7/24/2014

Focus your energy on finding good setups

What do successful trader do that makes them successful. They trade specific setup ideas. Some trade only one kind of setup while some trade a bunch of setups. If market conditions change they change the setup or make minor adjustment to setups.

All successful traders have through research , empirical observation , setup templates from other traders have arrived at their own setup.

If you read How to Trade in Stocks by Jesse Livermore it details bunch of setups he discovered after trial and error.

If you read How I made 2 million in the stock market by Darvas it details how he developed his setup idea of trading high momentum and high growth stocks.

If you read How to make money in stocks by William O'neil it details the setups he uses to trade momentum and growth stocks.

If you read One up on Wall Street by Peter Lynch it details his setups to trade various situations.

If you read You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits by Joel Greenblatt you will see bunch of setups for value investors.

If you read Trade Like A Stock Market Wizard: How to Achieve Superperformance in Stocks in Any Market by Mark Minervini you will discover what setup he uses. 

Traders specialize in setups and their thinking and behavior is driven by their understanding of setups. If they don't find their setups they do not trade. 

They know a vast amount about their own setups and why they work but they do not necessarily are experts on others setups.

If you talk to lot of successful traders you will find they had real breakthrough once they discovered a setup and focused on it. During the Stockbee Advanced Bootcamp many successful traders presented how they arrived at their setups. Before that they were also struggling. Once they discovered their setup  it allowed them to focus their time and effort and organise around it.

If you do not understand the concept behind setup selection you will struggle for many years. You will flirt from ideas to ideas. You will curse the market. You will say market is rigged. You will say everyone is out to get your money.

Unless you understand setups as key to profitable trading you are unlikely to make much money. Learn setups. Setups give you complete set of rules for every element of a trade for a particular timeframe or style of trading. A well thought out set up for swing trading will give you everything you need to do to trade that setup successfully. Once you understand it you will be able to trade it on your own without needing help. Most people who have very well defined setups have taken 5 to 10 years to arrive at it.

The trader who ran up his account to 96 million uses Episodic Pivots as his basic setup. If you know that then you don't need to know what color underwear he wears. If you understand the Episodic pivots setup you know what to do day in and day out. It has been detailed in significant detail multiple times and extensively discusses in every Stockbee bootcamp.

If you have well defined setup , you would be able to instantly recognize good opportunities and enter or exit them.

If you have well defined setup, you will be able to prioritize ideas and not waste time on marginal stocks or others ideas.

If you have setup oriented mentality you will ask everyone who posts trade idea to find out what setup generated that trade.

If you have well defined setup you will know instantly your entry, exit stops rules and not be a clueless person post entry. You will not be asking others what you should be doing or what is the target on this stock.

If you have well defined setup, you will not be easily influenced by any and every new tactic people talk about or sell as the new new thing.


If you really understand the language of setups you will not waste your time on all the macro discussion and end of the world scenarios.That is not a tradable setup.People who write those scenarios do not have tradable setups so they spend time creating fiction.

Focus your energy on finding good setups and mastering them, once you do that trading is enjoyable activity. That is the focus of this site since it started and you will see extensive discussion on various setups. Many successful traders tell me they remain member because of the focus on setups and not picks. They find new ideas from setup discussions.

 And as the 96 million man has shown , a good setup idea can change your financial future forever.....


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7/23/2014

Big moves and small moves

In the market there are small moves of 3 to 5 days  and then there are big multi month moves of big magnitude. 
I focus on both kind of moves. For Active Trading Portfolio I look for  momentum bursts moves of 8 to 40%. For Working People Portfolio I focus on bigger moves. 

In a year you have thousands of momentum burst  moves of 8 to 40% magnitude. Swing traders generate profit by trading hundreds of such moves. Per trade profit might be just .5 to 2% of  overall equity, but sheer number of these small trades add up at end of the year to give you good returns.

More trade signal a method generates better it is as for such momentum burst swing trading methods as it allows you to manage risk aggressively. I can catch many with small risk and do not need to depend on just big moves to make a year. there is always next train arriving at station, so if I miss few trades it does not matter, if your trade stops you out it does not matter.

But when you focus only on big moves  missing the few big moves in a year can be a problem. If your system relies on few but big moves you need to risk big to make money (Episodic Pivots). Which is what I do when trying to capture big moves. But when you risk big you need to have higher skill and conviction.

In order to become good at trading the big moves first you need to master the small moves. Because of higher frequency of the small move that is relatively easy to learn in shorter time frame. To become good at trading only big move with higher risk it takes you years to develop that kind of expertise and conviction. 

To become good at trading small moves study thousands of small moves daily, if you want to become good at trading large moves study thousands of big moves.

