Trading conveyor belt

Walter:
this is a market time when i think charting is very helpful - for timing short sales, for setting stops, etc.

for a top we would be looking for lower lows and lower highs, high vol days where the stocks goes nowhere or goes down, or stocks go up on very low volume

Walter has left this comment on one of the posts. Now you know my views on charting and technical analysis. Charting on a right set of stocks as against any stock magnifies return.

Conceptually you must think in terms of a trading conveyor belt. You must set up a conveyor belt for long/ short ideas. So that long/short ideas come on that conveyor belt, you inspect and take them or reject them. Charting, technical analysis is involved in the last stage on this conveyor belt.

Considerable thought process should go in to setting up your conveyor belt. The logic for it should be solid, so that it brings only the best ideas and only those with high probability to you.

Many of you are aware of this conveyor belt concept, I talked about in the now defunct group. I have around 5-6 long conveyor belts. Each one has a logic. Now on a daily basis they bring ideas to table. The speed varies depending on market or depending on nature of strategy. By using 5-6 conveyor belt, you get strategy diversification, plus you never run out of ideas. Some of these belts are based on momentum, some on earnings, some on value, some on market anomalies.

For example I have a conveyor belt based on long term (multi year range break), now by the very nature of the strategy it gives you signals very rarely. But those signals are highly profitable and significant in giving you a signal about possible style shift. Now in August/ September it started showing lot of large caps, because the market circumstances changed. The speed of ideas on it changed. Which to me signaled underlying change in market dynamics.

Similarly on short side I have 3 conveyor belts based on sound logic. One of them is based on extreme price growth in 2 year time. Why because studies show mean reversion on past market leaders. Now it starts looking at candidate only on certain events like range expansion, or volume expansion or failure or runaway move. So when this happens, those stocks show up on the conveyor belt. Applying technical analysis or pattern recognition on those will give you high returns, why because the underlying logic behind stock selection is the most critical element in making those shorts work.So conceptually you must think of technical analysis as solving only the last mile problem. So a double top/ key reversal or candle pattern on a stock on this conveyor belt is relevant as against on any other 50 random stocks.

Once you set up such conveyor belts, opportunities keep popping up. You never run out of opportunities. You utilise your time effectively and can focus on only the best opportunities in market. More than that, you can use extremely tight stops and time stops, as you know, if this idea does not work, I have something else coming up on conveyor belts.