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It is about technique and how

Posted on 5/30/2014
Successful trading is about techniques and how to do it.

Couple of weeks ago as a part of Stockbee Advanced Bootcamp , I spent 3 days with a group of 30 successful traders who shared their trading methods , scans, daily process , success and challenges. They shared how they started, how they found their trading method. How they fine tuned it and how their trading has evolved over the years.

These are all individual traders doing this on their own. Many of them have done more than 7 figure profits trading in the market and some had 8 figures profit. Most of them are at it 5 years plus.

It was one of the best learning experience for all participants and eye opener for many . Almost everyone by end of 3rd day learned a lot and had a bag full of new techniques and ways to think about market. It opened many new windows for smart and motivated traders. There were several presentations where lot of others thought, oh that is neat trick, why did I not think of it before or I never thought of it like that before.

The way professional traders look at market is different from the way investors look at it. Most of the focus for professional traders is on techniques of extracting money regularly from the market. They are entrepreneurs looking for niche in the market where they can with small edge extract money while managing risk.

Some have very small edge but they make thousands of trades in a year to exploit it and as a result make good money. some focus on asymmetrical edges , where the payoff is  10 to 20 times their risk. Some look for fully mechanical and backtested approach. Some are primarily discretionary traders.

But the common denominator for all of them is about "how" of the trading process. The obsession with how leads them to experiment and develop efficient ways to find market opportunities. Most of those opportunities are no big secrets but it is how these people have found ways to exploit them is different.  

Breakout Anticipation Watchlist for May 29, 2014

Posted on 5/29/2014


Anticipating a breakout for swing trade often gives you good and early entry. It allows you to control your risk. The list is published daily during the week for benefit of stockbee blog readers. The list focuses on stocks with established momentum. 



BHI
SANM
ENR
GWPH
CLH
BWP
HOLX
PBA
RAX
JWN
HNT
KND
SSP
FET
WFT
RES
K
MDLZ
APU
TAP
DPS
RICE
FANG
HWAY

It is an everyday affair



You have to be an expert on your setup and timeframe.

If you want to trade breakout , you should be your own expert on it. If you want to swing trade, you need to develop an expertise on 3 day timeframe. You need to have very good understanding of that timeframe. Same way if you want to be position trader you need to be expert on it.

Expertise is developed through mastery experience. It requires purposeful effort and new insights. When you narrow your focus and start looking at details on very narrow problem or area you start developing expertise.

Some mastery experiences are instantaneous driven by insight. That is why you will find some traders can hit success without much effort. They gain an insight in to setup or action quickly.

In order to master a setup or an idea you need to be at it day in and day out. If you do it for few months , you see things others may not see , or gain insight others may not have.

As part of your everyday effort to improve your trading you must look at what is working in the market on your time frame.

What is your starting point

Posted on 5/27/2014


The most important thing a beginner trader or struggling trader do is to find something that is structural in nature of the market.

The idea around which you want to build your trading should be inherent property of the market. If you find something inherently fundamental to market behavior your chances of success increase. Then it becomes more a challenge to operationalise that inherent tendency of market.

As a trader your task is to find some structural phenomenon to build your edge around.

It should exists in the market and not figment of imagination.


If you find structural edge it will last decades.

What are some of the structural things in the market:

1 Market moves in momentum bursts

2 Momentum stocks outperform non momentum stocks

3 longer term momentum is mean reverting

4 Surprisingly good earnings leads to rallies

5 News leads to immediate moves

6 small cap/small float outperform larger stocks

7 lower priced stocks outperform higher priced stocks

Now if you know any of these you can build your trading around it.


Structural edge is something that has been tested thousands of time and has been around for hundreds of years.

If you select one of the above structural phenomenon as your starting point you will find many ways to make it work. 

Market continues to improve

Posted on 5/23/2014
There is gradual improvement in market. It might be just a weak bounce that fails. But there are now lot of good swing setups showing up on momentum stocks.

The momentum stocks seems to be attempting to bottom and put a rally together. Big technology stocks like NFLX, PCLN, GOOGL, BIIB and so on are showing good bounces.

Even near 52 week high lot more setups are showing up.

