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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

    This article is following my previous articles regarding Transocean (NYSE:RIG) and Seadrill (NYSE:SDRL). It is important to read these and get familiarized with the concept of RSI (14) by J Welles Wider. (1978)

    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.
    2. Buy or Sell
    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.

    HNR case study from 01/01/2011 to now
    1B05/04/201112,602502503,1503,150 12,60
    2B05/04/201112,205007506,1009,250 12,33
    3B05/05/201112,007501,5009,00018,250 12,17
    4B05/06/201111,801,2502,75014,75033,000 12,00
    5S05/25/201112,402,750034,100 1,100 
    6B08/05/201111,002502502,7502,750 11,00
    7B08/05/201110,255007505,1257,875 10,50
    8B08/08/20119,507501,5007,12515,000 10,00
    9B08/09/20118,751,2502,75010,93825,938 9,43
    10B08/09/20118,252,0004,75016,50042,438 8,93
    11S08/22/20119,002,3502,40021,15021,288 8,87
    12S08/26/201111,002,400026,400 5,112 
    13B09/30/20118,752502502,1882,188 8,75
    14B10/01/20118,405007504,2006,388 8,52
    15B10/04/20118,007501,5006,00012,388 8,26
    16S10/17/201110,301,500015,450 3,062 
    17B12/19/20117,002502501,7501,750 7,00
    18B12/19/20116,755007503,3755,125 6,83
    19S01/09/20126,6575004,988 -137 
    20B01/17/20126,202502501,5501,550 6,20
    21S01/23/20127,2025001,800 250 
    22B04/10/20126,002502501,5001,500 6,00
    23S04/17/20126,5525001,638 138 
    24B05/18/20125,102502501,2751,275 5,10
    25S06/04/20125,6525001,413 138 
    26B02/20/20136,002502501,5001,500 6,00
    27B02/20/20135,005007502,5004,000 5,33
    28B03/19/20133,507501,5002,6256,625 4,42
    29B03/19/20133,001,2502,7503,75010,375 3,77
    30S06/03/20133,602,75009,900 -475 
    31B11/14/20134,252502501,0631,063 4,25
    32B11/14/20133,755007501,8752,938 3,92
    33B11/14/20133,257501,5002,4385,376 3,58
    34B11/14/20133,001,2502,7503,7509,126 3,32
    35S12/15/20134,102,750011,275 2,149 
           Gain11,140 

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

    Happy trading.

    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
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