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What do these stocks have common

Posted on 10/31/2014

OMER
KERX
JNS
IQNT
ATHL
ATHM
CFN
CNAT
CEMP
EVC
LAKE
PTRY
MOVE
MRCY
HSTM
EXAS
UIHC
ANGO
HNI
QLGC
HA
CRAY
IVC
RT
AERI
HCI
SCSS
INCY
SCMP
PACB
XNPT
RGEN
MMSI
TTPH
ARC
ZOES
RDNT
KITE
NVAX
AMAG
TUBE
RNA
MDXG
SHLD
CVTI
CLVS
VDSI
LCI
RENT
GIMO
BBW
FMI
XLRN
FNHC
OVAS
USNA
OSTK
ESPR
INFN
DRTX
NLNK
AGIO
ESI
RCPT
DRIV
RGLS
VTAE

they are all up 25% plus in last one month.

What kind of setups do they show.

Central tendency of stock moves do not change

Define your setup

Posted on 10/30/2014

Define your setup thoroughly before trading it.

Think a lot at setup selection stage. I you think through your setup then trading it will be easier. If you do not have good setup stop trading and search for good setups first. Once you have good setup your trading will improve.

Think about what market structure this setup exploits when selecting setups. If there is no structural phenomenon it exploits then , it will not work.

Setups that people have used for centuries are:
  • momentum burst also called impulse moves
  • Trend failure
  • Anti Trend swing
  • pullbacks also called mean reversion trades
  • range
  • Trend transition setups
  • trends
  • pairs
There is lot of information about these setups in public domain. 

Biotech lead the action

Posted on 10/28/2014

Biotechnology stocks are in best position to lead the V shaped recovery. Many of the biotech had shallow sell off and were near their pre correction high.

As the market is attempting to recover the biotechs were first to breakout. Closely followed is drug stocks. That is where best setups are currently.

Airlines is another sector doing well as low oil prices are leading to increased profitability or hope for it.

The downside is being led by oil and gas.

Where should beginner start

Posted on 10/24/2014
I often get emails from beginners asking where should they start. The markets and choice of setups and trading approaches can be challenging for a beginner. 

In the beginning due to lack of understanding of how markets work and how real traders make money ,  you can end up believing in anything. Which can lead to loss of time , money and opportunity.

First thing a beginner trader should do is to try and master a simple setup. Focusing on only one simple setup will help you gain confidence and help you develop skills faster. 

Trading a setup in existing established trends is one of the good starting point for beginner trader. Once a stock established a trend it offers you a choice of breakout or pullback setups. There are many variation of these setups but they essentially look for either a momentum burst in existing trend after a period of consolidation or buy during low volatility consolidation/pullback in trends. Typically buying first pullback or consolidation after a trend is established is a simple trade setup. That also ensures you are not buying extended setup. 

Simplicity is very important in the beginning phases. That means avoiding piling on too many indicators on your chart or making too many rules for your scans. Simplicity will also allow you to understand each of the indicator you use.

Beginner trader need to put themselves in situation where they have time to consider every detail of the setup they are trading and trade they are making . Simple setup will allow you to plan all elements of the trade. Consistently trading one setup using consistent process for few months will help you perfect it. That is how a small edge becomes unique edge.

Grit is important

Posted on 10/23/2014


Grit is most important criteria if you want to be successful trader. 

If you have grit then you will overcome many psychological obstacles. If you study most successful traders it took them 10 years or so to become consistent. Most people do not persist that long and give up because they blow up or do not have grit. early failure leads to fast exit. 

After trading 14 years profitably and talking to many other traders the consistent theme is ability to persist in initial years after many setbacks. Some blow up multiple times before finding their unique edge. The edge they find may not be big but the process of trial and error and persistence leads to their unique personality that can not be easily replicated.

Grit and self efficacy beliefs are biggest determinant of success in this field.

Most edges are small but how you play around with them is what matters. Take a small edge and marry it with well thought out process flow and good risk management and you will develop a larger edge.

but if you have grit it will work , absent that this is difficult game for many. 

Momentum burst setups showing up

Posted on 10/22/2014
When you have set method and you follow them daily, you don't need to be rattled by market moves. With the market improving in last couple of days post Fed panicked and assured they will postpone QE if needed, that has resulted in another V shaped recovery in index.

The momentum burst scans I run have started to show up candidates. When market was in correction the scans were not showing many bullish candidates as momentum was on downside. During bull moves stock move in sharp momentum bursts of 3 to 5 days after that they rest or revert.

