Focus on concept not scans

You can only trade what you understand and believe in. If you don't understand how things work, you will find it extremely difficult to trade methods based on scans alone. At the first series of 3 or 5 unprofitable trade you will abandon it.

People chase scans rather than go in to depth of a idea. Every day I get emails from readers of this blog asking about how to scan this or that , or questions about various Telechart scans I have shared on this blog over the years. Every time I put in a scan like Pavlov's dog everyone runs to grab it and put it in Telechart.

C >= 1.04 * C1 AND V >= 1000 AND V > V1

C <= .96 * C1 AND V >= 1000 AND V > V1

((C - C1) >= 5 AND V > 10000 AND C >= 62.50 AND V > V1) OR ((( 100 * (C - C1) / C1) >= 8 AND V > 3000 AND (100 * V / AVGV100) >= 300) AND C > 1)

C20 >= 5 AND (AVGC20 * AVGV20) >= 2500 AND 100 * (C - C20) / C20 >= 25

ABS(100 * (AVGC7 - AVGC65) / AVGC65)

C21 / AVGC126.21

(C1 - C2) >= 1 OR (C2 - C3) >= 1 OR (C3 - C4) >= 1 OR (C4 - C5) >= 1 OR (C5 - C6) >= 1 OR (C6 - C7) >= 1 OR (C7 - C8) >= 1 OR (C8 - C9) >= 1 OR (C9 - C10) >= 1 OR (C11 - C12) >= 1 OR (C12 - C13) >= 1 OR (C13 - C14) >= 1 OR (C14 - C15) >= 1 OR (C15 - C16) >= 1 OR (C16 - C17) >= 1 OR (C17 - C18) >= 1 OR (C18 - C19) >= 1 OR (C19 - C20) >= 1 OR (C20 - C21) >= 1 OR (C21 - C22) >= 1 OR (C22 - C23) >= 1 OR (C23 - C24) >= 1 OR (C24 - C25) >= 1 OR (C25 - C26) >= 1 OR (C26 - C27) >= 1 OR (C27 - C28) >= 1 OR (C28 - C29) >= 1 OR (C29 - C30) >= 1 OR (C30 - C31) >= 1 OR (C31 - C32) >= 1 OR (C32 - C33) >= 1 OR (C33 - C34) >= 1 OR (C34 - C35) >= 1 OR (C35 - C36) >= 1 OR (C36 - C37) >= 1 OR (C37 - C38) >= 1 OR (C38 - C39) >= 1 OR (C39 - C40) >= 1 OR (C40 - C41) >= 1

AVGC65 / AVGC150

100 * ((C + .01) - ( MINC34 + .01)) / (MINC34 + .01) >= 13

((( 100 * (C - C1) / C1) <= ( - 8) AND V > 3000 AND (100 * V / AVGV100) >= 300) AND C > 5 AND (100 * V / AVGV100) >= 300)) OR ((C - C1) <= ( - 5) AND V > 10000 AND C >= 62.50 AND V > V1)

