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Narrow your focus

Posted on 10/30/2015

If you want to improve your trading first thing you need to do is narrow your focus.


Trade one or at best 3  setups. More setups you trade less likely you can do full justice to all of them. The time you spend on running scans , analysing , selecting trade, managing trade increases exponentially as you start trading more setups.


One of the reason people do poorly is because they just can not focus on specific setup. Once you eliminate all kinds of setups and focus only on one or two setups you will quickly find results. You will start to gain expertise in your setup as you start to focus more on nuances of it. You will start to tweak things within a very narrowly defined setup.


Every study on expertise development shows that narrowing the domain is best way to quickly develop expertise. It allows you to develop specific set of skills. Narrower your focus easier it is to trade. Every week think of how you can further narrow your setup definition and things you do.  Get rid of unwanted and marginal ideas.


Why do traders flirt from one thing to another or trade multiple methods? Because they lack confidence and expertise in one setup and feel someone has better setup. Because you get exposed to new setup you feel you must trade it.


Sacrifice is required if you want to be profitable. You can not trade all kinds of stocks and all kinds of setups. If someone is selling you that as key to success in trading hold on to your wallet.


Highly profitable traders are highly specialised.  Traders who focus on growth stocks only focus on growth. Traders who focus on momentum only focus on  momentum. Traders who focus on shorting only focus on shorts. Traders who focus on options only focus on options. Value investors focus on value stocks. Turnaround traders focus on turnaround. Day traders focus on day trading. Traders who focus on high priced stocks focus on high priced stocks. Traders who focus on low priced focus on low priced. Automated strategy traders focus on auto trading. Mean reversion traders focus on mean reversion.

Stop the stupidity and spend this weekend narrowing your focus to only 1 or 2 setups. Get rid of all kinds of clutter in trading. Focus on few things and do it well. Let others waste their time on multiple setups and style.

Methods and philosophy




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Tight stops are possible with anticipation setup

Posted on 10/29/2015
If you do a good job of identifying good anticipation setup, you are in control of your entry, stop and are not at mercy of a random breakout move.
If you do good job of anticipation and get an entry with just 2 to 4% stop below your entry you have very low risk as against putting stop say 10 to 15% below entry on big b/o.
Anticipation allows you to trade while still working . You can put buy orders on your anticipation setup and go to work.



FCN
APDN
CENTA
ESRT
TSM
EPAM
AAP
ACGL
SYY
SPNS
HD
KCG
NKE
MNST
AFSI
MXL
CZR
XTLY
MSG
NTES
TRIP
BABY
KITE
TXN
CTRP
ACRS

NSA is example of anticipation setup that I bought yesterday in first few minutes of open.  With a very tight stop the trade was immediately profitable.


Anticipation Setups for today

Posted on 10/27/2015

If we do good job of anticipation then one can get very tight stop entry and improves risk reward.

Anticipation allows you to plan your trade.
These are some of the stocks on my anticipation watchlist for today:
ERII CENT FPRX ACET MESG FIX ACXM IOSP GLOB NCI OSIS AAP AIZ EPAM TTS TMUS GFF

There is also a larger watchlist of anticipation list I am tracking. The stocks above are subset of that larger list and are current focus stocks. But during the any I also look at the wider list to see if any of them is breaking out. 

EDUC ERII APDN SPNS CAM MG GFF EPAM GLOB SABR RKUS CENT WWWW TTS DHI NFX CSGS CMN WBA AVY ULBI DF PSX HLF ACET ESRT GCI CDNS IM OSIS PLCM HOFT IOSP MESG UFPT PLKI FPRX TSE SKT AIZ NOC AAP TMUS G WMS IRMD ACFC PFSW NCI COMM JE PBH ACXM VC PFPT HUBS NUTR TRIP LMAT HDB FIX HIHO KAR ULTA

The list is updated daily and new stocks get added and some existing ones get deleted. 


Narrow focused bounce

Posted on 10/21/2015


The bounce has not been strong enough to flip the primary breadth indicator to positive side.
The stocks up/down 25% in month is showing divergence. In rally it should be positive but it is showing big breakdowns.
The 50% plus also similar. With 13 stocks down 50% and only 8 up 50% plus in a month. 
The breadth trends so far are not in line with past bottoms and rallies coming out of bottoms. Rallies out of bottoms tend to be very big and broad based, this one is very narrow based.


