AXP - FUNCHARTS - American Express Musings
Note: Funcharts are interesting charts I have found that offer a potentially unique perspective on a stock. Sometimes I’ll throw something out there that you might find controversial or wrong headed. If that’s the case your 2 cents worth is most welcome.
So much for stock selection, American Express ( AXP ) was the first stock on my list, even above AAPL , and here I was thinking my list was in Alphabetical order, of which my offsider will be quick to point out that I should be using a Mac, not a PC... moving on, What is the best way to trade American Express based on the Technical numbers?
There are two tests I run to determine the best way to trade. Firstly let's run the numbers on long term trends. I used the Supertrend Strategy for this. Adjust the inputs so we use a length of 50, thus smoothing out the ATR volatility and then use an ATR value of 6. In layman's terms this means we are running a 6 x ATR (chandelier) trailing stop. When price closes below the trailing the test generates results for entering short trades, and when price closes above the trailing stop the test generates results for long trades. Refer to the performance report below (and be aware there is a drop down menu on the strategy name to flick between the longer term trend following system and the shorter term mean reversion system). Also, make sure you view the Performance Summary, not Overview, we are specifically looking at the comparison between long and short trades.
The first test - Taking Long Trades in line with the trend (when price is above the blue line) made money, 274% to be exact with profitable trades 38% of the time, meaning the win:loss ratio at 2.67 had to be favourable, which it was. But wait going short into a down trend (selling when price is below the red line) lost big! 322% to be exact, so historically you made (slightly) more money buying the big pull backs, as opposed to the breakouts but the drawdown was bigger as you get stuck in losing trades. However, what this is really saying is more money was made from Buy and Hold on AXP (historically), as opposed to breaking the market into an uptrend/downtrend regime.
The second test - Let's now look at the short term. Again we will use the Supertrend Strategy, this time we will use 3 periods for the ATR length and 1.5 as the ATR factor, thus looking at very short term trends (sub 30 days). Further I have flipped the signals so it buys into a short term downtrend and sells into a short term uptrend. Use the Performance Summary below (not Overview) to take a look at Long Trades and Short trades, the strategy name is Supertrend STRATEGY (with STRATEGY in uppercase, not lowercase). Here buying the dips made money but not much winning 66% of trades with a profit factor of 1.18 (low) so buying short term dips was sub optimal. Looking at selling short term rallies however was very poor, you lost money. If you went short a rally (in the short term, when the close crossed above the supertrend trailing stop and exiting when it crossed below) the resulting loss was 147%. It therefore made more sense to enter long AXP in line with the short term trend, as opposed to entering early and buying the dip. Nonetheless, the result in the short term wasn't staggering either trading either long or short.
Given the results were not great on a daily chart either way, I changed the chart to a weekly chart, after all, if you are following so far, you would have seen that AXP was (slightly) better as a countertrend strategy in the longer term. Running the same strategy as in the second test on a weekly graph the results improve significantly, going long on a dip made 172%, winning 82% of the time. That is a great setup, in fact pretty good as a stand along trade. But if you want to run stops and manage risk, rather than being stuck in losing trades for a long term, you could use the week chart as a setup, and then enter in line with the short term trend on a daily chart using the second tests strategy above...
Overall the conclusion is you should use a mean reversion strategy (buy the dips) on American Express with a weekly chart, but use a shorter term trend following system to trade it on a daily chart .
Where are we now? Well it just so happens that on a weekly time frame the stock is in buy territory according the the Supertrend STRATEGY and on a daily chart is pretty close to a short term uptrend...
Did this make sense, let me know if you have any questions!
So much for stock selection, American Express ( AXP ) was the first stock on my list, even above AAPL , and here I was thinking my list was in Alphabetical order, of which my offsider will be quick to point out that I should be using a Mac, not a PC... moving on, What is the best way to trade American Express based on the Technical numbers?
There are two tests I run to determine the best way to trade. Firstly let's run the numbers on long term trends. I used the Supertrend Strategy for this. Adjust the inputs so we use a length of 50, thus smoothing out the ATR volatility and then use an ATR value of 6. In layman's terms this means we are running a 6 x ATR (chandelier) trailing stop. When price closes below the trailing the test generates results for entering short trades, and when price closes above the trailing stop the test generates results for long trades. Refer to the performance report below (and be aware there is a drop down menu on the strategy name to flick between the longer term trend following system and the shorter term mean reversion system). Also, make sure you view the Performance Summary, not Overview, we are specifically looking at the comparison between long and short trades.
The first test - Taking Long Trades in line with the trend (when price is above the blue line) made money, 274% to be exact with profitable trades 38% of the time, meaning the win:loss ratio at 2.67 had to be favourable, which it was. But wait going short into a down trend (selling when price is below the red line) lost big! 322% to be exact, so historically you made (slightly) more money buying the big pull backs, as opposed to the breakouts but the drawdown was bigger as you get stuck in losing trades. However, what this is really saying is more money was made from Buy and Hold on AXP (historically), as opposed to breaking the market into an uptrend/downtrend regime.
The second test - Let's now look at the short term. Again we will use the Supertrend Strategy, this time we will use 3 periods for the ATR length and 1.5 as the ATR factor, thus looking at very short term trends (sub 30 days). Further I have flipped the signals so it buys into a short term downtrend and sells into a short term uptrend. Use the Performance Summary below (not Overview) to take a look at Long Trades and Short trades, the strategy name is Supertrend STRATEGY (with STRATEGY in uppercase, not lowercase). Here buying the dips made money but not much winning 66% of trades with a profit factor of 1.18 (low) so buying short term dips was sub optimal. Looking at selling short term rallies however was very poor, you lost money. If you went short a rally (in the short term, when the close crossed above the supertrend trailing stop and exiting when it crossed below) the resulting loss was 147%. It therefore made more sense to enter long AXP in line with the short term trend, as opposed to entering early and buying the dip. Nonetheless, the result in the short term wasn't staggering either trading either long or short.
Given the results were not great on a daily chart either way, I changed the chart to a weekly chart, after all, if you are following so far, you would have seen that AXP was (slightly) better as a countertrend strategy in the longer term. Running the same strategy as in the second test on a weekly graph the results improve significantly, going long on a dip made 172%, winning 82% of the time. That is a great setup, in fact pretty good as a stand along trade. But if you want to run stops and manage risk, rather than being stuck in losing trades for a long term, you could use the week chart as a setup, and then enter in line with the short term trend on a daily chart using the second tests strategy above...
Overall the conclusion is you should use a mean reversion strategy (buy the dips) on American Express with a weekly chart, but use a shorter term trend following system to trade it on a daily chart .
Where are we now? Well it just so happens that on a weekly time frame the stock is in buy territory according the the Supertrend STRATEGY and on a daily chart is pretty close to a short term uptrend...
Did this make sense, let me know if you have any questions!