AVGC20 * AVGV20 >= 2500

C / MINC126

L2 < L3 AND L1 > L2 AND C > H3

H2 > H3 AND H1 < H2 AND C < L3

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

(( 100 * (C1 - C2) / C2) >= 8 AND V1 > 3000 AND (100 * V1 / AVGV100.1) >= 300) OR (( 100 * (C2 - C3) / C3) >= 8 AND V2 > 3000 AND (100 * V2 / AVGV100.2) >= 300) OR (( 100 * (C3 - C4) / C4) >= 8 AND V3 > 3000 AND (100 * V3 / AVGV100.3) >= 300) OR (( 100 * (C4 - C5) / C5) >= 8 AND V4 > 3000 AND (100 * V4 / AVGV100.4) >= 300) OR (( 100 * (C5 - C6) / C6) >= 8 AND V5 > 3000 AND (100 * V5 / AVGV100.5) >= 300) OR (( 100 * (C6 - C7) / C7) >= 8 AND V6 > 3000 AND (100 * V6 / AVGV100.6) >= 300) OR (( 100 * (C7 - C8) / C8) >= 8 AND V7 > 3000 AND (100 * V7 / AVGV100.7) >= 300) OR (( 100 * (C8 - C9) / C9) >= 8 AND V8 > 3000 AND (100 * V8 / AVGV100.8) >= 300) OR (( 100 * (C9 - C10) / C10) >= 8 AND V9 > 3000 AND (100 * V9 / AVGV100.9) >= 300) OR (( 100 * (C10 - C11) / C11) >= 8 AND V10 > 3000 AND (100 * V10 / AVGV100.10) >= 300) OR (( 100 * (C11 - C12) / C12) >= 8 AND V11 > 3000 AND (100 * V11 / AVGV100.11) >= 300) OR (( 100 * (C12 - C13) / C13) >= 8 AND V12 > 3000 AND (100 * V12 / AVGV100.12) >= 300) OR (( 100 * (C13 - C14) / C14) >= 8 AND V13 > 3000 AND (100 * V13 / AVGV100.13) >= 300) OR (( 100 * (C14 - C15) / C15) >= 8 AND V14 > 3000 AND (100 * V14 / AVGV100.14) >= 300) OR (( 100 * (C15 - C16) / C16) >= 8 AND V15 > 3000 AND (100 * V15 / AVGV100.15) >= 300) OR (( 100 * (C16 - C17) / C17) >= 8 AND V16 > 3000 AND (100 * V16 / AVGV100.16) >= 300) OR (( 100 * (C17 - C18) / C18) >= 8 AND V17 > 3000 AND (100 * V17 / AVGV100.17) >= 300) OR (( 100 * (C18 - C19) / C19) >= 8 AND V18 > 3000 AND (100 * V18 / AVGV100.18) >= 300) OR (( 100 * (C19 - C20) / C20) >= 8 AND V19 > 3000 AND (100 * V19 / AVGV100.19) >= 300) OR (( 100 * (C20 - C21) / C21) >= 8 AND V20 > 3000 AND (100 * V20 / AVGV100.20) >= 300) OR (( 100 * (C21 - C22) / C22) >= 8 AND V21 > 3000 AND (100 * V21 / AVGV100.21) >= 300) OR (( 100 * (C22 - C23) / C23) >= 8 AND V22 > 3000 AND (100 * V22 / AVGV100.22) >= 300) OR (( 100 * (C23 - C24) / C24) >= 8 AND V23 > 3000 AND (100 * V23 / AVGV100.23) >= 300) OR (( 100 * (C24 - C25) / C25) >= 8 AND V24 > 3000 AND (100 * V24 / AVGV100.24) >= 300) OR (( 100 * (C25 - C26) / C26) >= 8 AND V25 > 3000 AND (100 * V25 / AVGV100.25) >= 300) OR (( 100 * (C26 - C27) / C27) >= 8 AND V26 > 3000 AND (100 * V26 / AVGV100.26) >= 300) OR (( 100 * (C27 - C28) / C28) >= 8 AND V27 > 3000 AND (100 * V27 / AVGV100.27) >= 300) OR (( 100 * (C28 - C29) / C29) >= 8 AND V28 > 3000 AND (100 * V28 / AVGV100.28) >= 300) OR (( 100 * (C29 - C30) / C30) >= 8 AND V29 > 3000 AND (100 * V29 / AVGV100.29) >= 300) OR (( 100 * (C30 - C31) / C31) >= 8 AND V30 > 3000 AND (100 * V30 / AVGV100.30) >= 300) OR (( 100 * (C31 - C32) / C32) >= 8 AND V31 > 3000 AND (100 * V31 / AVGV100.31) >= 300) OR (( 100 * (C32 - C33) / C33) >= 8 AND V32 > 3000 AND (100 * V32 / AVGV100.32) >= 300) OR (( 100 * (C33 - C34) / C34) >= 8 AND V33 > 3000 AND (100 * V33 / AVGV100.33) >= 300) OR (( 100 * (C34 - C35) / C35) >= 8 AND V34 > 3000 AND (100 * V34 / AVGV100.34) >= 300) OR (( 100 * (C35 - C36) / C36) >= 8 AND V35 > 3000 AND (100 * V35 / AVGV100.35) >= 300) OR (( 100 * (C36 - C37) / C37) >= 8 AND V36 > 3000 AND (100 * V36 / AVGV100.36) >= 300) OR (( 100 * (C37 - C38) / C38) >= 8 AND V37 > 3000 AND (100 * V37 / AVGV100.37) >= 300) OR (( 100 * (C38 - C39) / C39) >= 8 AND V38 > 3000 AND (100 * V38 / AVGV100.38) >= 300) OR (( 100 * (C39 - C40) / C40) >= 8 AND V39 > 3000 AND (100 * V39 / AVGV100.39) >= 300) OR (( 100 * (C40 - C41) / C41) >= 8 AND V40 > 3000 AND (100 * V40 / AVGV100.40) >= 300) AND C > 3

Any of these scan can make you money. I have made more than 50% this year using these kind of scans. But unless you understand the concept and logic behind the scan just chasing scan is of no use.

