ASX Small Caps Performance over the years? Backtesting trading system question

[peter2]

I'd suggest you look through @Skate "Dump it here" thread. Skate himself trades many mechanical systems based on lower priced ASX stocks that have started to move higher. He trades weekly charts. His portfolio holds anywhere between 20 - 40 stocks. He accumulates positions as the profits accumulate. The thread is a long read but skip through it until you come to his posts on all the systems he tested. You're bound to find lots of good ideas to test.

If you read that people are wary of systems that trend trade small caps then assume they don't have the experience and knowledge to teach you anything. Most of the current mid caps started as small caps. Yes, a few of the current mid caps were large caps earlier. Trend traders aren't interested in down trends.

Basically, I'm saying there's heaps of potential in your area of interest. If it was easy then most would be doing it.

Another source of information would be Nick Radge's book Unholy Grails. He discusses many systems and shows the results.

 

[aus_trader]

Yes thats what the strategy does. Buy at 20 week breakout and trail stop..

-Frank

Can't really help with back testing as it's not my expertise. However there are things and pitfalls to look out for such as splits, mergers, take overs, bankruptcies and de-listings that may or may not be included that could skew your results in your favor especially if any de-listed bankrupt companies are not included in the back test results. I have struggled to look up stocks that have been de-listed as google or any other searches are very limited and only shows up currently trading stocks or stocks that are gone more recently. A good resource I found to look up stocks that have lost all shareholder money due to going bankrupt is by searching on website:

https://www.delisted.com.au

However your results mentioned earlier is interesting to me. I actually find it difficult to find small cap gems in recent years compared to say 15 to 20 years ago.

We ASF'ers post potential breakouts and breakouts in the following threads regularly and I believe they can be traded with a profitable edge in the exact way you have described with proper discipline. That is by trend following winners with a trailing stop and cut the ones that fall back without excuses...

Potential Breakout Alerts!​

Outstanding Breakout Alerts!​

I think the stocks we generally cover on these threads have the qualities that could be suitable to trend trading as there is usually good liquidity and good price action. We should take care to post only quality charts and leave out any illiquid choppy stocks and penny barcode stocks such as these...





I also post a majority small cap portfolio based on company research and discretionary stock analysis in the Speculative Stock Portfolio
which unfortunately cannot be back-tested as it's not based on breakouts or any other technical signal.

 

[Smurf1976]

Could you suggest basic filter I could use to find small caps growth using purely technicals? Other than volume and market cap there wouldn't really much else would there?

You could try using a fundamental filter to narrow the range of stocks and see what results that gives with your system.

For example only looking at companies with positive earnings or at least revenue from an actual business narrows it down considerably. Perhaps not that actual criteria but point being any fundamental criteria should be easy to apply as a filter and see what results it brings.

 

[tech/a]

Nick Radge's book Unholy Grails. He discusses many systems and shows the results.

One of those systems is Techtrader--one of mine.

We traded that live for about 7 years from memory on Nicks site Reefcap.(Now closed)
Started with $30K trading the margin trade list from BT---The thinking was that if the stock was in the BT margin list then they were happy with the Funnymentals. Traded on Margin (properly).

Closed it down about a year before the 2008 crash as it had a peak of $450K liquidated value and was at $350K when I shut it down as I was trading it behind the scene with my own $$s. There were very clear signs that something not that good was happening as many in the portfolio were crossing their 200M/A which was the exit. In the end after I liquidated everything all stocks triggered a sale eventually.

Taught me a lot and quite a few others as well.
Worth a look. There are others that are equally as interesting.

 

[Austwide]

One problem in the lower end of the small caps is when they go and raise funds with a low share price offer.
Stop loss don't preserve capital when this occurs (usually) after market. ie price opens 20% lower.

To minimise this from happening, check out section, 8.2 I think of their latest financial statement showing how many quarters of funds are being held.

 

[Frankieplus]

Another source of information would be Nick Radge's book Unholy Grails. He discusses many systems and shows the results.

Yes I have read, thanks you. Its Nick's strategy from his book that I want to start trading. But I want to test it on the Small Caps.
Judging from what a lot of you are saying here especially @qldfrog I have decided to use a filter in the code to scan for stocks between $300m and $2b (Small Caps) rather than the S&P Small Index..

New problem now the filter isn't working I'm getting it wrong.. AFI question now I have to ask someone maybe Amibroker support.

