All time high
Howard Lindzon has popularized the idea of buying all time high in his video show. I have spent lot of time on all time high based system.It was one of the first concepts I toyed with five , six years ago. I traded it for couple of months also.
The logic behind all time high is that at all time high the stock has no resistance and only happy buyers. The trend followers also say a stock is definitely in trend when it is at all time high.
One of the problem with all time high based system is, the all time high in a stock is a function of market circumstances during its IPO. In red hot markets or in sectors sometimes stocks debut at a very high price. Any mishap in earnings after that can lead to stock being abandoned by everyone. In such cases the journey the stock makes from its low price to all time high can be very profitable, in many cases more profitable than buying post all time high.
Let us for example look at QPSA, which is up over 21% today. Now if you look at its all time high , it is 12.45, so if you wait for it to reach 12.45 to buy , you are giving up potentially a 100% plus return. Or for example take LNUX, which is around 4 currently, it has all time high of 270, now supposing this stock starts going up and if you wait till all time high, you are leaving so much money on table.
Let us look at GIGM, it is yet to take out its all time high of 81, but in the meanwhile in last 5 years stock is up 2222%. Or take AQNT, which has all time high of 72, it is currently at 63, in the meanwhile in 5 years it is up 2099%.
So this is an inherent problem with the all time high buy method. A stock selection method should for a given time frame give you best opportunity in market. The all time high stocks do not satisfy that conditions.I found a solution to this problem after thinking over this problem a lot.That is how the Virgin strategy evolved.
The other problem is if you buy after all time high, it may not be ideal buy point. So one of the things one can do is select stocks which are within 30% of all time high. Then the signal on those stock for buy becomes a 4% breakout. For example LOOP was a better buy on 4% breakout at around 18.93. At that time it was within 30% of the all time high.
Now if you take the universe of stocks which are within 30% of all time high you will get around 2500 stocks or so. If you carefully study those 2500 stocks further, you will find many have been trading in that 30% range for years. They vacillate between all time high and 30%. Now that can be very useful set of stocks for option players. Some time back, I had discussed this with one of the readers of this blog.
Now if you think about it, you can develop many strategies around the all time high concept. Some of the things I spent time looking at was all time low and looking at a multiple of all time low as signal. Because a stock which is below all time high also has another reference point of all time low. One can look at a buy signal when stock doubles from all time low or makes 30% plus move from all time low. Or look at mid point to all time high, so if all time high was 40, then when stock reaches 20 , it is buy signal. After playing around with this concept of all time high and all time low, I had developed more than dozen such concepts.
Overall choosing a stock based on is speed of move or relative strength is a better strategy than all time high. It beats buying all time high in all the testing I have done.
The logic behind all time high is that at all time high the stock has no resistance and only happy buyers. The trend followers also say a stock is definitely in trend when it is at all time high.
One of the problem with all time high based system is, the all time high in a stock is a function of market circumstances during its IPO. In red hot markets or in sectors sometimes stocks debut at a very high price. Any mishap in earnings after that can lead to stock being abandoned by everyone. In such cases the journey the stock makes from its low price to all time high can be very profitable, in many cases more profitable than buying post all time high.
Let us for example look at QPSA, which is up over 21% today. Now if you look at its all time high , it is 12.45, so if you wait for it to reach 12.45 to buy , you are giving up potentially a 100% plus return. Or for example take LNUX, which is around 4 currently, it has all time high of 270, now supposing this stock starts going up and if you wait till all time high, you are leaving so much money on table.
Let us look at GIGM, it is yet to take out its all time high of 81, but in the meanwhile in last 5 years stock is up 2222%. Or take AQNT, which has all time high of 72, it is currently at 63, in the meanwhile in 5 years it is up 2099%.
So this is an inherent problem with the all time high buy method. A stock selection method should for a given time frame give you best opportunity in market. The all time high stocks do not satisfy that conditions.I found a solution to this problem after thinking over this problem a lot.That is how the Virgin strategy evolved.
The other problem is if you buy after all time high, it may not be ideal buy point. So one of the things one can do is select stocks which are within 30% of all time high. Then the signal on those stock for buy becomes a 4% breakout. For example LOOP was a better buy on 4% breakout at around 18.93. At that time it was within 30% of the all time high.
Now if you take the universe of stocks which are within 30% of all time high you will get around 2500 stocks or so. If you carefully study those 2500 stocks further, you will find many have been trading in that 30% range for years. They vacillate between all time high and 30%. Now that can be very useful set of stocks for option players. Some time back, I had discussed this with one of the readers of this blog.
Now if you think about it, you can develop many strategies around the all time high concept. Some of the things I spent time looking at was all time low and looking at a multiple of all time low as signal. Because a stock which is below all time high also has another reference point of all time low. One can look at a buy signal when stock doubles from all time low or makes 30% plus move from all time low. Or look at mid point to all time high, so if all time high was 40, then when stock reaches 20 , it is buy signal. After playing around with this concept of all time high and all time low, I had developed more than dozen such concepts.
Overall choosing a stock based on is speed of move or relative strength is a better strategy than all time high. It beats buying all time high in all the testing I have done.
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10 comments:
This approach is good or not, looks like he struck a nice deal with CBS!
Is this the same as 52 week high. sometime these 52 week high pull back and form a cup giving you another chance. Vol
No these are all time highs only.The highest price in entire history of the stocks existence.
But yes cup with handle by definition , as popularized by IBD form near top of range.
hi Pradeep, i was wondering if you can code a percent true indicator that marks when a stock starts to outperform the VGY index, i use the index as a entry tool..thanks
Not possible in TC2007
thanks for your help, just let you know i have learned a lot from your blog, also finished reading' how charts can help you in the stock market', indeed an excellent book in TA, if not the best...thanks again for your work
hector
Pradeep,
In your post above regarding cup& handle, would you regard another method of looking at stocks making new 52wk high and then pulling back to form handle and then entering new (or add)?
Ultimately it boils down to what will signal an entry . If you look at all the historical examples on charts which Wlliam O'neil shows, the entry is on breakout of 4% plus on high volume. The key thing in IBD method is stock should be within 15% of 52 week high at time of breakout. If you scan for that condition you find lots of cup and handle at various stages of formation.
I prefer buying after the breakout, because all the jazz about buying exactly within few cents of handle etc. is for what. If the stock does not go up after the breakout, any way it does not matter.Plus very few stocks have perfect cup with handle.
"I prefer buying after the breakout"
PD, after the breakout, do you buy when it pullback and find some support, or do you buy next day. would you mind giving some example? thanks
Buying all time highs or other high mark is a sucker's play - yes every once in awhile you will make some coin (witness GOOG which traded at all time highs for several months and then, suddenly, stopped and is now just so much dead money).
But many times you will be the bag holder in a very bad trade (PNTR comes to mind immediately - put up a 1 year chart and imagine the guy who bought at 24).
Never buy a stock unless you have two numbers in mind - both exits - one above the price you paid and one below. If you hold above the upper number be ready to dump if it retraces to your target - never hold below your lower number.
If you follow that simple approach you can buy any stock at any price at any time. Remember learning how to trade is learning how to lose - anybody can learn how to win - it's the losing that is troublesome.
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