How to find stock likely to breakout today

Posted on 10/20/2015
Stocks in momentum phase offer good anticipation points when they pause during their up moves. For motivated swing traders this offers an opportunity to identify such stocks and put alerts on them and enter on breakout.

AAP is one of the stocks I am watching today for possible breakout.




Today I have around 8 stocks in anticipation list. Out of this around 3 I am keenly watching for entries.

LPI
CORE
LAKE
ZG
PACB
EXTR
TSE
AAP

Above stocks have orderly pullbacks or consolidation and also most importantly they are in momentum phase so a breakout will be continuation move.

Anticipating a breakout gives you an early entry into a breakout. As my account size keeps on increasing I am now spending more and more energy on trying to anticipate breakouts and entering very close to breakout level.


In order to generate this list I use a simple 15 minute process flow. The starting point is couple of scans I run in Telechart .

DOUBLE TROUBLE 1% MOVER SCAN

  • US common stocks
  • c/minl252>=1.8 and minv3.1>=100000
  • Price % change Today between 1 to -1%

TI65 1% MOVER SCAN

  • US Common stocks
  • avgc7/avgc65>1.05 and minv3.1>100000
  • Price % change Today between 1 to -1%
After running these two scan I merge them together as some stocks will be common.Then I go through the list to find setups that are setting up for possible b/o

WHAT TO LOOK FOR IN GOOD ANTICIPATION SETUP

  • series of narrow range days in pullback/consolidation
  • orderly pullback with no 4% b/d during the pullback or consolidation
  • low volume pullback
  • low volatility during pullback
  • linear first leg if looking as continuation setup
  • Stock should go up smoothly and not in volatile manner
  • 3 to 10 days consolidation/pullback
  • not up 3 days in a row
Once a list is generated I reduce it to 3 to 5 candidates to focus on. For them I pre calculate price at which I want to enter the stocks. Then I create orders at those levels if there is capital in account for new position. Or else I create an alert.
If you want to make serious money swing trading following a simple process like this will find you daily opportunities. 


How to capture a 16% move in 3 days

Posted on 10/19/2015

GLOB had a range expansion 3 days ago. Since then stock is up 16%.

Prior to range expansion stock had an established momentum as calculated using % change from 52 week low. As you will see in chart below prior to breakout day it meets all the conditions for good anticipation setup.


Momentum burst is the structural nature of stock moves. You can see this kind of move happening all the time. Yo u can build your swing trading strategy around trading these kind of moves.

If you are really serious about making money trading everyday just spend 15 minutes going through stocks with established momentum, identify anticipation setups on them and enter as they breakout. After that manage the trade using tight stops and exit at right time.

For example if you have all the scans setup for finding swing setups like these today early after market close you will find stock like OME.


    When you setup all scans and develop expertise to trade these kind of setup , all you need to do is run scan , find good setup and enter. 

How to trade anticipation setup

A anticipation setup is a setup just on verge of a breakout which has been pre identified as a good setup which you want to enter if there are signs of breakout.

It is a setup where you want to enter as soon as possible because it will allow you to have very tight stop almost close to your entry.
Because it is a pre identified setup where we have put in some effort to identify and research it.In the morning it is a higher priority setup over a breakout setup.
In order to enter it we can predefine a entry price and enter if order is triggered, that is one way to do it, the other way to do is by putting price alert (in this case there still can be some slippage as you then decide to enter it.)
The third way to do it is to intently watch 2 or 3 pre identified A quality anticipation setup, and then pre create orders and enter as soon as they show signs of breakout and put very tight stop. That is an approach which requires creating buy orders and keeping them ready and pressing trigger if you see breakout happening. That is the approach I am using. As the entry is very close to stop it is very easy to find 2R to 5R trade using that approach . 
A close entry with tight stop on pre identified breakout helps you improve your hit rate and % returns as even a small move can make your trade profitable. If you can enter a breakout with say 25 cent stop and after that stock goes up 1 dollar it is a 4R trade.
Marrying anticipation with  breakout  gives you potentially larger set of opportunities to work with.
In order to find anticipation setup I focus on stocks with established momentum.
Obviously there can be many ways to find anticipation setup and you can use the basic idea on any kind of list like stock with high short interest or stock near bottom, or stock with low float and so on.

