Technical Bullish Momentum Trade and Trigger in Valero Energy Corporation
Valero Energy Corporation (NYSE:VLO) : Technical Bullish Momentum Trade and Trigger
Date Published: 2019-03-18
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
At some point, technical analysis has to be robust. One beautiful chart with lines that appear to work is not a rigorous backtest -- it's just one chart -- at one time. That's why technical analysis can feel so close to a profitable use case but at the same time the results never quite match up to the expectation.After rigorous testing over the ten year period from 2009-2019 and the period from 2007-2009, which included the Great Recession, and over 100,000 back-tests, today we demonstrate the technical conditions that have provided a strong short-term bullish momentum trigger for Valero Energy Corporation (NYSE:VLO) , as well as, broadly speaking, the Nasdaq 100 index constituents.
OPTION BACKTESTER LOGIC WITH TECHNICAL ANALYSIS
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.The Bullish Option Trade with Technical Analysis and Moving Averages in Valero Energy Corporation (NYSE:VLO)
We examine the result of a long 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 - that means the backtester never opens a trade within two before or after an earnings announcement.
* Use a technical analysis trigger to start the trade, if and only if these specific items are met.
* Trigger on the precise day that the stock crosses the 10-day exponential moving average (EMA) -- that's a trigger of momentum right at that moment.
* The stock is already above the 200-day simple moving average (SMA), which means that the stock is not in technical failure.
* The stock price is below the 50-day SMA means that it has room to run to the upside.
* The 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 moving average and RSI 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 stop and 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 option 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 With Technical Analysis Results
Here are the results over the last three-years in Valero Energy Corporation:| VLO: Long 40 Delta Call | |||
| % Wins: | 67% | ||
| Wins: 4 | Losses: 2 | ||
| % Return: | 121.4% | ||
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).
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 121.4%, the trade details keep us in bounds with expectations:➡ The average percent return per trade was 32.52% for each 14-day period.
Checking the Moving Averages
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 VLO by viewing the Pivot Points tab on www.CMLviz.com.Rigor to the Option Backtester, Technical Analysis 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%).Using rigorous technical analysis, as opposed to "that one chart that looked good that one time," we saw outperformance over the 10-year period from March 2009 - March 2019, as well as 2007-2009, the period which includes the Great Recession. Further, we saw outperformance in each sub period of one-year, two-years, three-years, and five-years.
Finally, the win rates by stock were also higher, as were the average winning trade return for every time period. Why look at one chart one time, when you can test technical set-ups across hundreds of thousands of charts at once?
Technical Analysis Back-testing More Time Periods in Valero Energy Corporation
Now we can look at just the last year as well:| VLO: Long 40 Delta Call | |||
| % Wins: | 100% | ||
| Wins: 1 | Losses: 0 | ||
| % Return: | 52.3% | ||
Tap Here to See the Back-test
We're now looking at 52.3% returns, on 1 winning trades and 0 losing trades.
➡ The average percent return over the last year per trade was 52.41%.
Next Steps
Tap here to use technical analysis with pattern recognition. You can do this.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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