-Frank


-Frank

 

[Frankieplus]

I'd suggest you look through @Skate "Dump it here" thread. Skate himself trades many mechanical systems based on lower priced ASX stocks that have started to move higher. He trades weekly charts. His portfolio holds anywhere between 20 - 40 stocks. He accumulates positions as the profits accumulate. The thread is a long read but skip through it until you come to his posts on all the systems he tested. You're bound to find lots of good ideas to test.

I will read it all thanks. I'm quite interested

-Frank

 

[Stockbailx]

Here's a trick question for you @Frankieplus. As an old school fisherman I'm endorsed by your system and need to investigate it more as it shows strong probability of finding that elusive stock with rage. I'm asking are you actually scanning your stock (throwing out the net) and bringing in hand fills or are you just throwing a drop line and picking the elite. i mean i can see a stock weekly and find probability in a stock but can't back-test hundred and pick an pedigree...

 

[aus_trader]

One problem in the lower end of the small caps is when they go and raise funds with a low share price offer.
Stop loss don't preserve capital when this occurs (usually) after market. ie price opens 20% lower.

To minimise this from happening, check out section, 8.2 I think of their latest financial statement showing how many quarters of funds are being held.

Great point that we forgot to touch on @Austwide

This is probably another point that newbie investors and traders are unaware of. I wrote a post about it on another thread, let me see if I can dig that up...

With mining companies I think it's great to see the people at the helm get the thing going right from the get-go. Even if it's a small operation, if they get it running and then fund further exploration / acquisitions etc from that it's a good sign.

I've seen great deposits go to waste and management sit on them for decades continuously taking the shareholders for goose chases and spruik them up each time to raise capital till they have a hole in their pocket.

With small cap stocks it's easy to fall into the fund raising trap and end up losing so much of your hard earnt. Can I just say it bluntly on this forum: The Fcking directors on some of these small company stocks are pure marketers and they keep marketing the same pipe dream each time to raise funds and keep their pay packets going. Once they empty out the shareholder savings over many years, they'll move onto another small cap to do it all over again.

I've had some bitter experience with these type of scams, so just warning others to stay clear of these type of firms before your heart falls to the floor when the dreaded announcement comes from the asx or the company files for voluntary administration:



I do my best to weed out stocks that has these warning signs from the portfolios I post on this forum, but I don't have psychic capabilities to look into the future, so always DYOR. On a positive note, some of the promising small caps with the right management can do really well and be quite rewarding for shareholders.

 

[tech/a]

Frank
Why don’t you manually make up a universe to trade then load that in as your universe and
Then apply your technical parameters to it through whatever software.

 

[Stockbailx]

I'm asking because it intrigues me. because as you can bit the bullet on an weekly chart.

 

[peter2]

I'm surprised by the negativity in this topic. Clearly @Skate 's huge number of system posts haven't convinced some people that it's possible to trade ASX small cap stocks profitably using weekly charts. Skate didn't look at fundamentals. His ranking was based on price, the lower the better. Some shares did fall by 20% and more. So what, each position was only 5% of capital. These small cap stocks can easily increase by 100% in a weekly trend. When price got stuck in a range due to a cap raise or any other reason skate's time stop sold the position and bought another.

All systems will go through poor periods. If your hoping for a system that generates +30% pa every year trading a large number of positions. I'll tell you, you're dreaming. If you want +30% every year, you'll have to risk a lot in some years. Small caps go in and out of demand many times through out the year. Well financed investors will only gamble with the small caps when their portfolios are performing well.

I traded a 30 position small cap portfolio live here at ASF for 38 weeks. The performance was +60% in that period. Since then the small cap sector has been off the boil. I would estimate that this portfolio may have only gained an additional 5 - 10% in the rest of the year (14 wks). A lot of work for little extra. Every sector has it's good and poor periods. A profitable system makes more in the good periods than it loses in the poor periods.

Frank. don't let the negativity slow you down. Yes, it's going to take some work to create a system with robust results. You can do it trading the ASX spec stocks. It won't be perfect but it only has to do a reasonable job because you can create other systems that work better when combined. Build your trading business one system at a time. ASX small caps do have a place in your trading arsenal.

 

[divs4ever]

well i am just not skilled enough , nor set up well to trade

as long as any novice decides to trade with their eyes WIDE open

then good luck to them

but have seen on the race-track in days gone by , how hard it is to control greed after a short run of success

and since CCL was taken over i no longer profit from broken , drunken , ex gamblers ,

 

[aus_trader]

CCL was taken over i no longer profit from broken , drunken , ex gamblers

Actually there is still another stock that has debut, that may benefit from those drinkers you mentioned...