Stocks on my anticipation watchlist

ALGT
ROP
MMM
AAP
ADS
RL
ZG
BAP
KN
COP
GBT
TSE
AIZ
MTDR
VRSN
GM
JNPR
MMI
NEWM
BRSS
GFF
CFMS
CENT
CXO
SFUN
TEGP
HW
CHMT
CM
AGYS
SFL
XIN
EXTR
FTAI
ENR
FRO
F
APIC
LPI
IOSP
MESG
APLE
DLPH
SNX
CORE
AVX
CTB
CAMP
RSPP
HD
JKHY
NVCR
IRM
PAYX
LB
CCP
NDRM
SGRY
LEA

If you are working person anticipation setups can allow you to enter on predetermined  buy orders. 

How to make 10% in 3 days using momentum bursts

Posted on 10/16/2015

Swing trading using momentum burst

Realistic expectations is key to trading momentum bursts. It is for people who want to capture the high probability part of a trend move. It is not for those who have unrealistic expectations.

This is a recent trade I did for 10.29% profit in 3 days. I had very tight stop on entry. The trade did almost 4 times my risk (4R). Same trade others did and exited at break even or in some cases very small profit because they had wide stop and expecting a big move.

How you approach trading all depends on your selected setup. I entered this trade with a mindset of 8% to 20% profit potential in 3 to 5 days. That  target is based on study of thousands of past similar setups study. So once I had 10% plus profit I aggressively moved stops to protect it and got stopped out.

These kind of swing moves are very common in stock. A stock once it enters momentum phase can have 3 to 10 such moves during its entire trend move. One of the trading approach used by many people is to try and capture part of the move instead of focusing on trying to capture entire trend move. This approach helps you keep drawdowns small and use very tight stops. It requires doing hundreds of trades.

Alternative approach used by some traders is to try and capture large trend move. It requires different kind of setup definition and mindset to trade and expertise. Typically trend traders have lower % of their trades working as they often get stopped out. But the few that work can make big moves.

Every trader has to find methods that work for them . Once you find an approach that works for you then you have to develop a well thought out process to exploit that method.

If you are serious about making money trading study approaches which have worked for others and build   your methods around it, it will save you years of frustration and losses.


How to profit from momentum burst

Posted on 10/15/2015
Stocks move in direction of range expansion. This is the basic tendency of stock moves. A range expansion triggers a fast 3 to 5 days momentum burst.

The momentum burst can be very profitable as the stock makes a quick 8 to 40% move in 3 to 5 days. There are hundreds of such moves and to trade them you just need to use a simple range expansion scan.

UVE is a recent example of one such trade. UVE went up around 30% in last 10 days. It had an orderly pullback of 9 days and then a range expansion move. After 2 days of pause  it had another range expansion. That was the day I entered. I was out in few days with 11.38% profit.

These kind of short term momentum burst can happen as part of continuation move like in the case of UVE or they can be also part of bottoming move. In recent weeks number of stocks had these kind of range expansion near their bottom and from that they went on to make 8 to 40% move in few days.

To trade these kind of moves you can take two approaches.

One way to trade these is by waiting for a breakout and then react to the breakout. For that you just need to run a well designed range expansion scan in any trading software and then select breakouts to enter. Once in trade you need to manage it to ensure profitable exit. Ideal hold times on these trades are 3 to 10 days. If you overstay you end up giving up lot of gains. Selling in to strength or moving stops to protect open profit is key.

Second way to trade these kind of moves is by using anticipation. Anticipating these kind of breakouts on momentum stocks can allow you to enter much earlier than waiting for a breakout. In order to find anticipation candidates you need to narrow your universe to stocks with established momentum or 65 days or 126 days period. That way you will have very manageable set of stocks to look at. From them you have to identify candidates ready to breakout. After that one can enter them ahead of breakout or on breakout day early using a resting order or price alerts.

Because these kind of momentum moves happen hundreds of times in a year, you can find enough opportunities to compound  money without taking large risk. The sheer number of moves like this in a year also makes it possible for new traders to learn these kind of swing trading techniques easily.