Very few stop and think and ask the right question. They try and think of what really is the concept behind this scan. Is this something I believe in? Is this something that I should really trade. Is this really worth my time and effort to spend more time on. Is this something which can be done better using a different approach. Is this better than my current approach.

Those are important questions. The deeper is your understanding of a trading method , more confident you will be about it. You will not abandon and chase new new thing everyday.

Like most of you I also did the same thing in the beginning but then slowly I started getting in to depth of the issues.I found earnings strategy by accident when I got in to a stock on earnings breakout and in some 3 or 4 weeks I tripled my account as it skyrocketed and I used full margin. After that I created method to find such stocks. But I went further and I went in to depth of earnings and why earnings work. And that is how I found out about PEAD (post earnings announcement drift). After understanding PEAD I had more confidence in my method.

Same way in the beginning I started trading IBD method after reading O'Neil book. Started making it work and developed methods like IBD 200 breakouts, but then I started getting in to microscopic details of it , subsequently realized it is just a momentum driven method and one is better off focusing on just momentum. The only thing which changes on weekly basis is momentum, earnings, sales, margin, roi data is released at quarterly frequency. What drives whether a stock will make it to IBD200 or 100 in short term is its price and sector momentum. As a result I simplified my approach and ultimately arrived at Top 25 breakout method which achieves same objective with less work.

You have to learn to peel layers after layers and get in to the essence of a approach or a method. That process leads to mastery. That leads to you having confidence in your methods and approach. That confidence is extremely important in this business when you hit a slump or market does not favor your approach. If you have deep understanding of your method you can change it, you can develop new methods.

Stop chasing scans, scans is the tactical stuff. Don't chase lists like IBD100, IBD200 or any other lists of stocks unless you understand the logic and concept behind them. Anyone can put up a list or a scan. Those are tactics. If you want longitivity in this career, focus on enhancing your conceptual understanding of methods and markets.

Strive to enhance your trading knowledge by at least 1% daily. Everyday if you can further enhance your understanding of market by just 1% , in a month you will have 35% more conceptual understanding and in six month you will have 611% more conceptual clarity and if you keep at it for a year you will have 3778% more depth of understanding . If you keep at it for two years you will have 142758% more depth, more understanding of concept, more confidence. That is how compounding works.

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You will see that many trading bloggers have been using my market timing methods, scans, and chart templates. They have developed their own methods based on my methods.

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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 the members' site. Every method, every scan, every nuance is detailed, and all possible help is offered to design your own method.

3 comments:

Rakshit Shah said...: Hi Pradeep,

I have read a couple of your posts where you have mentioned that you are up 50% for the year. My question is regarding your position sizing. Do you employ the 2% & 6% rule where no more than 2% of trading capital is risked per trade? Or do you have a fixed position size ($ or number of shares) per trade?

Thanks; Oct 9, 2010, 1:45:00 PM
Pradeep Bonde said...: I use the percent risk model of position sizing.

There are many approaches to position sizing. Some traders use a fixed fraction of their money, say 4 or 10 percent per trade. So they will carry 25 to 10 positions. Others risk a fixed amount like 10,000 dollars per trade. Or some buy fixed number of shares like say 1000

The percent risk model approaches position sizing from the standpoint of risk control.

From my standpoint I normally risk 1% of my equity. If on every trade you risk 1% of your total equity, theoretically it your account will never go to 0 as your position size varies depending on whether last trade was profitable or loss making.

1% risk means the amount of your equity you would lose if you are stopped out of your trade.

For example if you are trading 100k account. 1 percent of a 100k trading account is 1000 dollars. So on a trade where I am risking 1 percent, I stand to lose 1000 dollars if you are stopped out.

Let us look at a recent trade where I risked 1%. I bought a stock at 25.27 and my stop was 24.31, I risked 1% of my account on this trade. Assuming the account has 100k

Position size = (% risk x equity) / (entry price - stop price)

example = ( 1 % x 100000) / (25.27 - 24.31) = 1000/.96 =1041 shares

In this case $25.27 is entry price
entry price x 1041 shares = $26,322 which is 26%% of my equity.

So in this particular trade my risk is 1% but I have 26% of account invested.

Some days ago I was in a trade where my risk was 1% but 60% of my account was in that trade.

This kind of position sizing is called % risk model position sizing.; Oct 9, 2010, 3:12:00 PM
Pradeep Bonde said...: If you understand the concept behind the scan you should be able to replicate in any software. Many members on stockbee.biz use TOS or TD Ameritrade and they have developed the scans using them.; Oct 13, 2010, 6:02:00 AM

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