, or possible aggressive share repurchase candidate (which management did in the past when earnings were at much lower levels). The fact that it is a compelling value, in my mind, makes this trade FAR more attractive now than when I initiated it. Obviously, it's being weighed down by oil prices and presumably lower shipping rates, but if history tells us one thing, it's that oil doesn't stay low forever.
Still sticking to the original trade plan. Adding when oversold, trimming when overbought as long as lots sold are profitable at that level.
Current lots held (in price order): 5.20, 5.17, 5.12, 5.04, 4.94, 4.915, 4.81, 4.675, 4.62, 4.325, 4.26, 4.16
Note
Oversold AGAIN. Added a lot at 4.035 just before the close. This thing hasn't been overbought since the middle of August. That's one of the longest streaks I've seen in a while.
Current lots held (in price order): 5.20, 5.17, 5.12, 5.04, 4.94, 4.915, 4.81, 4.675, 4.62, 4.325, 4.26, 4.16, 4.035
Note
Earnings have been delayed 1 week, apparently. Not a fan of that... We'll see I guess.Note
This is a good news/"bad" news update. If you're following the trade to see me "fail" you're in luck - sort of. I got into this trade at about the absolutely worst moment possible. After that long, beautiful uptrend, it has fallen like a rock. Not only has the stock price plummeted 20.2% since I entered the trade, but it has not had one single day of being overbought that entire time. In a week it will be 3 straight months without a day being overbought. That's REALLY rare. Even for a small cap stock like this one, where things like that are more common, it's rare. It has only happened 2 other times in the history of PXS. The good news (so far) is that those two were associated with drops of 83% and 38% in the stock price, so thus far I'm comparatively lucky.
This is not my system's first unpleasant trade, though. They aren’t all easy money - it’s why I use smaller position sizes and have adequate capital in reserve. And in backtesting, it's been through MUCH worse and still came out profitable in the end. As a result, I look at it as an interesting opportunity to show one of the strongest features of the way I trade - low drawdowns compared to buy and hold, and a quicker return to profitability after a downtrend. So I am not especially worried. Annoyed? Yes. Worried? No. Times like
PXS is going through are when my system actually comparatively kicks the butt of buy and hold in almost every case. Unless it goes to zero, I'm obviously betting it will outperform here, too.
If asked to describe what my system does, I’d say “dollar cost averaging with tactical entry and tactical profit-taking”. As a result, unlike regular dollar cost averaging (DCA) which adds capital at regular intervals, I only add when the stock price is under unusual short term pressure. This allows me to avoid much of the downtrend losses when they happen. Ordinarily those short term drops are also followed by short term rises during which I can harvest the gains of the most recently purchased lots and reduce both the net and average cost of my position, as well as its size. During a strong downtrend, both of those come in very handy.
That’s why this drop in
PXS is so challenging right now. It has had so many days where my algo rated it as oversold and I’ve added to my position, with no ability to take profits during overbought periods along the way (because there haven't been any), that it hasn’t insulated me as much from the drop as it usually does. If there is an “Achilles heel” to how I trade, this situation is it. That said, based on the average cost of the lots, the entire position is only down 11.3% right now. I would only need a bounce back in price from here of about 14% to get to profitability, while B/H would need a 25% gain just to get back to even.
That’s also assuming the unlikely scenario of having no ups and downs into and out of overbought and oversold territory along the way as it rises. If it does, my break even level will drop even further, while B/H’s won’t and even traditional DCA would not necessarily see its break even level drop meaningfully unless the stock hits new trade lows. As much as I’d like it to go straight back up and quickly return me to profitability, I sort of hope it doesn’t so the real value of this process has a chance to reveal itself live.
Meanwhile, I’ll hope for a blowout earnings report on Friday and a rise to overbought levels, so I can close out some of these lots. I never like having this much capital concentrated in one stock, especially with earnings coming. But it’s happened before, and good or bad news, it always seems to work out. It just takes more time and capital if things don’t go according to plan.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.