Anticipation setups work on momentum burst phenomenon. Stocks go through momentum burst and consolidation cycles. If you identify a stock in consolidation phase and enter it on breakout with close stop , you can capture 8 to 20% move in 3 to 5 days.
AVGO has gone sideways for last 15 days. In recent days it had series of narrow range days. Yesterday it was up less than 1%. This kind of compressed action often leads to breakouts. These kind of breakouts can result in 8 to 20% gains in 3 to 5 days . On higher priced stocks like AVGO it can be 5 to 50 dollars gain in a week or so in case of powerful breakout.
Some other stocks I am stalking for breakouts are:
BIB was one of the ETF highlighted yesterday as a anticipation setup. My entry on it was pre market as it started to breakout and my price was 90. The ETF went on to make 4% plus move yesterday. Anticipations breakouts gives you very early and potentially low risk entry. It also allows you to risk more as your stop is very close to entry.
BIB before the breakout as an anticipation setup looked like this.
The work involved in identifying good anticipation candidate is during non market hours. It gives you time to plan the trade.
Stocks in my Anticipation watchlist today
RXDX MDR TXMD BLUE PFNX INTL HUBS FOMX CROX CAS BRCM COWN SNOW LXFT MCGC TWC ECHO BCOR IPXL GT BCO WIFI CAM SCHW TGI DHT AGCO MSCI MSG GE PNRA KMX FFIV CYN IHS AAPL PRTY BZUN
Lot of stocks currently are setting up for possible bullish breakout. The market itself has gone sideways for 4 months so underlying action on stocks is also sideways. Orderly pullbacks are dime a dozen currently.
Some of the stocks I am monitoring are:
If a stock is in range contraction phase for sometime and then has sudden range expansion , it is safe bet to expect that stock to continue to move in direction of range expansion.
FRSH is an example of this. The stock spent 3 months going sideways. In last 15 days it had 11 days of narrow range consolidation from May 26 to June9th. If you study those 11 days you will see that on 9 out of those days it was up or down less than 1%.
On 10th June it had range expansion and from that move in 4 days it went up 20% in 4 days. A 10000 shares position went up 30000 USD in just 3 days after entry.
The kind of moves you see in FRSH is an example of momentum burst . In momentum burst stocks go up 8 to 20% in matter of 3 to 4 days. In a year hundreds of time this kind of moves happen. Once you study nature of such moves you can scan for them and trade them.
You can find them two ways. One way is by using a simple breakout scan that looks for range expansion. The other way is by scanning ahead of breakout and looking for stock having series of range contraction days.
Breakout based swing trading involves sacrificing some part of the move as you enter only once a range expansion is apparent. An anticipation based approach involves identifying a set of candidates having range contraction and entering in anticipation of range expansion. It can give you very low risk entry.
No understanding of business or fundamentals is required to trade these kind of range expansions. It is typically a short term trade with quick entries and exit and grabbing your profit and running.
Swing traders thrive on setups like these. If you want to trade something like this then you must develop skills in identifying such setups daily and entering and exiting them.
Study hundreds of past examples of these kind of setups and then you can recognise them in real time very quickly.
Once the setup is understood the daily process is very simple , run a scan and enter if you find good setup. Put very close stop as these trades work instantly if they are going to work. Exit on 3rd or 5th day or in frenzied buying on 3rd or 4th or 5th day. Exiting in to strength is best for such setups as many end up giving up gains after few days of momentum burst.
Once you develop a skill to trade this kind of setup it is a lifelong skill and you don't need anyone's picks to make money.
To find shorts I focus on weak stocks that are having counter trend minor rally or bounce. Many stocks remain weak for extended period of time as the underlying business deteriorates or is debt leads to slow erosion of equity.
BTU is an example of one such weak stock.
BTU has been in steady and persistent downtrend for 4 years. There might be many reason for such protracted downtrend, but without knowing the financial reason for that we can still identify stocks like these using momentum scans.
During that down move, BTU had many minor counter trend rallies. Those rallies failed. BTU kind of stocks is one of the ways to find anticipation candidates on short side.
Following stocks are some of the stocks I am watching for possible shorts:
All of them were identified by using a short momentum pcf in Telechart.
60 to 70% of effort or more in trading should go on anticipation as it is under your control and allows you to plan trade and risk more. You are in control of this process.
If you have anticipation based method or process you are focused on few opportunities you are aggressively watching and enter as soon as they trigger. This reduces risk and allows you to think your trade through.
Rest of the effort goes in to breakouts. Where risk is higher and you are at mercy of market. Many breakouts by their very nature are sudden events and often triggered by surprises. While some breakouts can be anticipated , not all can be anticipated.
Breakouts often require you to enter at unfavorable price or risk higher. That is the nature of the momentum burst phenomenon.
As your account grows and you start managing more and more money focus on anticipation become critical.
Some of the things to think of as a trader are:
What is your anticipation Strategy
What are your anticipation scans
What is your anticipation process
What stock do you have on anticipation watch today
On any day there are few stocks that dominate that days trading. Many times these stocks make 10 to 25 dollar or more moves in just one day. If you can identify these kind of stocks early in the morning then you can benefit from rest of the day moves.
