After a half of decade of researching investment strategies, I have finally developed a highly predictive model for short-term stock trading with small reproducible positive gains. I have tried all of the popular stock trading strategies without success including: Chart Patterns, Delta Phenomena, Adam Theory, Moving Average Crossovers, Technical Analysis, etc... Although the more traditionally technical analysis techniques were helpful, I was never able to achieve reproducible results.

One day I was reviewing chart patterns on some of my most miserable purchases, when I serendipitously noticed a re-occurring chart pattern. For six months I collected stocks charts with a similar pattern and progression. After several weeks of mathematical analysis I discovered a real-time technique for finding and trading these types of stocks. I had given a name to the stocks that exhibited this behavior - Anomalous Unsolicited Directionally Indicated Breakdowns in Long-term Executing Stocks (AUDIBLES). I will dedicate several blog post to explain the techniques for investing and realizing short-term gains with AUDIBLES. Below is a typical price chart pattern for AUDIBLES along with the CCI, ADX, and MACD indicators.

Notice the sinusoidal wave pattern of recovery occurring after the 17% drop in stock price in the chart below.

See if you can apply the theory below to determine the buy and sell time of the stock in the chart above.

AUDIBLES Theory

The basic theory of AUDIBLES is that the frequency response of the stock is proportional to the price of the stock before breakdown given the following five criteria:

  1. Stock price decreases more than 10% within single day of trading. (Preferably at the beginning of the trading session.)
  2. Stock price between $3.00 and $25.00 with an average trading volume greater than 500,000.
  3. ADX greater than 30 and less than 70. (Directional Movement System)
  4. DMI- crosses above DMI+, coinciding with drop in stock price.
  5. Stock price must show a positive trend with minimal volatility for greater than 1 year. (Linear regression slope > 0.1 with R2 > 0.5)

Buying and Selling AUDIBLES

  • Purchase stock at 0.25*Period of Audible Frequency (T1) and Sell stock at 0.75*Period of Audible Frequency (T2) if CCI goes above -60 and continues in upward direction.
  • Audible Frequency is calculated as -0.12*LN(Stock Price in Dollars)+0.4821 (The Audible Period is 1/Frequency)

NOTE: Release of negative news or earnings report within 5 days of stock drop is a poor indication.
NOTE: Heavy insider trading, particularly sales, within 1 month of stock drop is a poor indication.

Derivation of AUDIBLES Frequency

I was able to derive the AUDIBLES frequency by obtaining a representative number of stocks that have exhibited the behavior described above with the given criteria. I then determined the frequency using the period and length of the wave from the price chart. By plotting the stocks price before drop against the stocks frequency I was able to determine the dependent relationship depicted below. The red equation is the linear regression best fit and the blue equation is the logarithmic best fit.

"In a nutshell, I am able to predict with a high degree of accuracy when the high and low of the stock will occur from the AUDIBLES frequency only by knowing the price of the stock before it drops."

By now you are probably thinking that I am crazy. I could not believe it myself, especially after seeing the strength of the trend (R2 from Pearson's linear regression). I will explain examples of use and why I think this phenomenon occurs in later posts.

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