4/04/2007

Why I love Virgins

Virgins are stock which never had a significant rally in their life time. When such stocks start rallying, they tend to have a smooth and enduring rallies. Such neglected stocks offer a extremely profitable strategy for long term investors. The signals on such stocks are rare but extremely profitable with high success rate in term of number of successful trades.

In order to understand this concept, you must understand how the IPO market works. IPOs are clustered. Companies IPO when it is convenient and easy to raise money. When market or sector is hot many IPO's are pushed through. As has been demonstrated by hundreds of studies investing in IPO's is a losing strategy unless you get allotted pre IPO.Studies have shown that IPO's give you below normal returns for 36 months.Majority of IPO's within few days or weeks or months of their IPO start their long journey in to markets dustbin. Some of them get delisted, rest just hang around for years going nowhere and then something happens.

Such neglected stocks can suddenly come in to favor for variety of reason and start rallying. The reason might be sales or earnings acceleration or new product introduction or some news. Now in such stocks sellers are all washed out so when they start rallying , there are only happy buyers.

So the edge in such stock is structural. They are neglected and when discovered as market participants as well as funds scramble to get on board, they have multi week or months rallies.

So if you want to benefit from this you need to track such stocks and then decide a criteria for entry. If you want to profit from such neglect you may want to set up a system for tracking such stocks. Setting up such system in most conventional trading software is difficult. I first set it up in Access and Excel and subsequently migrated to different data management software.

Virgin Criteria:
Determine the highest close for a stock in its first few months of trading. The stock should not have rallied more than 50% from its first trading day. Essentially this is your universe of stocks which never rallied more than 50% from IPO. Now you can determine your exact number of months for this. In my trading I take first six months of trading and but the way my dataset is built it gives me stocks which has never rallied from first day to up to the stock which never rallied more than 50%. These are series of different databases. The Pure Virgins are one which have never rallied even a cent above their first trading day post IPO.

Very few stocks meet the pure virgin criteria. Around 300 as of last month. By expanding the criteria to six month and 50% rally maximum in first six month you get around 600 stocks.

In pattern term , this is what you are looking for.







Now on this universe of virgins I use a entry criteria to generate daily list.


Entry Criteria:


The entry criteria on such stock is basically a combination of few criteria. I look for at least 30% growth from 260 days low plus a high volume price breakout of 4% plus and a liquidity criteria. At best you will get 2-3 companies matching the criteria in a day.

Usually many of these companies had IPOed pre maturely and once they start having steady growth and earnings, the market rewards them. Number of companies in the oil and energy sector had great moves in last couple of years. Many of such companies had IPOed in the earlier oil boom.

Virgins to All Time High: Now once these stocks breakout, they will start rallying towards their destination of all time high. In many cases they will never achieve their all time high.

Many times stocks IPO at astronomical IPO price due to the existing market mood and irrational expectations of market participants. In the meanwhile they might have gone up 60 or 100 times from their low price. Take IDP for example, the stock has tripled in last one year. Its highest post IPO price is around 500, so if you wait for it to make all time high, you will have to wait a long long time.

I keep the stock in the list till they achieve all time high.

Finding unconventional patterns or anomalies is the way to find enduring edge. Obvious patterns like technical analyst find are vanilla commodity when thousands follow them. You must find structural edges. If you find such structural edges entries exits are very small part of the equation. You can find such anomalies if you change your existing paradigm. Which always is most difficult thing.

So if you want a very profitable strategy go look for Virgins....


Are you serious about your trading?

If you are serious about your trading and want to build an enduring edge the Stockbee Member site might help you. Members tell me they have tried lot of things before coming to my site and it has offered them the most extensive and detailed methods to swing and position trade.

It is only for those who want to develop their own self sufficient trading method. It is not a stock picking service. It is service for you to build your own scans and trading method to have your own daily pick based on your method.

Be warned it will take you time to learn to trade. Learning to trade is difficult art and unless you are willing to spend months or years to perfect your strategy and also develop your mental edge you are unlikely to succeed in this game. Unless you understand that no site, no service, and no mentoring is going to work.

Why traders come to stockbee?

The member site is one of the most recommended site for learning to trade by other traders and bloggers. You will see no advertising, no hard marketing, no promotions, no free offers, no affiliate marketing, no incentive to other bloggers to promote the site, no constant twits self promoting the site, no free trial  and no tall claims of making you instantly wealthy, and yet the site attracts new  members everyday. Members come from all walks of life and all kinds of trading size and trading styles.

You will see that many trading bloggers have been using my market timing methods, scans , stock ranking lists and chart templates. They have developed their own methods based on my methods. Many paid newsletter site recommend my site to their subscriber for learning about trading and market.

Over the years thousands of traders have been members and those who benefited from the learning talk about the site to others or talk about the methods used and that is how new members learn about the site.




What will I learn in the members site?

The members site will give you in depth understanding to develop your own trading method. The emphasis is on making you self sufficient and confident of your own trading method and style.

As a member you will learn the basics of swing trading, momentum investing, growth investing and risk management.

You will learn about Stockbee Trend Intensity Breakouts method that uses momentum based swing trading to find 3 to 5 day swing trades for 8 to 40% profit.