Bullish Anticipation Setups

WRB
BHI
SYMC
ENR
CLH
BEAV
GMCR
IGTE
PPO
SEM
STRL
ZBRA
GWPH

Bearish Anticipation Setups

MSG
SOHU
MASI
AMZN
VRSN
PRXL

How to train your mind and improve your trading

Posted on 5/22/2014


As part of your everyday effort to improve your trading you must look at what is working in the market on your time frame.

As swing trader I am looking for capture part of a 3 to 5 days momentum burst move with 8 to 20% potential or 5 to 20 dollar potential.

In order to understand nature of such moves everyday I look for stocks that have gone up 8% plus in last 5 days.

I study those 8% moves closely to see how the move happens. What was the setup before the start of the move, what triggered the move, what kind of breakout, what kind of volume, how did the move progress, and so on.

A daily effort like this cumulatively builds your understanding of the setup you trade. Because if you want to find 8 to 20% moves in 3 to 5 days, you must know thousands of such moves. So that when a similar setup shows up you can indistinctly react to it.

Studying these setups also shows you subtle variation in setups. There are many variations of the 3 to 5 day momentum bursts you will find if you do this for months. Some are high tight flags, some are double bottoms near top of the range, some are bottoming setups from 52 week low, some are part of range bound action.

But most share some common characters. Moves of 8 to 20% start from some kind of pullback or sideways moves. They most often start with narrow range days. They are not up 3 days in a row before start of the move. Most have low volatility phase prior to breakout. On the first day of start of their 8% plus move they have significant range expansion. Most moves only last 3 to 5 days before having pullback.

If you know this you can anticipate some moves. You can figure out where to enter, where to exit, where to put initial stop, where to move stops and so on.

The best part of doing it is , you will build your own knowledge and base your trading based on your own observation and your own derived rules based on what "actually" happens in a momentum burst of 3 to 5 days.

In order to do this I run 2 scan one bullish and bearish.

Bullish 8% plus in 5 days

c/c5>=1.08 and minv3.1>100000 and c>=5

Bearish 8% plus in 5 days

c/c5<.92 and minv3.1>100000 and c>=5

After running the scan everyday I study these moves. The first thing in the morning is I review these candidates. Similarly I run a 5 dollar plus bullish and 5 dollars plus bearish scan everyday. For longer term moves study I use the Double Trouble scan.

If you are man or women enough to do this daily for 6 months or more you will discover a key to making millions trading momentum bursts of 3 to 5 days.

No efforts no gains. Build your own life long expertise one day at a time.

It is a range bound action

Posted on 5/21/2014


It is a range bound action

Bullish bunces do not get much traction and bearish bounces do not get much traction.

Bullish days are followed by sell off do not follow through.

For this kind of situation anticipation setups are better and having shorter profit targets is better.

Eventually the range will break but till then anticipation is best strategy both on long and shorts.

Bullish breakout anticipation list

SEM
CLH
AHL
GMCR
ENDP
STRL
ZBRA
DLR
COP
SBAC
STKL
PPO
WWAV
ATRC
FXEN
PPC
BBW
DYN
RDNT

Bearish anticipation list
 
CP
GOGO
CF
OMCL
BX
NSC
PRXL
TSLA

There may not be opportunities for explosive profits, but there are opportunities for swing trades like these:

SymbolDateEntryExitDateAvgProfit
PCLN5/19/20141136.581157.935/20/20141.88%
GOOGL 0620 C5155/19/201420.429.055/20/201442.40%
XLU(short)5/19/201441.7641.695/20/20140.17%
ZBRA5/19/201472.371.475/20/2014-1.15%
ERX(short)5/15/2014105.96103.365/15/20142.36%
AAPL 0714 C6005/15/201414.4520.25/20/201439.79%
TNA5/15/201463.163.95/20/20141.27%

Anticipation Setups For May 20, 2014

Posted on 5/20/2014


Repeated failure to breakdown increases possibility of a bounce. It was not very convincing bounce but yesterday was playing out decently.

Individual names at turn are showing possible signs of short term bottom and that was my hunting ground yesterday with positions in PCLN , GOOGL, AAPL.

The biotechs are showing decent breakouts , watch that sector. The bio/drug stocks that managed to hold gains like ITMN , ANIK, QCOR are already in breakout  mode.
Breakout anticipation Candidates
ITUB
SEM
AGN
CLH
BWP
AHL
BMA
GMCR
IPI
ODP
PBR
STRL
VDSI
ZBRA

The bounce attempt is under pressure



The bounce attempt is under pressure. Small caps gave up bulk of the gains. And some large stocks look vulnerable.

