How to find Anticipation setups | stockbee

2/19/2015

How to find Anticipation setups


As stock gain momentum they undergo periods of fast moves followed by periods of pullbacks and consolidation. The pullbacks and consolidation periods offer you an opportunity to anticipate a breakout and enter with very close stop or enter with order few cents above the consolidation. 



To anticipate a breakout look at stocks currently not undergoing momentum burst. That means stock should not be going up or down fast. Stock should be in extremely low momentum phase for anticipation . It can be a shallow pullback or consolidation in established momentum phase.
To anticipate look for stock with extremely low volatility. During rallies stock go through high volatility and low volatility periods, the low volatility  (quiet) periods are where anticipation traders can focus. A stock with low volatility in last 5 to 10 days is ideal candidate as part of a continuation setup.



Look for series of low range bars in last 5 to 10 days to find good anticipation setups. You can look for stocks with bollinger band squeeze. I do not use them, I find it easier to just look for series of narrow range consolidation periods. 

Avoid Anticipation setups on extended stocks. First or second anticipation setup in established trend is best. As stock goes further and further from its rally start point the probability of anticipation setup working decreases. Extended trends needs to be avoided for anticipation as failure is high on them

Once you have anticipation candidate ,look for early entry on it. If you wait for breakout to buy then the entire effort is wasted. Ideal entry is where you risk just few cents or less than 2% to get in early. This requires either entering before breakout or entering with a order few cents above yesterday's action.

Anticipating a breakout helps you get an early entry and can improve your per trade profits. It also can lower your risk as your stop is closer. It can help you profit from even smaller moves as you can also capture breakout day gains. For that entry without waiting for breakout is best.
Anticipation requires more pre planning and effort than buying a breakout. You need a process flow to do that. The process should be efficient and done daily after the market close or open. It takes me around 15 minutes to generate my list of candidates daily. I look at around 100 to 300 candidates to boil down to just 1 to 3 good candidates for entry next day.

The suggested process flow is a template you can develop your own process.
Only 3 to 5 quality ideas should be tracked


What to look for in good anticipation setup
  • series of narrow range days in pullback/consolidation
  • orderly pullback with no 4% b/d during the pullback or consolidation
  • low volume pullback
  • low volatility during pullback
  • linear first leg if looking as continuation setup
  • Stock should go up smoothly and not in volatile manner
  • 3 to 10 days consolidation/pullback
  • not up 3 days in a row
You can also find bearish anticipation setups for short selling in similar manner. On bearish setups I prefer a counter trend rally. In bearish phases stock often have counter trend rallies that fail. 


A counter trend move early in downtrend is best as on short side stocks can spend lot of time consolidating near low before breakdown. 


Last night I generated following anticipation list  for members for both bullish and bearish setups:


ZIOP
ABMD
ZFGN
MIFI
MRGE
LULU
TASR
INFN
SWKS
RTEC
JBLU
CLDN
MMS
MMSI
ORLY
HLIT
UNH
CUBE
LEA
DLPH
COT
PSA
CST
DAN
TWTR
LAD
CRS
CAT
HSC
SWN
TRN
CLF
CRC
GER
ENVA
DPLO
CDK

It took me 15 minutes to do it. Out of this only 2 or3 I personally focus on for next day entry. Focusing on too many often leads to missing out on some very good low risk entries.

Anyone with an average intelligence can do this daily once they setup a process and develop skill to do it. There is no rocket science involved. More you do it better you become at it. 

If you want to make money swing trading focus your attention on mastering these kind of setup ideas. 

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