The 3x2 System
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DESCRIPTION:

Date updated:08-25-2009

The Three By Two System:

This is a simple long only system that buy’s NDX stocks after a down streak and sells them after an up streak. Back to back purchases on the same stock are possible.

BUY: If a stock goes down 3 days in a row, BUY at the open the next day
SELL: If a stock that the system is long closes up 2 days in a row, sell entire long position in that stock at the next day’s open.

Backtest: Simulated on all Nasdaq 100 stocks, plus deletions from the Nasdaq 100 index during the duration of the backtest, from January, 1997 until December, 2006. Simulated using 5% of equity per trade.

Results: 4,243 of 6,492. (65.3%) trades profitable. Average return per trade: 1.93%.

Simulated using Wealth-lab, a product of Fidelity.

Check the System Trades of the Day every morning for the latest entry buys triggered by this system.

To the left are some stats on how certain stocks have done recently using the 3x2 system.

symbol name last price % change open
  • +
  • AMAT
    Applied Materials
  • $12.28
  • -1.60%
  • $12.38

AMAT in 2006 has had 9 successful trades in this system out of 9 occurrences for an average return of 1.8% per trade

People owning AMAT also tend to own: ADPAVYAXPCLDDDELLDIS

  • +
  • BEAS
    Bea Systems
  • $0.00
  • 0.00%
  • $N/A

BEAS is 18 successes out of 21 occurrences since 2004 for an average return per trade of 2.35%

People owning BEAS also tend to own: AMGAMTBCRBEAVCERNCOGNDBD

  • +
  • BRCD
    Brocade Communica
  • $8.01
  • -0.37%
  • $7.97

BRCD is 11 out of 16 since 2004 for an average return per trade of +2.77%

People owning BRCD also tend to own: CEBAYEMCFCFSFLEXGEGME

  • +
  • CHTR
    Chtr
  • $0.00
  • N/A
  • $N/A

CHTR is 10 out of 13 since 2004 for an average return per trade of +4.6%

People owning CHTR also tend to own: BJRIFLMLHRTLPHINWKORBCSTXN

  • +
  • ERTS
    Electronic Arts I
  • $17.30
  • -0.75%
  • $17.21

ERTS is 16 out of 20 since 2004 for an average return per trade of +2.01%

People owning ERTS also tend to own: DTVKSWSMDCOSTKUSGHSYNBR

  • +
  • GENZ
    Genzyme Corporati
  • $50.05
  • +0.85%
  • $49.33

GENZ is 19 out of 22 since 2004 for an average return per trade of +1.88%

People owning GENZ also tend to own: LRCXWRLDAMGNDNAAMZNBLUDHPQ

  • +
  • HSIC
    Henry Schein
  • $50.53
  • -1.52%
  • $51.09

HSIC is 11 out of 12 since 2004 for an average return per trade of +1.32%

People owning HSIC also tend to own: COPCROXDEOEFAEMCFTEKGLW

  • +
  • ICOS
    N/a
  • $25.55
  • 0.00
  • $25.55

ICOS is 13 out of 17 since 2004 for an average return per trade of +1.87%

People owning ICOS also tend to own: AMDMSFTAVANNESIRIDRRAALB

previous next

1997: 95%
1998: 82%
1999: 220%
2000: 41%
2001: 79%
2002: 2.9%
2003: 143%
2004: 72%
2005: 32%
2006: 76%

[Click image to see larger view]

11/24/2008 14:57 PM CST Asked by mikegj1a
Has anyone tested this on indexes? It would be interesting to see how this system works on leveraged ETF's such as the new Direxion Shares ETF Trust Small Cap Bull 3x (TNA)and Direxion Shares ETF Trust Large Cap Bull 3x (BGU).

07/04/2007 16:42 PM CDT Asked by Marc_In_Oregon
The condition “if priceopen(bar) > priceclose(bar-1)” is there to avoid stocks moving straight down. The 3x2 system, without this provision, would signal a buy on every stock going towards 0. So after moving down three days, you need a little movement up (opens higher than previous close) to signal a buy.

I'm playing around with ways to fine-tune the 3x2 system. For example, I review the buy signals and filter out stocks I'm not bullish on. Perhaps a further condition looking at the 50-day or 200-day moving average would filter out the bearish stocks.

The 3x2 system is very profitable on some stocks, and not so profitable on others. Would be helpful to figure out what characteristics trackable by Wealth-Lab influence overall profitability by stock.

02/26/2007 08:44 AM CST Asked by Michael Stapp
It's 30 to 50 minutes before the markets open, and the 3x2 system isn't updated for Fridays (3 days ago!) close. Does that mean there were no 3x2 candidates?

02/25/2007 08:49 AM CST Asked by Bob Markell
The weath lab code in the system description above seems to include a condition not mentioned in the text. The statement “if priceopen(bar)>priceclose(bar-1)” must be true for the Buy to be triggered. This seems to read (I’m not Wealth Lap proficient) that the Opening price on the 3rd day must be higher that the closing price the day before. An explanation would be appreciated.

02/22/2007 20:27 PM CST Asked by pensacola
Watch out. - the "picks" are priced from close the following day - so if a stock gaps and then closes below the gap, it would be at a loss, but could show positive for the day because it is calculated from the previous days close. Be more accurate Stockpickr - you are being disingenious!

02/22/2007 07:04 AM CST Asked by capeside
Hi, just a question about the 3x2 system: If I bought a stock after this sytem and it won't move up the following days, let's say, stock will even fall more, when do I sell it ?

02/20/2007 20:46 PM CST Asked by GeoffG
Can you simulate this to only include stocks that are on the NASDAQ 100 at the given time? These stocks had to grow to join the list. Be a skeptic. More data is needed.

02/07/2007 08:39 AM CST Asked by Dedandgone
I'm with you John Lay...When do you decide it isn't woking out. You certainly don't want to overload on a stock that really isn't going to give adequate up.

01/31/2007 17:14 PM CST Asked by JackG
Nice system, I've been experimenting with a similar strategy on TD Strategy Desk and have been very happy with the backtests so far. I think if we take out some of larger drawdowns it may work even better.

01/28/2007 13:07 PM CST Asked by DamonNez
I am an ex-broker who also is an MIS professional and am interested in joining others to develop an inexpensive MS Excel/Access/VBA application to find and identify tradeable stocks. I already have developed an Internet interactive application that can track over 7000 in about 12 minutes. If there's any interest out there, contact me at Redwards_mail@yahoo.com.

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