Meet the Signal Monster

Welcome to Signal Monster, a blog that will be devoted to the stock predictions of a statistical trading system of my devising. I call it the Signal Monster because (a) it lives on a monstrously large Excel file and has caused more than its share of system crashes as a result (b) it chews through vast reams of data, much as other monsters do cookies.

The Monster was created using trading principles I developed while trading the foreign currency markets, which are described on my other blog, Forex Forays. It relies heavily on technical analysis, including indicators like candlesticks, moving averages, Bollinger Bands, price breakouts, and highs and lows in multiple combinations to generate daily buy predictions for a selected menu of stocks.

All of the stocks on the Monster's menu have been chosen for their strong fundamentals, and would probably be excellent buy-and-hold investments as well; however, my goal is enter and exit positions quickly at optimal points in a stock's trajectory. I've also designed the Signal Monster system with extremely simple entry and exit rules: enter at the opening of the market, exit at the close of the market, and place a stop-loss at 8% below the entry price.

I am currently testing out the Monster's performance by trading daily on its predictions. On any given day it will usually generate signals for a few of the stocks being tracked. I will only be trading one of these stocks, and will keep that particular signal private. However, I'll post the rest of the predictions here on the blog as a way of (a) getting feedback from other traders on their accuracy (b) keeping an ongoing record of the Monster's performance and (c) providing ideas on how to design your own equity trading system.

All signals are provided for educational and informational purposes only. If you decide to trade on any of the Monster's signals, you do so at your own risk.

Here's how all the signals work:

Each signal has been tested on over 7 years of market data accessed through Yahoo! Finance.

The Monster digests the most recent market activity and price data for one of the stocks on its list.

If the data triggers any of the signals in its menu, the Monster spits out a Buy signal for that stock. (I have short-selling signals available as well, and may eventually be posting Sell predictions as well.)

A signal indicates that the stock is likely to post gains above the next opening price in one of the next four trading days. So if a Buy signal is triggered for a Monday, it predicts that by the close of market Thursday that stock will have risen above its Monday opening price on at least one of those four days.

The signals don't predict a percentage gain, and simply state that the stock is likely to go up within the next four days.

The Signal Monster's exit strategy is to sell at the close of trading on the first day in which this stock posts a gain.

The Signal Monster's stop-loss is triggered by an 8% decline.

I'll try to post the Monster's signals for the following day shortly after the close of trading on the current day. I'll also post regular updates on overall performance of its trading predictions.

Thanks for reading - this should be an interesting ride!