It then goes back to range scenario.

With 8% plus correction it is always time to start thinking bullishness. Things look most gloomy near bearish points. Shorts also gets most excited after 8 to 10% correction.

Most corrections in bull market last 8 to 10%. And tend to be brief affair.

Individual stocks action looks comparatively better as earnings are getting rewarded and some small caps are emerging.

RDNT STRA GMCR STRL PPO WWAV ODP HK CTL are some good recent leaders worth watching for more upside.


Anticipation Setups for May 14, 2014

Posted on 5/14/2014

Bullish Anticipation Setups

AGN
AXAS
BBW
BSBR
BWP
CBD
CLH
CVX
DV
EEP
ENR
FISV
GWPH
HAL
HES
ITMN
JAKK
KLIC
LVLT
ORAN
RES
SEM
SLB
SPN
WFT

Bearish Anticipation Setups

 
EMES
THRX
TRN
SNMX
REGI
BAH
GOOGL
ARCO
CZR
KOP
TOL
ONVO
XLRN
PENN
PFE
SLW
CIT
BBRY
MDVN
YOKU
BKS
CRL
WRLD
BYD
JPM
QLGC
ARAY
APOG
SINA
CREE
SLAB
FWM
FBC
DWCH
TWTR
YELP
CVLT
GIMO
ECYT

Some positive signs



After a 8 to 10% correction , market is attempting a recovery. A sustainable bounce will require better breadth. As of now we have seen some improvement , but not enough.

As the downside has been contained , the upside is attractive once new leadership starts showing up.

If you see the Top ranked 100 stocks by 21 day momentum you will see new stocks are emerging. Many of these new stocks are in first leg of their swing. As the market stabilizes, some of them will go sideways and setup for next swing move.

Another thing to note is , market has started acting positively to good earnings. Which is change of nature from action in last few weeks.

The lower priced stocks are also showing signs of life with breakouts and follow through.

These early signs point to possible slow recovery in the market. Overall market might remain range bound but as we are interested in momentum burst , as long as they show up it is good market.

Tactically focusing on anticipating breakout is better in this market conditions as it offers you a lower risk entry and in case stock makes smaller magnitude move , you can still profit.

Range contraction and range expansion cycle is what we are focused on so focusing on range contraction setups in these conditions on both long and short side is better from tactics point of view. Buying breakouts may not offer same risk reward at this stage.

If the market remains range bound it will mean larger number of trades to achieve same returns objective with smaller per trade profit.

With some signs of normalcy returning to market an aggressive hunt for next game changer is also the focus area. One or two game changer candidates like FB last year which doubled from our entry point ,can make a year.

You can complain about the market or accept it as it is and find opportunities. Choice is yours. 

A rotational correction seems to be over



A rotational correction seems to be over and market is set for next up leg.

More bullish setups will show up as the move progresses.

New bull move, new leadership...

So keep actively looking for the new horses and not the wounded horses. The wounded horses will have few days of bounce , but action is likely to shift to new sectors.

If you did not give up gains during the correction and gained on short or long side during the correction, you are in much better position to capitalize from this rally move.

How to make money in 401k



First step is by educating yourself about 401k and various options available to you and understanding commonly used strategies and their advantage and disadvantage. Most people with 401k have very little understanding of how to invest in 401k. many just put money in any random fund or group of funds.

For a working person with good job, 401k can be big chunk of money for retirement. If you are going to put away 35 *17500= 612500 in 401k assuming 35 years of working career, you better spend some time understanding it.

The 612500  is just your part of contribution . The 612500 can becomes few millions if you manage that money properly and give you comfortable retirement.

If compounded at  8% it will be 3.5million and at 10% it will be 5.7 million in 35 years , provided you have a strategy to compound .

That is possible if you have a strategy. And if you use strategy like Stockbee Lemonade strategy for 401K you can do significantly better than that in some years resulting in big difference in your overall returns.

Ask yourself how much time you spent on something which will make you 5 million.

There is one major trick to making millions in 401k, and that is to avoid negative compounding.

Negative compounding reduces your returns significantly.