Endeavour Group Ltd (EDV) has listed and is having a steady run up ever since...



Don't hold but as you said I do miss the Coca Cola company (CCL) on the asx ?

 

[divs4ever]

LOL

maybe they will make a profit

but more likely to go woke until broke

but yes CCL was my bottled water play , i was sad to see it go

 

[Smurf1976]

With small cap stocks it's easy to fall into the fund raising trap and end up losing so much of your hard earnt. Can I just say it bluntly on this forum: The Fcking directors on some of these small company stocks are pure marketers and they keep marketing the same pipe dream each time to raise funds and keep their pay packets going. Once they empty out the shareholder savings over many years, they'll move onto another small cap to do it all over again.

One rule I have with small caps is I only look at companies with an actual, real business that generates income.

Not perfect but that does remove a lot of the silly ones.

Edit - Another one is run like hell from any company where the management seems more focused on marketing the company to shareholders than on running the actual business it's engaged in.

Doubly so if the nature of that marketing includes elaborate "stunts" of any kind which are superficially impressive but in practice represent no real achievement at all. Pretty much anyone could drive a standard car around Australia or set something on fire for example. Might seem superficially impressive but that's all it is, superficial and in much the same category as the tricks a magician uses on stage to distract the audience from how they're creating the illusion.

 

[aus_trader]

One rule I have with small caps is I only look at companies with an actual, real business that generates income.

Not perfect but that does remove a lot of the silly ones.

Edit - Another one is run like hell from any company where the management seems more focused on marketing the company to shareholders than on running the actual business it's engaged in.

Doubly so if the nature of that marketing includes elaborate "stunts" of any kind which are superficially impressive but in practice represent no real achievement at all. Pretty much anyone could drive a standard car around Australia or set something on fire for example. Might seem superficially impressive but that's all it is, superficial and in much the same category as the tricks a magician uses on stage to distract the audience from how they're creating the illusion.

Glad to hear @Smurf1976 and I am pretty much in the same boat now, after falling to the magicians/marketers tricks in the past.

There's no guarantee that there won't be another pitfall in my investing, but I try and stay clear of the landmines that could blow your investing capital to pieces.

 

[Frankieplus]

Why don’t you manually make up a universe to trade then load that in as your universe and
Then apply your technical parameters to it through whatever software.

This is actually a brilliant idea and would be a lot easier.

Ideally I would like to make up a universe selection by market cap. That way I can load it up to backtest.

I'd like to test Small and Nano caps but as per what some here are suggesting, it's best to not us a Small Caps universe but rather a filter of the whole ASX to filter the small growth stocks.

I use Norgate Data. At quick glance there doesn't seem to be any way to create such a universe. I will email their support and see what they suggest.

Thanks for the tip

Here is the selection choice to create my own universe or watch-list as they call it. . There doesn't seem to be any filters I can use to filter via market cap.

 

[Frankieplus]

Here's a trick question for you @Frankieplus. As an old school fisherman I'm endorsed by your system and need to investigate it more as it shows strong probability of finding that elusive stock with rage. I'm asking are you actually scanning your stock (throwing out the net) and bringing in hand fills or are you just throwing a drop line and picking the elite. i mean i can see a stock weekly and find probability in a stock but can't back-test hundred and pick an pedigree...

I see the point you are making.

To use your analogy there, I am trying to throw a large net out but in the areas where I think there is more of a probability to catch larger fish. (Hence why I am trying to target the smaller growth stocks)

I'm not really focusing on trade accuracy at all. I'm focusing on win loss ratio. i.e. How much I win when I win and how much I lose when I lose.


-Frank

 

[KevinBB]

Ideally I would like to make up a universe selection by market cap. That way I can load it up to backtest.

Hello @Frankieplus

If you have a Westpac Broking account (I have one for emergencies such as this), have a look at their stock screener. Screen shot attached.

Westpac Broking still have the old-style company search where the user can nominate specific values for a filter, instead of the newer style screeners (I dislike these very much) that tell the user what they should be looking for. Westpac Broking stock search is exactly the same as the old original Commsec search, if you are familiar with that.

In Westpac Broking, filter for your stocks, copy the resulting list to a spreadsheet, and then you have an uncle named Bob.

You should be able to add a custom list to that Norgate data list.

KH