Trading channeling stocks offers one of the best opportunities to make good, consistent profits in the stock market. This article will explore the findings of DailyChannelingStocks.com regarding backtesting channeling stocks.
What are channeling stocks?
First, channeling stocks, or sometimes called rolling stocks, are stocks that are moving up and down between their support price and their resistance price. While all channeling stocks will at some point break out of their channel in one direction or the other, many channeling stocks will continue to move up and down between their support price and their resistance price for a period of time, thus providing the investor an opportunity to make a fairly predictable return as the stock continues to move between its support price and its resistance price.
Criterion for Research
As stated above, the purpose of this article is to present the findings on backtesting channeling stocks. The important criterion used to determine which stocks were included in the research is presented first. In order for the stock to be considered a channeling stock, the stock had to have previously touched its support price and its parallel resistance price two times each. The current price of the stock had to be within 1%, above or below, of its previously determined support price, which would be the third time it had been at this support price, and the distance between the support price and the resistance price had to be at least 15%.
Secondly, 1% of the average market capitalization traded each day for the last year had to be at least $1,000. While there are many thinly-traded penny stocks that trade in a channeling pattern, it is very hard to make a profit on these stocks after taking into account the trading fees.
Lastly, the returns of the stocks were calculated for up to 60 days after the stock reached its support price. Any stock that closed more than 1% below its support price during this 60-day period was considered sold at the closing price of that day.
Results
Using the criterion above, over 11,000 U.S. Stocks were tested from July 1, 2011 to June 30, 2012. During that period there were 2,203 different stocks that traded in a channeling pattern at one time or another, representing 3,901 occurrences.
These stocks rose to an average high price of 8.3% above their support price, with a standard deviation of 15.7%. The percentage of stocks that rose above their support price, thus offering an opportunity for a positive return, was 75.4%. The maximum return was 500% and the minimum return was -48.3%. Additionally, the average number of days it took the stocks to rise to their high price or to be stopped out at less than 1% of their support price was 9.9 days, with a standard deviation of 15.9 days.
While there are many thinly-traded penny stocks that trade in a channeling pattern, it is very hard to make a profit on these stocks after taking into account the trading fees.