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AMZN: Exactly The Technical Indicator That Has Worked and When it Worked in Amazon.com Inc

AMZN: Exactly The Technical Indicator That Has Worked and When it Worked in Amazon.com Inc



Amazon.com Inc (NSDQ:AMZN) : AMZN: Exactly The Technical Indicator That Has Worked and When it Worked


Date Published:

Disclaimer

The results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.


LEDE

At some point, after all the social media craze and pundits on financial television drawing lines on stock charts, we need to stop the noise and just answer, once and for all, has technical trading actually worked in the past?



Answers, empirical and explicit, not just some lines on a chart -- that's what we're after.

ANSWERS: Amazon.com Inc (NSDQ:AMZN) TTM Squeeze Technical Trigger
The idea is simple -- stocks tend to move in tight ranges for the majority of the time, and then they move in bursts for the remaining periods. The breakout from the TTM Squeeze attempts to find these bursts.

Here is a simple graphic, where the gray line is the daily stock price, the blue bars comprise the tight squeeze zone, and then we see the break out into a bearish move. Roughly speaking, this is the pattern that this technical indicator is attempting to identify and back-test.



The goal, of course, is to find these breakouts before they occur and to scan the market for the best historical performers.

Rules

* Open the long 40 delta call (out of the money call) on the day the TTM Squeeze has been broken with upside momentum.
* Close the call after that signal has seen a consecutive two-day reversal.
* Use a 50% stop and a 50% limit on the back-test.
* Use the options closest to 15 days from expiration.
* Never trade earnings -- irrespective of the technical indicator, this trade will close 2-days before a scheduled earnings announcement.

This is a straight down the middle bullish bet -- this trade wins if the stock rises and will lose if the stock does not.

RISK CONTROL

Since simply owning out of the money options is an aggressive directional bet, we test this approach with added risk limiting parameters, namely, the back-test uses a 50% stop loss and a 50% limit gain.



This also has the benefit of taking profits early, before the bullish signal ends -- that is, before two consecutive reversal days appear.

RESULTS

Owning the 40 delta call in Amazon.com Inc (NSDQ:AMZN) over the last five-years but only held after a TTM Squeeze was triggered yielded these results:

AMZN
Long 40 Delta Call

Signal: TTM Technical Squeeze

% Wins: 50%
Wins: 7 Losses: 7
% Return:  409.1% 

Check it out Yourself: Tap Here to See the Back-test

The mechanics of the TradeMachine® are that it uses end of day prices for every back-test entry and exit (every trigger).

We see a 409.1% back-test return, which is based on 14 trades in Amazon.com Inc. A bullish breakout from the TTM Squeeze is a technical signal that doesn't happen often, but rather is designed to mechanically identify the times when a stock is in a low volatility period and may be about to thrust higher. It's a signal based on probabilities, not absolutes, so it won't work all the time.


Looking at Averages

The overall return was 409.1%; but the trade statistics tell us more with average trade results:
      The average return per trade was 25.39%.
      The average return per winning trade was 92.64%.
      The average return per losing trade was -41.86%.

Looking at the Last Year

While we just looked at a multi-year back-test, we can also hone in on the most recent year with the same test:

AMZN
Long 40 Delta Call

Signal: TTM Technical Squeeze

% Wins: 67%
Wins: 2 Losses: 1
% Return:  209.7% 

Tap Here to See the Back-test

Now we see a 209.7% return over the last year and a 67% win-rate.

      The average return for the last year per trade was 64.41%.
      The average return for the last year per winning trade was 102.2%.
      The average return per losing trade was -11.16%.

Technical Details
For the details about the TTM Squeeze, how it works, when it's triggered, why it's relevant and what it means, you can learn about scientific technical trading from the link (which leads to a short video).

WHAT HAPPENED

This is one way people profit from the option market -- whether it's technical analysis, momentum trading or non-directional option trading. Take a reasonable idea or hypothesis, test it, and apply lessons learned.

Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.