Technical Bullish Momentum Trade and Trigger in Realty Income Corporation
Realty Income Corporation (NYSE:O) : Technical Bullish Momentum Trade and Trigger
Date Published: 2019-03-14
Disclaimer
The results here are provided for general informational purposes from the CMLviz Trade Machine Stock Option Backtester as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.Preface
Technical analysis is the most common form of financial back-testing. It is, at every step, uses historical patterns in order to extrapolate them into the future.But at some point, the analysis has to be robust, there does come a time when we have to ask ourselves if and when technical analysis adds any value to trading. That is, are we doing more than just drawing lines on a chart.
After rigorous testing over multiple time periods and over 100,000 back-tests, today we demonstrate the technical conditions that have provided a strong short-term bullish momentum trigger for Realty Income Corporation (NYSE:O) , as well as, broadly speaking, the Nasdaq 100 index constituents over the five year period from 2014-2019.
BACKTESTER LOGIC
The goal is to create a portfolio of option trading backtests with alerts attached to them, so we don't have to stare at the screen all day, but rather use Trade Machine as the pattern recognition work horse to notify when the ideas become actionable.Finding these patterns in Realty Income Corporation should be straight forward. And with the upgraded Trade Machine, which is now a stock backtester as well as an option back-tester, now they are.
The Bullish Option Trade with Technical Analysis and Moving Averages in Realty Income Corporation (NYSE:O) .
We will examine the outcome of going long an out-of-the-money (strike price is set to the 40 delta) call option, in options that are the closest to 14-days from expiration (using calendar days). But we follow three rules:* Never Trade Earnings
Let's not worry about earnings. Here it is, first, we enter the long call.
* Use a technical trigger to start the trade, if and only if these specific items are met.
The idea with these combined requirements is this:
* Stock above the 200 day simple moving average (SMA) means that the stock is not in technical failure.
* Stock crosses the 10-day exponential moving average (EMA) -- that's a trigger of momentum right at that moment.
* Stock price below the 50-day SMA means that it has room to run to the upside.
* RSI (using 20-days) is below 70, so the stock isn't overbought.
Here it is in an image from Trade Machine -- only focus on the settings where the filter is turned to "on.":
You can set an alert in Trade Machine®, which will track all of these moving parts for you, and message you when it triggers. In fact, you can do this with a portfolio of stocks for a portfolio of bullish and bearish triggers. Let Trade Machine do the work for you -- there's no need to stare at the screen.
* Finally, we set a very specific type of limit:
* Use a 40% limit and a 60% stop.
At the end of each day, the back-tester checks to see if the long call is up 40% or down 60%. If it is, it closes the position.
We leave more room on the stop side (larger stop than limit) from our discoveries in back-testing -- this was optimal and still led to far larger average winning trades by percent return than losing trades.
Stock Option Backtester Results
Here are the results over the last three-years in Realty Income Corporation:The mechanics of the TradeMachine® are that it uses end of day prices for every back-test entry and exit (every trigger).
This is not a magic bullet, rather it's a bullish technical analysis momentum strategy predicated on using pattern recognition in charts through moving averages and RSI, rather than manually drawling lines stock by stock.
Setting Expectations
While this strategy had an overall return of 308.8%, the trade details keep us in bounds with expectations:➡ The average percent return per trade was 61.84% for each 14-day period.
Checking the Moving Average
You can check to see the values of all the moving averages discussed above with real-time daily prices, including live after hours prices, for O by viewing the Pivot Points tab on www.CMLviz.com.Rigor to the Option Backtester and Backtesting
We compared this technical analysis trigger on the constituents of the Nasdaq 100 versus the results from the baseline. The baseline is simply owning calls and rolling them every two-weeks with the same stop and limit as introduced above (40% / 60%). Here's what we found:* Over one-year, the average trade return was 7% using this technical trigger compared to just 1% using rolling calls with no technical structure (baseline).
* Over 2-years, the average trade return was 18% using this technical trigger compared to just 6% for the baseline.
* Over 5-years, the average trade return was 11% using this technical trigger compared to just 4% for the baseline.
* Over 10-years, the average trade return was 8% using this technical trigger compared to just 4% for the baseline.
* And finally, from 2007-2009, the period that incorporates the Great Recession, the average trade return for a bullish trigger was positive 6% using this technical trigger compared to -3% (negative) for the baseline.
Even further, the win rates by stock were also higher, as were the average winning trade return. The details to this content are reserved for Trade Machine members. But you can rest assured that:
* Yes. We are empirical.
Back-testing More Time Periods in Realty Income Corporation
Now we can look at just the last year as well:
We're now looking at 129.9% returns, on 1 winning trades and 0 losing trades.
➡ The average percent return over the last year per trade was 131.25%.
Next Steps
Apply your skills beyond drawing lines on one chart at a time -- tap here to use pattern recognition. You deserve it.Risk Disclosure
You should read the Characteristics and Risks of Standardized Options.
Past performance is not an indication of future results.
Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment.
Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition.
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.
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