Seeking Alpha

Send Message
I am a former engineer in topography (ESGT Paris CN&M) and specialized in metrology or very precise measurement (two Phd). I was interested in quantum metrology for a while... Live mostly between California (Santa Monica), Provence-Cote d'azur (Where my children and grand children live) and... More
• ##### Harvest Natural Resources: Another Example Of A Successful Trading Using RSI(14) 0 comments
Jan 29, 2014 5:41 AM | about stocks: HNR

Study case : Harvest Natural Resources (NYSE:HNR)

Investement thesis

I intend to show that this method is "safe" enough to be used and can be applied to numerous companies, small or large. It can be used almost automatically, to a certain extent, making it a perfect example of a simple algorithmic method. It is important to know that this is only a tool that manipulates a lot of cash. Like any tool it is not enough and you will need to know how to use it, to profit.

I assume that you are familiar with the RSI(14) and we can go directly to the calculation of what it is needed to start my method.

I am using here, Harvest Natural Resources which is classified as a risky small company with no real revenues which increase the risk of "hiccup" that are leading to an inhomogeneous trading environment.

Note: Although I am trading regularly this stock the trades indicated are fictitious and obtained by interpreting the chart. In live situation it could be different of course even if I tried to apply the method the most honestly possible using automatic response.

A - Determination of the parameters needed. (S cash) (T for RSI value) (F number of trades) and Fibonacci sequence.

Harvest Natural Resources has been trading between 17 to 2,50 the past 3 years with an actual stock price at 4,30. This disparity makes it difficult to size a good buy unit that will keep cash invested within our limit.

Due to the wide range I will take a stock price 5. You can also use the 200 moving average because it is more systematic at around 4,20.

Here is Harvest Natural Resources 3 years chart:

stockcharts.com/h-sc/ui?s=HNR&p=D&am...;id=p70041669183

We assume that you will trade a maximum of S= 20K dollars excluding commission. The cash allowance is lower than Seadrill or Transocean because Harvest Natural Resources is a very risky and volatile stock.

the Buy Unit will be 20K/19 or 1,053 dollars representing U=245 shares. I will take U=250

1. Maximum cash allowed will be under 20K dollars. (can double in the first period due to the stock price)
2. Total amount of shares to be bought using Fibonacci will be 250 + 500 + 750 + 1, 250 + 2,000 = 4,750 shares total spread in 5 trades from RSI 31 to RSI 23.
3. Control: 4,3 x 4,750 = 20,5K dollars which is acceptable.
4. Buying sequence T1 to T5 will be the same T1=RSI 31 T2=RSI 29 T3=RSI 27 T4=RSI 25 T5=RSI 23. These RSI numbers represent a value that can fluctuate between -1 to +1. For example RSI 31 is RSI from "32 to 30" and it will be up to you to define the right RSI to trigger a BUY. But when a BUY is triggered you will need to wait for the next range RSI from 30 to 28. If you program this method then the different values of T will be set either with a number or a formula than could take the Volume or any other parameters.
5. Sell trigger will be RSI 51 (48 to 53 depending) and it is important to include the intraday value which demand some human monitoring. I advise to sell out at once unless you believe the trend is very strong and may lead RSI to an overbought territory (70). In this case, I advise to sell at least 50% at RSI 51. Be careful so, it is not recommended.
6. Security level is important. If RSI fails to reach 51 but crosses 40 and then go back to near 31. Then you sell 50% of your holding and start another cycle. It could be the same day if RSI continue to go lower and reaches 30 28 etc. Watch out for any "gap" and be prepared to coop with that.

B - Selling timing.

Again, I cannot stretch enough how important this part is. Crucial part of the whole process that many traders are wasting because of a lack of rigor and an excess of greed. It will happen around RSI 48 to 51. It is important to sell in one trade only.

C - Waiting period.

Because this method is working under some special circumstances, it may take many months before the RSI pattern can offer a trading interest for us. It is important to wait as long as it is needed before making any move. Buying at RSI above 32 is sometimes tempting but long term will reduce your gain and jeopardize your safety. As you can see HNR is not attractive for quite a while...

D - Blue Print.

If you use Word Excel for example, here is an header that can be used to keep track of your trades.