If this rally has legs same thing will happen. Stocks have started gaining momentum. They will in few days go sideways as buying cools on those individual names and then they setup for another move higher.

Sharp V shaped recoveries has been the hallmark of this market especially in last 18 months as Fed panics every time market goes in to correction mode of even 5%. They come out with new interventions or delay end of QE , and sometime just do verbal intervention like some Fed members dd this time once market starts correcting around 10%. That signals the market no matter what Fed will not allow market to go down. So happy days are back again.

During a bull move hundreds of momentum burst setups will show up if market continues its advance. So task for speculator is clear , scan for stocks with established momentum and look for those that are setting up for possible momentum burst and also run daily momentum burst scans and look for good setups.

If you did not lose money during this correction, you are in good shape to profit from this move as long as it lasts. If it fails then bearish setups will proliferate. 

Signs of stabilisation

Posted on 10/21/2014
After few weeks of correction the market is attempting to put a bottom.  During correction market had around 9 % correction. Typical corrections are 8 to 10% in bull market.

So far the reflex bounce has held up well , but it is still not all clear . Many reflex bounces can fail after few weeks. The individual stock action is dominated by some V shaped bounces . The V shaped bounces have become the defining character of this market in last few years.

But some sector action in last ten days points to probably emergence of new leadership. Healthcare and residential construction shows best setups as of now.  REITS and defensive sectors also dominate the action.

From momentum burst kind of swing trading as of now not many A quality setups are showing up, but if this becomes a bottom that situation can fast change. When situation changes tons of good setup will show up suddenly. 

Reflex bounce in most oversold names

Posted on 10/17/2014
Bearish moves are often punctuated by sharp snap back rallies. We are due for one as market in short term is oversold.

These sharp bounces are led by most beaten down stocks and not the stocks holding up well. You will see signs of that in last 2 days.

Big drop attract bargain hunters and also the short sellers cover. This leads to these reflex rallies. Most reflex rallies eventually fail but for mean reversion kind traders are good opportunities. But one need to have well defined setup for that.

When stock or ETF go down often the earlier reference point become anchor for many trader. They think the stock will bounce back to its high.But that is not at all necessary and also does not happen. Once a stock breaks down , it might have number of counter trend rallies but it may never come back to previous levels.

 Once the reflex rally plays out some of the same stock become shorts again. If market puts in bottom then , some of the reflex rallies stick and after a period of back and forth establish new trends, that is when stocks with momentum start breaking out.

Watch stocks with momentum carefully here, if they start breaking out it will be good sign. The top 200 ranked stocks by 6 month momentum is what I am watching currently. 

Keep drawdowns low to profit from next bull move

Posted on 10/16/2014
A market which is way oversold that refuses to bounce indicates weak market.

Probably a capitulation kind selling with huge breadth will be needed for a tradable bottom. we have not seen any high volume selling so far. If you go back and see Market Monitor down moves often have huge 1000 plus stocks down 4% before a bottom is established. That kind of selling leads to forced liquidation, margin calls and seller exhaustion. From that kind of selling a sustained rally can start. We are not at that level yet as breadth has not been very negative by historical standards. 

Currently we are down only 9% from high.  Which is a correction but may not be sufficient correction for a 5 year bull move. In last 3 years we have not had 10% plus correction . So if we get one it will not be out of character.

And some sort of action by Fed to induce confidence will at some stage may be required but with markets down just 9% it is unlikely to worry them.

Remember every rally since 2009 started with launch of some Fed program like TARP, QE1, QE2 , operation twist and so on. At some stage if market goes down a lot then Fed's hand will be forced. And that could be a signal for bottom.

Bottom is a process and might require time and level. Either way how you handle bear markets depends on how much is your risk tolerance. Barish market tend to be very volatile and most trader who survive the market for decades after experiencing few big ones tend to focus on capital protection during such time. If you do a good job of that and don't have much drawdowns or maintain your capital emotionally it is easier to trade when new bull move starts. Which invariably starts once traders capitulate. 

This is the time to upgrade your trading skills , improve on things you want to improve. Develop setup ideas. Work on market timing . Bear markets give you an ideal opportunity to do that. If you do that you can profit handsomely in next bull move. 

Corrections are good

Posted on 10/15/2014
We are getting good broad based correction after many many months. By historical standard this is hardly big correction. It is just normal action after many months of rally.


