Profile Picture

How do you pick stocks for your ATS?

Posted By Zora 8 Years Ago
Message
Posted Tuesday April 21 2009
During the algorithm development stages people often don't think about which specific stocks they are going to trade. However, at some point the question pops up so I was wondering how everyone is doing this. When I was developing and simulating my ATS, the selection of stocks was determined by practical considerations - quality of data, whether there are any splits and dividends (you don't have to adjust the data if there are no events), whether the volumes are sufficiently high to model order execution, whether the symbol has changed in the past, etc. I also excluded stocks worth less than $1.00/share to avoid the risk associated with penny stocks. Generally, I looked for middle of the road companies, with large volumes and high share prices that could be easily retrieved from my data archive without requiring a lot of processing. But all of this was very intuitive and informal.
Now, in the real world, what do you look for when picking a stock to add to your watchlist? Market cap? Industry sector? Do you perform fundamental analysis to learn about the company's financial health? Do you look at trading activity? The more you think about it, the less intuitive the answer is... Anyways, just curious if anyone has a clever approach to this problem. Thanks!
Posted Wednesday April 22 2009
This is a great question. I run multiple systems and I have different criteria for each system. It depends on a number of factors, but it's usually a combination of liquidity and risk. For example, I have a system that helps me identify option trade opportunities. Obviously, this limits me to optionable items, but I also have a minimum option volume threshold to help overcome the ridiculous bid/ask spreads on options. On top of that, I have a beta limitation as well that should keep me out of wild ones. Since I'm usually an option seller, I'm hoping things will stay relatively still.

In another case, I'm looking at small caps where wildness is not a consideration, but volume and fundamental factors are. Finally, I have a system that works against old stalwarts. These are usually highly liquid, pretty slow movers where I can get in and out.

All of this is a great example of how trading systems need a certain degree of curve fitting. I'm pretty certain my option selling system would not work well with my small cap system. The trick for me is to introduce new symbols into my system that meet my risk/volume/fundamental screen and see if the system continues to hold up. If the prescreen doesn't change, but the system results begin to vary wildly, I get uncomfortable with the system.

I think I got off topic a bit, but I hope this helps a little.
Posted Thursday April 23 2009
Bill, that's very interesting. Do you looks at all on which exchanges an instrument is traded? When you look at the fundamentals of small caps, what kinds of things do you consider? Also, how do you define the big stalwarts? Are these just large cap companies that have been around for a long time?
Posted Thursday April 23 2009
The small cap fundies are pretty much scans at Microsoft's money central. I can give you the details if you're interested in. Big boys usually have major volume (think GE, WMT, MCD, etc ... can you believe AIG used to be on my list?). And relatively low volatility versus their index (beta).

I don't care a whole lot about what exchange they're traded on. Never found that to be an issue, but maybe it is?

Zora (4/23/2009)
Bill, that's very interesting. Do you looks at all on which exchanges an instrument is traded? When you look at the fundamentals of small caps, what kinds of things do you consider? Also, how do you define the big stalwarts? Are these just large cap companies that have been around for a long time?
phg
Supreme Being (44,891 reputation)Supreme Being (44,891 reputation)Supreme Being (44,891 reputation)Supreme Being (44,891 reputation)Supreme Being (44,891 reputation)Supreme Being (44,891 reputation)Supreme Being (44,891 reputation)Supreme Being (44,891 reputation)Supreme Being (44,891 reputation)
Posted Thursday April 23 2009
Does anyone know where one of the available scan criteria is "has options"?

-Pete

See also Yahoo group about applying RE.

Posted Thursday April 23 2009
Haven't used it in a long time.

http://www.trade-ideas.com/StockInfo/_ScreenerConfig.html

Set "Min Options Volume" to 1 (or anything > 0) and I think that will work.

phg (4/23/2009)
Does anyone know where one of the available scan criteria is "has options"?
phg
Supreme Being (44,891 reputation)Supreme Being (44,891 reputation)Supreme Being (44,891 reputation)Supreme Being (44,891 reputation)Supreme Being (44,891 reputation)Supreme Being (44,891 reputation)Supreme Being (44,891 reputation)Supreme Being (44,891 reputation)Supreme Being (44,891 reputation)
Posted Friday April 24 2009
Thanks! That's going to be a help. The strategy I'm working on at the moment requires there be some volatility and this site sorts on that criteria.

-Pete

See also Yahoo group about applying RE.



Similar Topics


Reading This Topic


2005-2017 © RightEdge Systems