If you are serious about making money trading and want to shut out market noise look at developing an expertise in trading range expansion moves. 

What to look for in a good momentum burst breakout

Posted on 10/14/2015

TACT


This stock has everything one should look for in a good breakout setup.


  • Stock in orderly uptrend pre breakout
  • series of narrow range day pre breakout
  • orderly sideways consolidation near high
  • high volume breakout
  • close near high
  • low float of 7.4 million

How do you find these breakouts

By everyday running the a breakout scan and matching the best setups to your criteria. In order to do that you must have at least 25 to 30 past examples of what to look for in a good breakout. If you have 100 plus examples of good setups , it is even better.

Once you run the scan entering as soon as it shows up in your scan and meets your scan condition is key as it will help you profit from rest of the days gain.

Where does the stop go on these

Because we are buying them for immediate follow through, it should be at low of the day.

What kind of profit potential this setup offers

The profit on these kind of trades can be 8 to 40% in few days to week.

If you want to make money trading this kind of setup study my post on momentum burst. 

Anticipation Watchlist for October 14, 2015

The market  had a torrid bounce as a result lot of stocks had their first leg of rally. Some of them are now undergoing small pullback or consolidation and are likely to have further upside.

As market had good rally in last couple of weeks , lots of stocks are showing up in anticipation scans. As always those ranked highest by momentum are my first choices.

Anticipation Watchlist
TACT
BOFI
ABTL
ZG
KN
BAK
CHUY
AMZN
VG
SA
AAP
HAWK
TNK
MTDR
JNPR
BYD
GLOB
VRSK
LPI
GFF
MPWR
PENN
IDTI
RSPP
HW
MMI
ROP
FSLR
SINA
BPL
BITA
APLE

Possible bottoming action and "possible" start of new uptrend.

Posted on 10/07/2015

Market "had" 12% correction in indexes from high to low. 

Breadth on Primary indicator reached "extreme" readings below 200.When that happens you have to think of possible bottom and buy opportunity. Those kind of extremely bearish readings are rare phenomenon. 

Since then in last few days there has been lot of improvement in breadth with back to back 300 plus days on 4%. Secondary indicator 34/13 has turned bullish.
Most beaten down sectors and bear market leaders like oil and commodities showing bottoming action and bounce from that action, which is another positive sign.
These are the top 10 performing sectors in last 21 day by momentum. All this point to possible bottoming action and "possible" start of new uptrend. All the bad news is priced in to them now. 
New leadership is starting to emerge and it is showing up in Stockbee Double Trouble (DT) , Stockbee Modified Double Trouble ( MDT) and Stockbee Trend Intensity 65 scans. Universe of stocks that meet Absolute momentum criteria has started to expand , that is healthy sign.
Unless we see significant breadth deterioration , benefit of doubt is on bullish side.

Anticipation Setups for Oct 6, 2015

Posted on 10/06/2015
If you want to make money swing trading , then setting up a simple process that identifies stocks likely to breakout can help you find trades daily.

The process I use to find anticipation candidates is simple and it just requires at best 5 to 10 minutes of effort after market close. Anyone motivated enough to find 8 to 20% moves in market can do this once they set up everything.

Anticipation setup looks for a stock with established momentum that is having a orderly momentum pause and series of low range days or in other words having volatility contraction.  These kind of stocks breakout with force and make 8 to 20% move in 1 to 3 days after breakout.

These are candidates I am watching currently from anticipation scans:\

ALGT
SKX
JBLU
EXTR
P
LE
APLE
CMG

One of the advantage of anticipation setup is it allows you to have very tight stop and as a result better risk reward trade. It also gives you control over your trade as you are not reacting to market breakouts and chasing things.

Anticipation setups work best on stocks with established momentum . These stocks can have several momentum bursts of 8 to 20% duration during their up move.

If you are motivated trader and keen on making money trading then developing a process and expertise to trade this kind of setup will help you find hundreds of these kind of trades in a year. 