Bull markets create situations where at some stage they run out of gas. just few weeks ago you had IPO going up 60 to 100% on first day, that kind of wild action does not last long.

Corrections like this are good as it creates conditions for better returns in future as new leadership and new companies emerge post corrections.

Corrections are also good as it thins the rank of amateurs and wipes out some overconfident traders. That is healthy process. It ensures only speculators with good risk management skills and trading skills survive to profit from next big bull move.

this is good time to learn how to manages risk and trade profitably. 

Breadth readings approaching extremes

Posted on 10/14/2014

T2108 is at 13.45 indicating only 13.45% of stocks are above their 40 day moving average. Readings below 20 on this indicate extreme bearishness from which bounces tend to happen. The readings can go in to single digit in bear markets.


$BPNYA is another breadth indicator that tells you % of stocks in confirmed bullish mode by point and figure charts. At this stage it is approaching extremely bearish zones. A turn in breadth is easier to spot in this indicator.



In the Stockbee Market Monitor the Primary indicator turned bearish on September 18, 2014 and since then you will see steady selling. The Primary indicator is approaching extremely bearish zone but is not yet below 200. Intraday basis it was below 200 yesterday.

Going by all the breadth indicators I monitor market is approaching extreme bearish zones, but these are not extremes by historical standards. A bounce is very much a possibility but in bear market you can have many bounces that look like bottom before actual bottom is in place. The market has not yet seen capitulation kind of selling , so bounce might give temporary respite.

If you want to maintain your profits made during bull moves and maintain your sanity and not get rattled by bearish market , study breadth. Breadth will help you reduce drwadowns and anticipate turns. 

Night Time is Right Time

Posted on 10/13/2014

Activities to do after market close to find trading opportunities.

Episodic Pivots


Research all the stocks that show up in Stockbee EP scan to find stock with game changing catalyst with at least 50% potential. 

4% and $ breakout and breakdown

Go through all stocks showing up in Stockbee b/o and b/d scans to find setups for swing trading.

If you have time then you can also go through Range breakout  and breakdown scan to look for swing candidates.

Anticipation Candidates

Run anticipation scans and look for good setups. Create price alert on them either in Telechart or Interactive Brokers. Quickly see if there is any news on them. The one with news can be high priority.

Earnings After the close today

Look for stocks with big earnings surprise that are u 2% plus on 50000 volume after close.

http://goo.gl/1BMpcp


After hours movers

Study these like EP to see if there is any game changing catalyst stock.

http://goo.gl/G3h2il

Other news plays

Fresh news leads to rallies next day. If you want to day trade those news then look at stocks with news after close.

http://seekingalpha.com/news/all

Playing great defense is key to profitable trading

Traders who survive and prosper over lifetime learn the value of playing great defense. If you do not have great defense sooner or later you will be out of the game. One big bearish move and you will get wiped out.

Many people spend lot of time taking their account up and then in few weeks end up giving up all the profit and go in to drawdowns. They become aggressive at exactly the wrong time. Once they hit loss, they become more aggressive hoping to recover loss in few large trades.

There are also some traders who do not have any concept of risk and play with margin. Typically they will be using full margin all the time. When market hits bearish phase like this , they quickly land in soup and lose lot of money in short time period. many of them get margin calls. When hit with margin calls instead of closing the position , they add more money and then it leads to more losses. People who have businesses and other sources of cash flow make bad traders because of this problem. They are great source of income for brokers.

If you want to survive as a trader learn great defense. Most of good traders avoid certain market periods and are aggressive when market conditions are right. Great defense involves learning to get out of loss making trade at first small loss. Great defense means first thinking how much can I lose on this trade. Great defense also comes from having well thought out methods to find trades and not relying on rumors and CNBC to make trades.

Every year thousands of traders blow up because they lack great defense. 

How to use the morning activity list to find profitable trades


The hunt for both big Episodic Pivots kind trade and swing trade should start in the morning , preferably a hour before market open. In order to do that you need to be organised and focus on few things. 


Anticipation List Bullish and Bearish

Based on your bullish and bearish anticipation scans get your anticipation candidates ready. Create price alert on them either in Telechart or Interactive Brokers. Quickly see if there is any news on them. The one with news can be high priority.

After Hours and Before open movers

These stocks will have some fresh news , that fresh news can lead to fresh start to a swing or a new trend or end of trend. Go through both the list and focus on stocks up 2% plus on 50000 plus volume.
Earnings Stock

Stock with earnings after close or before open are your prime candidates for EP. If earnings was game changer they will show up in your after market and before open scans as they will likely be up 2% plus on volume. Many earnings stocks are best bought in pre market as many times they can make part of the move in pre market itself.

