Making money by random selections
I have been interested in the weekly stock picking competition participant's ability to throw up big winners and losers week after week.
Surely if we could cut the losers short we could make some money from these stock picks I thought. Not only that, but I can remember reading that providing money management is sound you could almost randomly pick stocks and make money.
Here is a little spreadsheet in which the stocks were picked randomly from the ASX20 for the first 13 weeks of the year. The direction of trade (long/short) was also picked randomly.
There is then the question of what level to use for a stop loss. The cell on the spreadsheet marked cutoff can be used to adjust the level to see its effect on the bottom line.
To recalculate over and over, but position the cursor in a blank cell and hit 'delete'.
Use cell C2 to swap between Random Long/Short to Long if Open>MA(50 week) or short if Open <MA(50 week). Again press F9 to cycle the randoms.
Compared to the Buy & Hold over the 6 year period, the random entry is rubbish, the MA method is OK but BHP kills that due to it's massive B&H result (if RIO was in there it would probably be the same).
Of course this is all 1000 trades no reinvestment which might help against B&H.
Also these are all Top20 shares so the weekly upside is usually small. The weekly comp is operating in a totally different class of share where 10 moves are far more common (and you generally can't short)
i'm going to do some testing of your ideas and will send you the results in a private message. might take me a couple of weeks as i'm really busy at the moment. if you then wish to share it with the group that'd be good and i would encourage that. Please take on board comments by cototte and philr as i agree with their sentiments.