Investors often "dream" of catching big moves and setting in stocks for months or years . The question they must ask themselves , do they have skills to identify and enter those moves at right time.

If you do not have those skills efforts should be focused on building those skills. All traders were beginner at some stage and they have no god given gift , they learned these skills  because they wanted to make money.

7/22/2014

More buy setups showing up

Few weeks ago market had extremely bullish breadth. That resulted in a bit of selling. The selling lasted only few days and has not had a follow through.

Breadth trends continue to show very gradual improvement with very low level buying pressure. Big moves are not happening as you can see on the Market Monitor.

But as there was no big follow through on selling stocks have started to bounce back. Some of those bounces are weak bounces.

From trading point of view however lot more opportunities have started to show up and many stocks are again now setting up for possible breakouts. If you see the anticipation scans we run , lot more stocks show constructive pre breakout activity.

Earnings season is creating lot of good breakouts and some pre earnings breakout. Today there were at least 10 good setups.


Look for big earnings surprises


CMg: Chipotle Mexican grill
Earnings season is best time to find big explosive moves. Big earnings surprise start big moves.

CMG had positive earnings surprise last night. It has potential to make 50 to 100 dollar move from open price today. Big earnings surprise leads to start of big moves lasting one to 2 quarters.  

Everyday hundreds of stocks release news before and after hours. These news releases can lead to stock making big move for just a  day or weeks or months. If you develop a skill to understand which stock to focus on from those earnings breakout, you can figure out which is likely to go up for few months or quarters.  What you have to look for is extreme surprise or growth.

When the earnings news is released either it is already discounted by the market or the market is surprised by it. If it is a big surprise then the stock discounts that news over next few months. A earnings surprise also tells you a lot about underlying trends in the business. If the underlying force contributing to earnings are sustainable then longer duration rally happens and stock  continues to surprise for few quarters.

Earnings surprises on heavily shorted stocks can often lead to big  short squeeze and offers very good opportunity.

Announcement related to earnings in either as guidance or actual earnings have potential for starting or ending multi month moves.This phenomenon is called PEAD or Post Earnings Announcement drift. It is considered a market anomaly. 

If you want to make big money focus on big earnings surprises. 

Working People need to be more selective

Working People who want to make money trading and investing face logistical problem due to their job.  Many of them do not have access to trading accounts or trading software during the day. With widespread availability of mobile phones that problem is no more a big issue.

Realistically many working people can not swing trade actively unless they have a job where company does not care what they do.

For working people more selective approach involving only 10 to 15 trades in a year is more realistic. But if you want to be that selective then you need to be very good at picking right stocks at right price. That kind of skill requires some experience and ability to invest serious time and effort in learning about markets.

On the Stockbee members site I run a Working People portfolio for members interested in only selective trading. It uses the Episodic Pivots method to find big explosive moves. It is very infrequently traded. Last year it had only 16 trades and 71% of them were winners giving 42% return.




This kind of trading approach requires extreme selectivity and very good risk management skills. If you are a working person and interested in developing this kind of expertise , read all the posts on Episodic Pivots method.

If you are motivated to make money there are always ways. 

7/21/2014

One day and one trade

The challenge in trading comes down to doing the right thing everyday, controlling risk everyday, not getting carried away everyday , and putting a bit of effort everyday to develop new skills and expertise. If you do that successfully everyday in a year it adds up.

Same thing applies to each trade. Each trade stands on its own and the past does not matter. If you do each trade right then over hundreds of trades things add up. Getting stock selection right on each trade, getting entry, exit , stops, position size right on each trade is the day to day challenge of trading.

Controlling the controllable part of trading is where we must put our effort as traders. We do not completely control the outcome of a trade, it depends on number of factors outside our control. Wars can suddenly breakout. Companies can pre announce bad earnings after we enter. Analyst can upgrade or downgrade a stock. But that is all not our control. We must strive to do the controllable things right on each trade.

Everyday do the same thing over and over again on each trade the right way. Once you have a well thought out method this becomes easier task. After that the  the day to day challenge is largely about implementing your plan. That requires setting up a daily routine and adhering to it as far as possible.

But we do not need to do same thing again and again blindly irrespective of market conditions.  We know our swing setups work, but overall market conditions can have impact on the % of trades likely to work. So situational Awareness (SA) is important. It helps you in controlling your trade pace. In good environment you want to be more aggressive. In bad conditions you want to focus on risk management.

SA also helps you tactically change your entries, or exits or profit target. If market is range bound you do not expect big moves accordingly your target must change.

SA also helps you to understand market phases. Different phases of market favor different kind of stocks or setups. Some time beaten down stocks do well. Sometime stocks with momentum do well. Some time value or growth is in favor. Knowing what is working helps you focus on hot opportunities.

If you want to make lot of money trading focus on one day and one trade....