Trade number(1), nature of the trade(2), Date(3), RSI(4), Price per share(5), Number of shares(6), Total shares owned(7), Cash amount for transaction with commission(8), Total cash amount(9), Average price value(10), Gain(11), Loss(12), Comment(13).

1. Trade number start by 1 for your first transaction. For SDRL I have 47 transactions since 01/01/2011.
3. Exact date and even time of transaction
4. RSI(14) value at time of transaction. It can be calculated exactly and can give you a good indication
5. Stock price of the transaction without including commission
6. Number of shares purchased or sold
7. Total shares bought
8. (5) * (6) + commission
9. Total cash of holding
10. (9) / (7)
11. Gain
12. Loss
13. You will indicate anything that can be interesting. For example if you used the intraday RSI or if you triggered the security etc...

E - The case of Harvest Natural Resources (Theoretic)

Looking at the chart, from 01/01/2011 to now, I could identify about 8 periods where this method could have been used.

1. May 2011
2. August/Sept 2011
3. Sept/Oct 2011
4. Dec 2011 to January 2012
5. April 2012
6. May/June 2012
7. February/June 2013
8. Nov/Dec 2013

These 8 periods resulted to 34 fictitious trades with a gain minus commission of around 11K dollars even if the stock price kept falling.

 1 B 05/04/2011 12,60 250 250 3,150 3,150 12,60 2 B 05/04/2011 12,20 500 750 6,100 9,250 12,33 3 B 05/05/2011 12,00 750 1,500 9,000 18,250 12,17 4 B 05/06/2011 11,80 1,250 2,750 14,750 33,000 12,00 5 S 05/25/2011 12,40 2,750 0 34,100 1,100 6 B 08/05/2011 11,00 250 250 2,750 2,750 11,00 7 B 08/05/2011 10,25 500 750 5,125 7,875 10,50 8 B 08/08/2011 9,50 750 1,500 7,125 15,000 10,00 9 B 08/09/2011 8,75 1,250 2,750 10,938 25,938 9,43 10 B 08/09/2011 8,25 2,000 4,750 16,500 42,438 8,93 11 S 08/22/2011 9,00 2,350 2,400 21,150 21,288 8,87 12 S 08/26/2011 11,00 2,400 0 26,400 5,112 13 B 09/30/2011 8,75 250 250 2,188 2,188 8,75 14 B 10/01/2011 8,40 500 750 4,200 6,388 8,52 15 B 10/04/2011 8,00 750 1,500 6,000 12,388 8,26 16 S 10/17/2011 10,30 1,500 0 15,450 3,062 17 B 12/19/2011 7,00 250 250 1,750 1,750 7,00 18 B 12/19/2011 6,75 500 750 3,375 5,125 6,83 19 S 01/09/2012 6,65 750 0 4,988 -137 20 B 01/17/2012 6,20 250 250 1,550 1,550 6,20 21 S 01/23/2012 7,20 250 0 1,800 250 22 B 04/10/2012 6,00 250 250 1,500 1,500 6,00 23 S 04/17/2012 6,55 250 0 1,638 138 24 B 05/18/2012 5,10 250 250 1,275 1,275 5,10 25 S 06/04/2012 5,65 250 0 1,413 138 26 B 02/20/2013 6,00 250 250 1,500 1,500 6,00 27 B 02/20/2013 5,00 500 750 2,500 4,000 5,33 28 B 03/19/2013 3,50 750 1,500 2,625 6,625 4,42 29 B 03/19/2013 3,00 1,250 2,750 3,750 10,375 3,77 30 S 06/03/2013 3,60 2,750 0 9,900 -475 31 B 11/14/2013 4,25 250 250 1,063 1,063 4,25 32 B 11/14/2013 3,75 500 750 1,875 2,938 3,92 33 B 11/14/2013 3,25 750 1,500 2,438 5,376 3,58 34 B 11/14/2013 3,00 1,250 2,750 3,750 9,126 3,32 35 S 12/15/2013 4,10 2,750 0 11,275 2,149 Gain 11,140

As you can see I used 8 full cycles. I advise to look at the chart and see what has been done.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am trading HNR regularly but do not have a position right now.

Themes: income-investing-strategy Stocks: HNR
Back To Fun Trading's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.