10/31/2014

What do these stocks have common


OMER
KERX
JNS
IQNT
ATHL
ATHM
CFN
CNAT
CEMP
EVC
LAKE
PTRY
MOVE
MRCY
HSTM
EXAS
UIHC
ANGO
HNI
QLGC
HA
CRAY
IVC
RT
AERI
HCI
SCSS
INCY
SCMP
PACB
XNPT
RGEN
MMSI
TTPH
ARC
ZOES
RDNT
KITE
NVAX
AMAG
TUBE
RNA
MDXG
SHLD
CVTI
CLVS
VDSI
LCI
RENT
GIMO
BBW
FMI
XLRN
FNHC
OVAS
USNA
OSTK
ESPR
INFN
DRTX
NLNK
AGIO
ESI
RCPT
DRIV
RGLS
VTAE

they are all up 25% plus in last one month.

What kind of setups do they show.

Central tendency of stock moves do not change

10/30/2014

Define your setup


Define your setup thoroughly before trading it.

Think a lot at setup selection stage. I you think through your setup then trading it will be easier. If you do not have good setup stop trading and search for good setups first. Once you have good setup your trading will improve.

Think about what market structure this setup exploits when selecting setups. If there is no structural phenomenon it exploits then , it will not work.

Setups that people have used for centuries are:
  • momentum burst also called impulse moves
  • Trend failure
  • Anti Trend swing
  • pullbacks also called mean reversion trades
  • range
  • Trend transition setups
  • trends
  • pairs
There is lot of information about these setups in public domain. 

10/28/2014

Biotech lead the action


Biotechnology stocks are in best position to lead the V shaped recovery. Many of the biotech had shallow sell off and were near their pre correction high.

As the market is attempting to recover the biotechs were first to breakout. Closely followed is drug stocks. That is where best setups are currently.

Airlines is another sector doing well as low oil prices are leading to increased profitability or hope for it.

The downside is being led by oil and gas.

10/24/2014

Where should beginner start

I often get emails from beginners asking where should they start. The markets and choice of setups and trading approaches can be challenging for a beginner. 

In the beginning due to lack of understanding of how markets work and how real traders make money ,  you can end up believing in anything. Which can lead to loss of time , money and opportunity.

First thing a beginner trader should do is to try and master a simple setup. Focusing on only one simple setup will help you gain confidence and help you develop skills faster. 

Trading a setup in existing established trends is one of the good starting point for beginner trader. Once a stock established a trend it offers you a choice of breakout or pullback setups. There are many variation of these setups but they essentially look for either a momentum burst in existing trend after a period of consolidation or buy during low volatility consolidation/pullback in trends. Typically buying first pullback or consolidation after a trend is established is a simple trade setup. That also ensures you are not buying extended setup. 

Simplicity is very important in the beginning phases. That means avoiding piling on too many indicators on your chart or making too many rules for your scans. Simplicity will also allow you to understand each of the indicator you use.

Beginner trader need to put themselves in situation where they have time to consider every detail of the setup they are trading and trade they are making . Simple setup will allow you to plan all elements of the trade. Consistently trading one setup using consistent process for few months will help you perfect it. That is how a small edge becomes unique edge.

10/23/2014

Grit is important



Grit is most important criteria if you want to be successful trader. 

If you have grit then you will overcome many psychological obstacles. If you study most successful traders it took them 10 years or so to become consistent. Most people do not persist that long and give up because they blow up or do not have grit. early failure leads to fast exit. 

After trading 14 years profitably and talking to many other traders the consistent theme is ability to persist in initial years after many setbacks. Some blow up multiple times before finding their unique edge. The edge they find may not be big but the process of trial and error and persistence leads to their unique personality that can not be easily replicated.

Grit and self efficacy beliefs are biggest determinant of success in this field.

Most edges are small but how you play around with them is what matters. Take a small edge and marry it with well thought out process flow and good risk management and you will develop a larger edge.

but if you have grit it will work , absent that this is difficult game for many. 

10/22/2014

Momentum burst setups showing up

When you have set method and you follow them daily, you don't need to be rattled by market moves. With the market improving in last couple of days post Fed panicked and assured they will postpone QE if needed, that has resulted in another V shaped recovery in index.

The momentum burst scans I run have started to show up candidates. When market was in correction the scans were not showing many bullish candidates as momentum was on downside. During bull moves stock move in sharp momentum bursts of 3 to 5 days after that they rest or revert.

If this rally has legs same thing will happen. Stocks have started gaining momentum. They will in few days go sideways as buying cools on those individual names and then they setup for another move higher.

Sharp V shaped recoveries has been the hallmark of this market especially in last 18 months as Fed panics every time market goes in to correction mode of even 5%. They come out with new interventions or delay end of QE , and sometime just do verbal intervention like some Fed members dd this time once market starts correcting around 10%. That signals the market no matter what Fed will not allow market to go down. So happy days are back again.

During a bull move hundreds of momentum burst setups will show up if market continues its advance. So task for speculator is clear , scan for stocks with established momentum and look for those that are setting up for possible momentum burst and also run daily momentum burst scans and look for good setups.

If you did not lose money during this correction, you are in good shape to profit from this move as long as it lasts. If it fails then bearish setups will proliferate.