When market enters correction phase some traders tend to take their eyes off the market and focus on other things. But this is the ideal time to focus on next set of big winners likely to go up in next six month. Correction period is ideal time to identify these kind of stocks and research them and then wait for them to breakout. they often breakout way ahead of market turn.
When market enters correction not every stock corrects. Some go up , some resist the correction and spend time going sideways or having very shallow pullback on low volume. During correction some stocks get decimated and go down a lot or they are unfairly punished. both kind of stocks are likely to burst out once the selling pressure in the market is lifted.
During corrections the big speculators like mutual funds , hedge funds, pension funds do not sell some stocks that they believe have further upside and often add to their holding during this period. This dynamics of reluctance to sell and accumulation of stocks during correction creates good setups on big winners.
During corrections many stocks are aggressively sold. Sometime many stocks get punished more than they deserve. These stocks get cut in half or more during correction. For example during recent correction FEYE went down 70% from its high. Once the correction was over it bounced back 50% from that level. In recent years these kind of beaten down stocks have lead bounce attempt more than stocks that hold up well.
How can you find these kind of stocks during correction.
If you setup good scans you can easily find these stocks during correction. The starting point for finding these stocks should be a momentum scan. We want to find stocks that are in uptrend and that don't go down much during the correction. This can be done in number of ways.
Personally I run two scan to find these kind of stocks. One scan looks for stocks that have gone up at least 80% from their 52 week low (which indicates they have above average momentum , only around 5% of stocks in the market meet that condition) and that are within 20% of their high during their 80% move. So let us say a stock has 52 week low of 50 and it goes to say 120 in last 4 months and during correction it does not go below 96, then I am interested in that stock.
The second scan I run is 65 days Trend Intensity scan which looks for ratio of 7 days moving average to 65 days moving average. Which finds stocks in uptrend. Trend Intensity measures how fast a trend is or as name suggest it find intensity of trends. Again key is to find the stock that has trend intensity above 105 and that has corrected less than 20% from high established during the high trend intensity periods.
In order to find stocks that have gone down a lot and might be good bounce candidates I run a scan that looks for stocks down 40% plus from 52 week high and that have sales above 300 million. The filter of sales above 300 million eliminate many small and speculative stocks that do not bounce back.
All these scans can be easily setup in Telechart or any commonly used software and the effort involved in going through these scans is around 30 minutes everyday.
The correction period gives you ample time to research these stocks and find those with big catalyst. Sector moves also become very clear during these periods. For example currently oil and gas and railroad supplier stocks are holding up well.
If you are serious about making some serious money trading use the correction to aggressively find next big set of opportunities.
When market enters correction not every stock corrects. Some go up , some resist the correction and spend time going sideways or having very shallow pullback on low volume. During correction some stocks get decimated and go down a lot or they are unfairly punished. both kind of stocks are likely to burst out once the selling pressure in the market is lifted.
During corrections the big speculators like mutual funds , hedge funds, pension funds do not sell some stocks that they believe have further upside and often add to their holding during this period. This dynamics of reluctance to sell and accumulation of stocks during correction creates good setups on big winners.
During corrections many stocks are aggressively sold. Sometime many stocks get punished more than they deserve. These stocks get cut in half or more during correction. For example during recent correction FEYE went down 70% from its high. Once the correction was over it bounced back 50% from that level. In recent years these kind of beaten down stocks have lead bounce attempt more than stocks that hold up well.
How can you find these kind of stocks during correction.
If you setup good scans you can easily find these stocks during correction. The starting point for finding these stocks should be a momentum scan. We want to find stocks that are in uptrend and that don't go down much during the correction. This can be done in number of ways.
Personally I run two scan to find these kind of stocks. One scan looks for stocks that have gone up at least 80% from their 52 week low (which indicates they have above average momentum , only around 5% of stocks in the market meet that condition) and that are within 20% of their high during their 80% move. So let us say a stock has 52 week low of 50 and it goes to say 120 in last 4 months and during correction it does not go below 96, then I am interested in that stock.
The second scan I run is 65 days Trend Intensity scan which looks for ratio of 7 days moving average to 65 days moving average. Which finds stocks in uptrend. Trend Intensity measures how fast a trend is or as name suggest it find intensity of trends. Again key is to find the stock that has trend intensity above 105 and that has corrected less than 20% from high established during the high trend intensity periods.
In order to find stocks that have gone down a lot and might be good bounce candidates I run a scan that looks for stocks down 40% plus from 52 week high and that have sales above 300 million. The filter of sales above 300 million eliminate many small and speculative stocks that do not bounce back.
All these scans can be easily setup in Telechart or any commonly used software and the effort involved in going through these scans is around 30 minutes everyday.
The correction period gives you ample time to research these stocks and find those with big catalyst. Sector moves also become very clear during these periods. For example currently oil and gas and railroad supplier stocks are holding up well.
If you are serious about making some serious money trading use the correction to aggressively find next big set of opportunities.
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