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Analyzing BTFs As Presented By Peter F. Way On

This started with just a simple sounding question "How do you tell if a stock is in a BUY range?"

As I started to reply, I realized that a "Buy" decision comes not from not just a couple of simple numbers; but requires an analysis of the entire BTF in order to draw proper comparisons.

Definitions: BTF means Block Trader Forecast. R-R means Risk vs Reward. PT=Price Target. TT= Time Target (63 Market days from Buy). Other abbreviations should be either self explanatory or explained in detail as they are used. Please call my attention to any that are unclear.

First I will pull out a list of stocks that were the "Pick-of-the-Litter" on August 7 of 2014. These are not actually ranked in importance by the current "Weighted R-R" method, so after a day or 2, I will post them ranked both by's approved system (Column S), but also by my own Ranking system (Column R) (followed by their performance over the next 3 months). It is not a definitive study, but as I add data I will learn more.

The colmns above are explained in detail below.

My first criteria is that a stock must have Odds (Column H) of ≥87%. Next I look at the Credibility Ratio (Column O) 1 or higher and I can move on, .9 is still good; but will require other favorable factors. At .8 the stock must have a lot else in it's favor or I drop it, and below .8, I look elsewhere. There are many good stocks that are out there somewhere.

At this point I am ready to start comparing stocks "Head-to-Head.

Before going on, I want to clarify each column. A is the Ticker Symbol, B is the "Range High" or Price Target. if a stock does not reach this price within 63 market days, the position is closed out and the capital deployed elsewhere. Column C is the historical lowest drawdown point where, in the past when the stock has had a similar Range Index, this is the furthest it could be expected to fall to. This Drawdown is expressed as a % fall in Column F If it falls below this point, it may well recover into profitability; but probably will not reach PT. Column D is the Closing Price on the day that the BTF was created. Column E (STP=Sell Target Potential) is the % of gain that the stock must reach to hit it's PT or Price Target (Column B). Column F is essentially Column C expressed as a % of Column D. WCD stands for Worst Case Drawdown. In the prior experiences of this stock having had a similar Range Index, it has never fallen a greater % than this in the following 63 Market Days.

The next column, Column G, is the Range Index. This is a value derived by Peter Way's proprietary formulas that reveals in a comparative way; what the Market Makers think of a stock relative to other times in a stock's history. By that I mean that the RI is not an absolute value; but rather a plot between the Range High and the Range Low where the price is now. Here is the way an RI might be plotted;

Plot of Range Indexes (Used with Permission)

In this graphic, there are 1261 RIs, but this particular stock seems to stay in a rather narrow band. Other stocks are much less extreme; but the information is not the current number. The information is where the current plot is, relative to the rest. In this case, while the RI (a number from 1-100) is only 34, it is almost the midpoint of plots, meaning that at the time of this plot, there was a nearly equal downside as upside potential. This is not a favorable situation in most cases.

While I may have confused you, don't worry. It's not so much what you know about RIs as what Peter derives from them. That brings us to Column H; the Odds. This represents the % of instances where, when in the past the stock experienced a similar RI, that the stock reached it's PT within the allotted 63 Market Days. 87 % being my cutoff point. There may be times when a different cutoff point is desirable, but I have not found many. The sole exception where I use a lower point is when following a stock for a number of days; I want the stock to remain buyable over time as I revealed in my Blog

When following a stock that started above the 87% point, a drop to ~85% does not necessarily mean that the stock has become a "Non-Candidate" unless it stays 85 or lower. I will comment more on that analysis if questions arise.

Column I is the average Payoff that the stock has experienced in the past at similar RIs; different from column E in that E is what is expected to happen now, while I is what has happened prior (Past performance is no guarantee... you know the quote). Column J is the average number of days in prior experiences that it took the stock to hit it's PT. From that is derived Column K "Annualized Rate Of Return" (AROR). The next 3 columns combine to reveal the prior experiences out of all the Market Days that the stock has been followed by Peter has mentioned that they follow stocks that are almost always priced over $10, and they must have enough Options Activity for them to track to derive what the Market Makers are paying for their necessary hedging. That Hedging is what leaves the breadcrumbs for BlockDesk to follow.

Column O is the Credibility Ratio

Concerning the "Cred Ratio", I am going to quote Peter's explanation as stated in my other Blog on the use of the Tools within ):

"The Cred.(ibility) Ratio is a simple measure of how the current sell target upside prospect is supported by the previously achieved % payoffs from similar Range Index events in the sample from history. That test is, when subjected to our standard test of 'was the sell target reached in 3 months, and if not, when closed out, what was the average simple % gain on all of the experiences?' "

In my words, "even if the PT was not reached, how close did it come and how reliably did it produce a profit?" For instance .9 means mostly profitable, where 1.1 means almost always profitable, and frequently hitting it's PT. I cannot give a more exact definition; but by incorporating the Cred Ratio into the other factors, this is a major factor in choosing one stock over another with similar Odds.

Column P is Risk-Reward Ratio. Simply put Column E divided by -(minus to give a positive number result) Column F. Should be considered along with the Cred Ratio in order to rank stocks.

The next 2 columns are where I am incorporating both the number of similar experiences compared to total experiences, along with incorporating the Cred Ratio into a Weighted Odds Index number. Peter's formula uses only the prior number of samples, while I try in mine to use a ratio. The superiority of my formula is yet to be proven, or even properly evaluated. Thus when you get an Int List from, it will have Peter's Calculation weighting the odds(Column I) with the Risk Reward calculation. It is again a relative number where you can compare stocks against each other, and right now is the most important factor in ranking stocks in a List. While the numbers I generate are different than Peter's, rarely would mine cause a stock to be ranked higher or lower than Peter's formula.

For those who like playing with Spreadsheets, My formula is


I have approximated Peter's formula, but it is his to reveal or not.


When it gets down to ranking one stock above another similar stock, ranks stocks by their Weighted R-R formula first.

If stocks are still very close in rank, I personally look at the Odds and Cred Ratio next, followed by the AROR (often that means looking at Column K {Days Held}).

When it comes to defining what is a "Buy Range", IMO it depends on first, whether it is a stock you are following or whether it is a new buy. Following a stock to see if it is remaining buyable has a slightly lower standard than an initial evaluation.

Still, in the end before I buy a stock, I personally require a stock to have Odds ≥87% (7/8), a Cred Ratio of ≥ .9 initially, and to have stayed at ≥ 85% Odds and a .9 Cred Ratio for more than 1 day. (3-5 days is better). I also want to see a stable Weighted R-R Ratio. A decrease in Weighted R-R Ratio of > 10% is, to me, a warning, and >15% means no. All else being equal, I look at the Days Held column as time is also a cost of investment, and one of great significance. If I have been following a stock for multiple days, and decide to buy, I will use the most current BTF Price Target as my sell target.