You will learn about Stockbee Episodic Pivots Breakout method which uses Post Earnings Announcement Drift (PEAD) to find stocks that had a game changing earnings and that are likely to rally for 3 months to 12 months.

You will learn about  Stockbee Dollar Breakout method that uses momentum, range expansion and swing trading approach to find 5 to 40 dollar moves in high priced stocks.

You will learn about  Stockbee Lemonade Strategy for 401k which uses market timing and momentum to invest in 401k. You will get weekly update on how I am using the strategy on our 401k to do allocation decision.

You will learn about Stockbee Market Monitor method for market timing using breadth. It allows you to avoid risky periods in market and allows you to identify market turns. It is used for 401k allocation decisions.

You will learn about Stockbee Double Trouble method to find stock with confirmed upside momentum using anchored momentum and that are likely to continue their up move.

You will learn about Stockbee Night Time is Right Time method to find news catalyst based trade ideas for short term day trade and swing trade.

You will learn about Investor's Business Daily’s IBD 200 list and how it can be used to find swing trading candidates for explosive moves.

You will learn about Telechart 2000 and how to use it effectively to scan for swing and position trade ideas and to set up your 401k strategy.

You will learn about Jesse Livermore Range Breakout, Darvas Box setup, and many other member shared methods.

You will learn how to set up your own scans, select right kind of stocks, how to set up stops, when to enter , when to exit, how much to risk, how to track your trades and all other details about trading. You will learn about developing your own methods and not relying on others for trade ideas.

The site has hundreds of videos and trading methods and variation of methods. Members help each other in developing the methods and share actively their research and finding. A collaborative spirit allows you to get input from others on your trading ideas or problems.

The site gives you opportunity to interact with some of the most successful traders and learn from them about their trading methods. It is a vibrant community with members from different background and experience willing to help each other. The emphasis is on continuous learning and up gradation of market knowledge and setup knowledge. The members range from hedge fund employees, financial advisers, active swing traders, investors and new traders.

If you are looking to develop your own trading strategy the membership site might be for you. You have to be willing to put in the effort to build your own method. There are no silver bullets offered on members site. Every method, every scan, every nuance is detailed and all possible help is offered to design your own method.

Do you have a trial?

If you are just looking for trial you are better off trying thousands of other trading site that offer free trail or one month trial and offer you promise of riches.

It is for those who are ready beyond the trial phase and ready to put serious months or years  of efforts to learn to trade on their own. It is for those who want to learn to find their own fish.

The free blog has all the details about the methods I trade and if you go through the posts highlighted in the sidebar you will learn about them.


How can I become a member?

To sign up go to www.stockbee.biz and follow the sign up process. The site uses Paypal for payment processing.

POPULAR POSTS

    12 comments:

    KN said...

    pradeep

    Good post I bought into West China Cement ( WCC) which is listed on the London Stock exchange and I think this might be fitting into the virgin category...

    Can you have a look at give me your opinion.

    Regards

    KN

    Art said...

    What an interesting tutorial Paradeep. Do you have, or could you create a Telechart scan for the spec's you mentioned (ie I look for at least 30% growth from 260 days low plus a high volume price breakout of 4% plus and a liquidity criteria.)?

    TIA

    Pradeep Bonde said...

    260 days low % growth scan:
    100 * ((C + .01) - ( MINC260 + .01)) / (MINC260 + .01)
    This will give you percent growth which you can sort based on.

    4% price break
    ( 100 * (C - C1) / C1) >= 4 AND V >= 1000 AND V > V1

    Liquidity condition
    AVGC20 * AVGV20 >= 2500

    Pradeep Bonde said...

    Kn
    I do not have the UK data set up for this. To run a scan like this requires complete trading history of all stocks which I do not monitor on daily basis for UK market.

    Stephen said...

    Pradeep,

    Are you not going to publish Double Trouble anymore? I like that list best.

    Thanks,
    Stephen

    Art said...

    Paradeep thank you for the TC PCF's.

    Now comes the work of inputing new IPO's as they occur. I don't suppose there is a list of past IPO's available anywhere is there?

    Thanks again
    Art

    Art said...

    Paradeep the "260 days low % growth scan" which you gave us today...What would you suggest I set the Conditions at please (ie Value, List or Market Rank; and the numerical values?)

    Thank you
    Art

    Pradeep Bonde said...

    Art
    Inputing new IPO may not help much because the idea behind Virgins is the life time of stock. Many times an IPO might have happened 10 12 or more years ago and the stock is doing nothing and then it gets discovered. So it is not just recent IPO, but any stocks which never had a significant rally and still trading below its IPO price.

    For 260 days use value.

    Pradeep Bonde said...

    Stephen
    I will bring it back because many have written asking for it.

    Art said...

    I am quite ignorant of programming of any kind Paradeep, so forgive me for asking you to hold my hand through this. When I set the 260days to value, would I set a low value or a high numerical value please? May I ask what number range you have set?

    TIA

    Pradeep Bonde said...

    Instead of making a Easyscan out of it set it as one of the sort columns in one of the 10 tabs. That way at one glance you know for any given stock what is the growth from 260 days low.

    Stephen said...

    Thanks Pradeep. Much appreciation.