Episodic Pivots and "Idea Pickle"

Studying episodic pivots on daily basis can be profitable strategy. It is not a purely mechanical strategy. The starting point of the idea was my study to find what leads a stock to move rapidly in short time period. Or what triggers a 100% plus move in a stock in a year. Or 50% move in a month or 25% plus in a quarter.

Majority of the stock in the list had one day 10% or plus move within first 20 to 25% of their 100% or more growth in 260 days. So I framed the question as "Can a one day move signal something about future returns". Initially I tried to look at it as purely mechanical thing, but it was not very useful.There were too many stocks. So I abandoned it.

Most of the time when I abandon a concept, I put it in "Idea Pickle" jar. This is a long term practice I have used for several years, where I put half baked or promising ideas in a jar to pickle. Revisiting them after some days or months sometimes gives you a completely new idea. I have several of such "Idea Pickle" jars to ensure I never run out of ideas. Not all are related to trading , in fact most are related to new business ideas or other stuff.

Some months after I stopped working on the idea, I read a book:Swing Trading:Power Strategies to Cut Risk and Boost Profits by Jon D.Markman. There is not much useful information in that book except for one system. It describes a trading system used by George Fontanills. It is a system based on price and volume.

Now if you know Fontanills, he sells a 3000 dollar option course which basically tells you if you want to master these strategies then you need to buy another $5000 platinum course and so on. So when I read it at first I was very skeptical of it. But then I remmbered my "idea Pickle". So I investigated it further.

The system in short as per the book:

" Basically it comes down to finding stocks with greatest short term momentum that will turn in to long term momentum."
The Scans:
1 up or down 30% in a single day on at least 300000 shares traded or
2 up or down 20% in a single day on at least 1 million shares traded or
3 up or down 5$ in a single day on volume of at least one million shares and
4 still trading above $7 and
5 has options
6 has a long term catalyst like earnings or accounting fraud

He buys options on it after few days , typically such stocks after a pause tend to move up or down.

Now I played around it a bit but could not find good results. So I put the idea aside again in the "idea Pickle" jar. Last year I revisited this concept when I saw Mark Minervini site where he put up a list of his past trades. After close xamination I found that most of them were triggered by news pivots and the entries were post such high volume spikes. So that set off a bell in my head.

I revisited that Fontanills concept and my original price volume spike idea and converted it in to hybrid strategy of using a discretionary filter to eliminate some Episodic Moves.

The basic idea is to study large one day move to find stock likely to go up.

I changed the Fontanills scan a bit and added some more scans to it. So here are the scans in TC2000 for it
Bullish
1 ( 100 * (C - C1) / C1) >= 20 AND V > 10000 AND C >= 5
2 ( 100 * (C - C1) / C1) >= 30 AND V > 3000 AND C >= 5
3 (C - C1) >= 5 AND V > 10000 AND C >= 5
4 ( 100 * (C - C1) / C1) >= 10 AND V > 1000 AND C >= 5
5 C > C1 AND V > 5 * AVGV50.1 AND V > 3000 AND C > 5
These five seperate scans give the bulish pivot list
Bearish
1 ( 100 * (C - C1) / C1) <= ( - 20) AND V > 10000 AND C >= 5
2 ( 100 * (C - C1) / C1) <= ( - 30) AND V > 3000 AND C >= 5
3 (C - C1) <= ( - 5) AND V > 10000 AND C >= 5
4 ( 100 * (C - C1) / C1) <= ( - 10) AND V > 1000 AND C >= 5
These give bearish pivot candidates.

Together the scans give you less than 20 to 25 candidates to work with daily. After that I analyse each for why it is up or down to isolate the catalyst. Most of the time it is earnings, biotech news break, insider buying, major sector breakout or some news.

I enter the 1-2 with clear catalyst and where the move is just starting. Most of them I research during the day itself and enter,some next day.Many I enter later. I have also created same scans for stocks priced less than 5.

After a trial and error and building a database of such episodic pivots over some time now I have got a list of high probability events and low probability events. Earnings, new product, analyst earnings change, increased earnings guidance, sector moves etc have high probability to trigger multi month rallies.Like this I have around 12 Episodic Triggers which have high probability of starting off a 100% plus move. James Crammer, Barron's, WSJ, and other publication mentions, analyst upgrade etc. have a low probability of follow through.

After such experimentation the hybrid concept as of now has climbed to the best performing strategies amongst my pool of 20 odd strategies, beating even my earning lead breakouts strategy(which was the best strategy in my pool of strategies so far).Obviously most of the earnings lead breakouts also figure in the Episodic Pivot list.

Sometime revisiting an abandoned concept works and sometime a semi mechanical approach is better than purely mechanical approach.The Episodic Pivots approach gives you really really top quality ideas to focus on. But it is not purely mechanical.

Other Related Posts:
Episodic Pivots on stocks up 50% plus in a month- Part1
Episodic Pivots on stocks up 50% plus in a month- Part2
Episodic Pivots on stocks up 50% plus in a month- Part3
Up stocks and down stocks