Select a strategy for 401k which will avoid negative compounding

Breakout Anticipation setups for May 8, 2014

Posted on 5/08/2014

SEM is one of the setups I am watching for possible breakout or breakdown from this narrow range. I do have bullish bias on it as it has held up well during market correction , but sometime these kind of setups also breakdown.

ANH is another stock I am watching for breakout. Both these stocks have formed an orderly consolidation which leads to explosive moves. Anticipation of breakout allows you to put tight stops.

Other stocks with similar kind of setup at various stages of development to monitor are:

PRSC RT AXAS TTM CAT LUV ATI AGN SWKS SANM JAKK GDP CVI GBX

Similarly one can find anticipation setups on short side. 

Range expansion and range contraction

Posted on 5/07/2014


Range contraction is followed by range expansion and range expansion is followed by momentum burst of 3 to 5 days.

Range contraction in 3 to 5 days sequence is good place to look for possible range expansion.

For anticipation of breakout or breakdown look at stock that is having series of range contractions. Or look for range contraction after a momentum burst .


TTM is an example of anticipation setup where a series of narrow range days in last few weeks indicate possible big move on breakout or breakdown. I have a position in TTM in anticipation of possible breakout. narrow range days allow you to put very tight stop on such trades.

A range contraction after a 3 to 5 days momentum burst indicate loss of momentum and likely pullback or trend reversals.


TGT is an example of narrow range day forming before a possible turn. This stock I shorted after the narrow range days and closed the position yesterday after 2 day big drop.

If you want to react scan for range expansion , if you want to anticipate look for range contraction.

As a swing trader if you focus on range contraction you can find opportunities on both side for short term 3 to 5 days swings.

instead of worrying too much about market direction look for low range days. We  can wish for better market conditions, but as a professional trader you have to trade for living so you do not have luxury of perfect conditions.

 Let us say if the market remains range bound for next 6 month, you still need to find ways to make money. For swing trades of 3 to 5 days range contraction offers you those opportunities. 

Range bound action

Posted on 5/06/2014
The market is now stuck in range bound action. Especially the large cap indexes have formed a range just near their yearly high.


S&P


DJ-30

The Nasdaq and small caps are trying to stabilize after 8% correction. 

The range bound action leads to smaller moves after breakouts  or breakdowns. Which needs tactical adujstment in terms of smaller target or anticipation entries. 

Some good breakouts are showing up intraday

Posted on 5/01/2014
It is a range bound action in indexes. But below the surface there is lot of bargain hunting in beaten down stocks.

PCLN , NFLX, DWRE, AMZN, ULTI and other stocks down 20% in recent weeks are having bounces. many of those bounces are 3 days old so further upside will be limited.

There are also some good breakouts on momentum stocks and stocks that held up well. Slowly things are improving. Unless we see more selling soon, a recovery rally may be the possibility.

As a swing trader I am looking for playable 3 to 5 days moves. Some of the good setups showing up in our scans are  VRX CAVM AMT TEVA BAX TK SUNE SEP DK DVA LEJU FF . 


Breakout anticipation setups for May 1, 2014

For anticipating a breakout I look for following:


  1. stock should have established momentum (it should be in uptrend)
  2. should have linear moves 
  3. as  far as possible should not be up 3 days in a row with 5% plus moves
  4. should have orderly low volatility pullback or sideways consolidation
  5. As far as possible consolidation should have series of narrow range day

SEM is an example of that kind of setup. It has 14 days of sideways consolidation. Yesterday was narrow range day. This kind of setup if it breaks out with high volume can offer 8 to 20% opportunity in 3 to 5 days. It can also breakdown to downside.

Here are more stocks like SEM I am watching for possible breakout in next few days:


Good setups are starting to show up

As a momentum and breakout trader, my view about the market is colored by what kind of setups and opportunities show up in my set of scans.

In last few days the only good long opportunity that showed up in my scan was GOL.


But yesterday there were many good setups showing up. There were around a dozen good setups in scan yesterday:

GWR
ARII
AEGN
BWEN
REMY
INT
ECOL
UVE
NBR
TDS
FXEN
VIV
GSOL

You can look at these and research them on Finviz 

One day does not a summer make , but it is constructive start when you see setups like UVE.


UVE is the kind of setup as swing trader I like for possible 8 to 20% move from here.

If we see proliferation of setups like these then we might have lots of trading opportunities again on momentum stocks.