IBD Front Page / New America/ Sector Leader

Because IBD has large circulation and following , it can sometime move a stock. The front page stocks on EP day can be good source of ideas for busy people. Often IBd will mention a stock near buy point and it breaks out next day.

Upgrades and downgrades

Stocks with multiple upgrades or downgrades can often go up or down , if the upgrade or downgrade happens near good setup buy or sell point they can give you good entry in to swing trades.

Unusual Option Volume

When a stock has above average option volume it sometime is indicative of coming rally or drop. Monitoring stocks with unusual volume will give you early indicator of likely big moves.

Bounce got aggressively sold

Posted on 10/10/2014
The Wednesday bounce failed very next day. That puts market back in extremely bearish territory by breadth. However extreme can become even more extreme.


I did not have any bullish position open coming in to yesterday so no damage to account. A failure to rally from a 4 to 5% correction as has been the case in last 24 months may indicate change of character.

We will see it is still one day and one setup at a time kind of approach market. 

Market can quickly surprise you if you are not ready

Posted on 10/09/2014


Familiar pattern of Fed induced bounce in play. Every Time people become too negative and predicting big drop, the pattern repeats. Fed makes dovish statement or changes policy and we are back to rally mode.

The backdrop to the bounce was extremely weak breadth, so chances of further follow through for at least few days or weeks are good. The only problems with many of these recent bounces is extremely narrow number of stocks leading the action.

From swing trading point of view both pullbacks and momentum burst kind of setups are likely to work if more buying comes in. Which should give swing traders lot more to work with. 

As we have seen again and again in these V shaped bounces, many of the beaten down stocks make bigger moves than those that held up well. There is more pronounced mean reversion effect in play during such bounces.

The quick bounce also is cautionary tale for those who take the eyes of the ball during such corrections. Market can quickly surprise you if you are not ready. 

Earnings season has started so I will be looking for earnings Episodic Pivots. They offer the best bang for buck during the season. One or two big earnings trade can potentially make your year. 


Typical corrections are 8 to 10%

Posted on 10/08/2014

At some stage market was bound to correct. It had spent more than 600 days above 200MA.

How far correction will go we do not know. But typical corrections are 8 to 10% and this correction is yet to reach that level, barring small caps which have corrected more than that.

Down moves are characterised by frequent counter trend bounce so one is again due in next couple of days.

Mot corrections since 2009 bottom have been few weeks affair, we will see if this one is different.

All corrections since 2009 has ended with some sort of Fed intervention . Sometime intervention has been just verbal intention. So watch for signs of that.

Market turns offer opportunity

Posted on 10/07/2014
When market undergo corrections lot of time traders and investors start losing focus or get discouraged , but if you are serious about making money , then you can not take the eyes of the ball.

Some of the best trading opportunities happen as soon as correction starts to end. Many stocks start moving even before a turn is visible in indexes. You have to constantly watch market for signs of that.

Another good thing to focus on during correction is new setups and methods and improving your skills. Market down turn allow you time to upgrade your skills and get ready for new upturn.

8 to 10% corrections are common every few year in market, they offer you best opportunity to profit from next bull phase. 

Market bounces back from extreme oversold level

Posted on 10/06/2014
The Worden T2108 is Worden's market breadth indicator. It shows you % of stocks above their 40 day moving average. At levels below 20 it indicates extreme oversold level. Levels above 80 show extreme over bought areas. 

Last week T2108 reached 16.7 level. From that level market has bounced back. At this stage it is a oversold bounce. It might retest the same level again. If lot more buying comes in at this stage then it might be yet another shallow correction.

Under the hood lot of stocks are setting up for breakout . So market still favors bulls till this rally convincingly fails. 

Better ideas make you better trader

Posted on 10/03/2014
Good traders are innovator. They find better ways to do things. They are creative. They look at same setup or market situation in different manner and design strategies to extract profit.

Creativity is required to reduce drawdowns or to judiciously use margin to enhance returns. Creativity is also involved in designing entry or exit strategies. If you study successful traders they have innovated in these areas. They do not follow  most commonly talked about techniques or indicators.

There is too much talk in trading communities about discipline and psychology , but not enough focus on creativity in trading. If you are not creative and innovative as a trader it is unlikely you will last much longer even if you focus a lot on discipline or psychology.