This strategy is more useful for high priced stocks as they can easily have 10 to 25 dollar more move. NFLX is an example of that yesterday. It made a 20 dollar move during the day.
After the exit the stock still went on to make 7 dollar more.
To find stocks like this early in the morning I use Trade Ideas scanner. It can allow you to create real time scans that can alert you to potential big moves.
In Trade Ideas scanner you can scan for a stock that makes at least 60 high for the day in first few minutes of open. That stock then tends to keep going throughout the day. If a stock makes 60 new high for the day in first half an hour it indicates very aggressive buying . Such buying tends to last through the day.
Most of these trades tend to be just few minutes or hours trade giving you 5 to 10 dollars.
If you are a beginner trader , many times you are not sure where to start. You might read books on trading or vist a blog abut trading which might highlight current positions or trades. While that might be useful, if you really want to make money trading you need a complete setup detail.
Setup is a set of conditions used to manage a trade end to end . Setup involves selection of particular kind of stocks to trade. Setup involves entry techniques on those stocks. Setups involves exit techniques on those stocks. Setup involves risk management for those stocks and trades on them. Setup involves the process to follow to identify such stocks and process to manage the trade. In short a good setup idea is like a well written recipe.
A setup will give you a starting point to model your trading. Most traders start by mimicking someone else's setup. Over period they develop their own setup. For example a Stockbee member took The Stockbee Trend Intensity Breakout setup and started trading it in 2012 and in next 6 to 8 months innovated around it to develop his own unique setup and manage to convert a loss of 200k to 600k profit after taxes and paying back loans in just two and half year. The setup gave him idea and he built his setup around it. Similarly lot of members have use either my setup ideas or other members ideas to develop their own setup.
If you are a new trader of the first thing one should do is to study historical setup ideas developed by other traders.You will be lucky if someone told you that at beginning of your career, most of the time non specific advise is given to beginner trader , further confusing them.
At the beginning of trading career you should look at the entire buffet of setup available to you and then decide which one you want to trade and which one fits your personality, your current capital level, your time commitment and so on. But in reality you will not find a comprehensive guide to all kinds of setup. Most of the time you will stumble in to setup.
A study like that will save you valuable time and capital. You will not be reinventing the wheel. You can build on the success of others.
When you look at historical setups you will find that they broadly fall in two categories:
Position trading setup for longer term traders
Swing trading setups for active traders
Most traders trade a variations of these setups and add unique twist to the mix. Studying these two basic types of setups and then getting in to microscopic details of it will help you become a self sufficient trader who does not have to depend on others for stock picks.
Setup oriented thinking is process based thinking. It is how do I find this kind of stock again and again kind of thinking. It is about ways to catch fish.
Setup selection is key to successful trading. Setup selection allows you to condition your behavior. It allows you to develop your procedural memory. It allows you to automate your thinking.
When it comes to setup selection your time frame is very critical. A setup that is good for day trader may not be good for swing trader. A swing trading setup may be extended setup for position trader.
If you want to make money trading and not rely on picks from others, invest your time and effort in study of setups.
The first starting point for anyone serious about making money trading or investing is to have a detailed process map. Profitable setup ideas are dime a dozen. Most of the profitable setups used by traders are in public domain. If you go through couple of books or blogs you will find several of them.
But the key to making money from those setups is to develop a method to trade them daily. Setting up a daily process is where many traders struggle. As a result they fill overwhelmed and confused. If they setup process flow and improve it over time then the effort starts paying off.
For example if you say read a book like How I Made $2000000 in the Stock Market, the next logical step is to setup a daily process to find those stocks. And then perfect the process over time. Absent that no miracle happens.
Similarly if you read How to Identify good momentum burst and make millions , the next logical step is to setup detailed process flow to trade that method. Once you have process you can start to improve it. If you had a process for doing what was discussed in that blog post above, you would on your own found a stock like ZAGG yesterday as it had momentum burst. It was also highlighted in anticipation setup yesterday.
Once you have process you can do things in less time. However imperfect your first attempt at setting up a process , it is the first starting point to becoming profitable trader. As you start setting up a process you start to understand a method or idea better. You are forced to break it in component parts
In the beginning run only one or two processes. Your brain will not be able to handle many processes simultaneously. So be less ambitious . Do not trade lots of setup. Trade only one setup and perfect process flow for it to the level of microscopic details.
If someone shares an idea or a trade the first question you should always ask is what is the process to do this. You read a trading book , fine but unless you have a process to convert that books trading idea nothing will happen.
Many setup ideas that have made me money have been shared on this site with process used to find them. If you are serious about trading and more importantly making money swing trading then study some of them .
For any method you want to trade if you set up a good process flow , you will find trades on your own, you will know when to enter them, with how much risk , when to exit them and how to lock in profit. It is a process loop. Once you develop it , you just need to run your process loop again and again and again.
If you want to make millions trading start today by first setting up a process flow.