Quantitative Analysis Methods

Inside the Technician's Lab

Bryan Johnson
Moon Run Report, LLC

"If you have a system that works, trade it and make money.  If you have a system that doesn't work, write a book, sell it, and make money that way."  ---- Sage advice from a technician.
I have read few good books on investing.  Either they are wordy or miss the point of investing.  Sometimes a book can have some interesting ideas, but the best ideas come from yourself.  Breaking the bank can be done, but few and far between can do it consistently.  And the dream of having a big winner may never come due to the impossibility of money management.
Because I invented my systems as a video clerk, I designed it so that I don't have to look at the market all the time and do short term timing.  So I concentrated on intermediate and long term timers.  The tools I use for designing timers are moving averages, momentum, and relative strength index.  Combining these give me the best results so far.  There are a number of others, but I have found these to be the best.
Timers that I use are usually between 40% and 60% accurate.  If better than that, usually reality sets in and the timer will miss good opportunities.
I like the idea of using fundamental data when building stock selection simulations.  PE ratio, Quick Ratio, sales % gain and Return on Equity are usually a must.  You may find others that boost performance.
My preference right now for a stock picking tool is Portfolio 123.  They have quite a number of fundamental data and they are quick to make improvements to their product.  There are lots of simulations that you can search from contributors and there are plenty of ranking systems that have gotten lots of mileage.  For timing the market I use Metastock.
But the crux of investing is money management.  Few books have been written on this.  Technicians falter when concentrating on just buy points or looking at amazement at big winners chart formations.  There are far more stock that make between 20% and 50% in short order than there are that make 10,000% in 7 years.  But big winners always capture the attention of technicians and newbies, so books are written to promote the hype.
If you look at the library of chess books, you will see some written by grandmasters to educate lesser gifted players.  But there are few books on investing that are of any use and are usually trash.  I learned most when I took someone's simulation or strategy and modified it to fit my satisfaction.  Also if you have plenty of time to do back-testing, it helps a lot.