Good traders look for good ideas. They are constantly innovating around setups or entry, exit, risk or any other parameter. They always have new and fresh ideas. They hunt for new ideas and try and incorporate them in their trading.

If you want to improve your trading start generating and collecting new ideas. Fresh ideas will give you fresh perspective and fresh ways to make money. 

How to train Procedural Memory for trading

Posted on 10/02/2014
Working memory involves the ability to maintain and manipulate information in one’s mind while ignoring irrelevant distractions and intruding thoughts.

That is how traders make money. By trading a method or setups without distraction and making decision based on constantly changing dynamics.

This requires a well trained and developed procedural memory for a setup or trading style.

The simplest trick to training procedural memory is repetition and repetition in high volume and more importantly repetition in high volume at a very compressed time frame.

Intense short duration voluminous practice is best way to train procedural memory. It is more effective if done at a rapid fire rate. The reason that works is when you do things under pressure the brain trains itself to be super efficient.

More than that intense effort done at rapid rate also enhances your confidence as it leads to improvement in your skill rapidly.

This is the principle used to train in US army. US army is one of the largest user of psychological research. If you see books on expertise development many of the studies are sponsored by the US Army.

Basic Combat Training and Advanced Individual Training are the core starting point for all recruits. Both those courses are designed to be highly intense and challenging

The principle applies to anything which involves expertise in life. Train, Overtrain,. Constantly Train. Train under pressure. Bootcamps are the preferred methods in US Army for that reason.

In practical terms if you want to be better trader instead of getting in to endless debates and flirting from method to method or setups you should train and train intensely, and train intensely under severe pressure to master a set of setups.

The Stockbee trading Bootcamps work on that principle. They are intense 2 day sessions where Stockbee members go through thousands of past setups in intensely structured and fast paced environment with constant feedback to build a procedural memory for trading 2 or 3 setups.

Once you do that then you can build on that over the years. most people think trading is something they can do as some part time project with minimum training. It does not work that way. Sooner or later they blow up.

If you want to be successful trader and make millions:

Train

Train intensely

Train intensely under pressure

Train intensely under pressure with feedback loop

Train repeatedly

Train regularly.


Do that if you want to be a successful trader....

Why study breadth

Posted on 10/01/2014

If you want lower drawdowns

If you want to maintain sanity

If you want to anticipate turns

If you don't want to panic at wrong time

If you don't want to ride roller coaster of profit and blowups

If you want to make money in retirement account and keep the gains.

Few weeks spent understanding breadth will pay you lifetime dividend.


Good thing about breadth is:

You don't need to be Market Wizard to understand it.

Once you understand the concept you can just using simple scans or using existing resources look at breadth trends daily and take decision.

It does not take more than few minutes to do it.

Start tracking breadth daily and it will start making sense as you would start questioning why is this number going up or down.

Why is this number so big or small...

and so on.

It will put you on path to profitability.

Stocks down 25% plus and V recoveries

The market is in correction mode for last few weeks. It has been a slow breadth deterioration kind of situation.

A select few stocks have still are rallying but it is really selective rally. Some large cap stocks are still holding up well and large caps indexes have hardly corrected.

The T2108 indicator is approaching 20 levels. In bull markets most of the time such low levels lead to a bounce. The bounce may not sustain itself . If we see dramatic improvement in breadth on bounce then that will be good sign.

It is not an ideal environment for momentum burst kind of setups. But things can improve

Stocks down 25% plus in a month
-----

GOMO
LEJU
CLV
LPCN
NM
PIR
CTCM
CIG
CLF
PGN
AUY
SFXE
AU
VLCCF
VNET
SDRL
HYGS
RPRX
MXL
BIOF
OMN
NADL
SSRI
VHC
SALT
TNXP
WPRT
HGSH
GTN
SWHC
AKS
CVGI
BGC
CONN
FRM
WG
GTAT
KNDI
VNOM
TRS
EOX
MOV
EOPN
CMCM
BCRX
ADHD
CRK
EXXI
RTRX
JMEI
PEIX
XONE
USLV
CVEO
BBSI
JRJC
CRR
QIHU

These stocks are down 25% plus in last one month. Keep an eye on them.

If you study the last few years bounces, you will see that beaten down stocks made the biggest moves coming out of such market corrections. V shaped recovering in stocks are common in this market.




NFLX and CMG kind V shaped vigorous rallies have been common character seen in recent times. Something to keep an eye on if we start getting another V shaped bounce.