Profit from Absolute Momentum


image
There are two kinds of momentum: relative and absolute momentum.
Relative momentum ranks stocks by relative rank to other stocks or an index.
The IBD relative Strength ranking method is an example of that. It ranks stocks from 99 to 1 based on their weighted average momentum.
That is one way to look at momentum, but if you want to make money trading stocks learn about Absolute Momentum.
Absolute Momentum does not rank stock in relation to other but identifies the direction and strength of momentum. It is significantly better way to find momentum stocks. It allows you to identify start and end of a  momentum phase. 
Everything on this site is "mostly" about Absolute Momentum.
Stockbee 4% breakout is absolute momentum scan
Stockbee $ breakout is about absolute momentum
Stockbee Trend Intensity 65 is absolute momentum scan
Stockbee MDT is absolute momentum scan
Stockbee Double trouble is absolute momentum scan
Stockbee Half Trouble is absolute momentum scan
@mystery scan is also absolute momentum scan
Absolute Momentum tells you when stock is in momentum phase and it also tells you the velocity of the momentum move.

To make money using momentum , you must understand absolute momentum.
The best way to understand that is by downing a bottle of Absolut and then studying absolute momentum.
Cheers!!!

Some momentum stocks breaking out

Posted on 10/05/2015
As market is having follow through on Friday's move, some momentum stocks are showing good breakouts.
Stocks with established momentum that were consolidating during the market correction is what I am focused on. You will see number of them starting to breakout in last 2 to 3 days. If the rally has legs , the breakouts will proliferate. At this stage risk is still comparatively high so smaller size positions are better , at sign of more aggressive buying position size can be quickly stepped up.

UVE , BRSS, LGIH are some of the buy ideas showing p in the momentum scans today as of now.






What is your style?

What is your style?

image
Developing a consistent style of trading and sticking to it and perfecting it over time is what most successful traders do.
They do not drift from style to style. Growth investors stick with growth investing, value investors stick to value investing , turnaround investors stick to their style, momentum investors stick to momentum.
As against that most novice want to do everything and it does not work.
As a trader or investor you need to think a lot about your style and then focus on perfecting that style.
If you are say a small investor or trader trading 100k to say 10 million , you have to focus on styles that suits your account size .
With that kind of size if you decide to become a macro investor , it is unlikely to work.
Over the years most of the traders who make money focus on few styles like growth and momentum as it gives them most bang for their buck for their account size.
90 to 95% of traders use one of these style or combination of it. That has been the historical pattern and there is a very good reason for that. It works for the kind of size you trade.

What is your style?

image
Momentum investing in various forms is the most commonly used style by active traders.
Momentum is a tendency of stocks to continue to move in the direction of their current 3 to 12 month move.
Momentum is a very well known anomaly. If you study the momentum anomaly and various research related to it, you will find:
Jegadeesh and Titman (1993) showed that there is substantial evidence that indicates that stocks that perform the best (worst) over a three to 12 month period tend to continue to perform well (poorly) over the subsequent three to 12 months. Momentum trading strategies that exploit this phenomenon have been consistently profitable in the United States and in most developed markets.
Moskowitz and Grinblatt (1999) found evidence of momentum in industry or sector returns. They found that high momentum industries/sector outperform low momentum industries in the next six-months.
Momentum profit reverse post 2 year holding periods.
Short term excess momentum is mean reverting
Stocks that are followed by fewer stock analysts exhibit greater momentum.
Like price momentum, stocks with high earnings momentum outperform stocks with low earnings momentum. Which is what I BD approach is all about.
A momentum strategy that buys stock near their 52 week high is profitable. Which is approach used by many traders, they look for stock with momentum trading near its 52 week high and forming a base. Minervini , Dan Zaner, David Ryan, Gil Morales, Chris Kacher and host of other traders use similar approach
Momentum effect is more pronounced in small stocks. Smaller capitalisation stocks tends to make bigger moves.
Momentum is the most commonly used strategy by traders. If you want to develop your own style start with momentum.
It will improve your chance of success .

What is your style?

image
Growth investing and momentum investing are more suitable for smaller investor as it allows you to make above average returns in shorter period of time.
Value investing might be safer but value stocks seldom make big moves. It is popular strategy among institutions.
When told that growth and momentum investing is better than value investing invariably many new traders ask but how did Buffett a value investor became the richest person using value investing.
There are two reason why Buffett earned his billions: first he got access to significant leverage when he bought a insurance company very early in his career (he basically invests the float generated by his insurance business which gives him tremendous leverage), and second is by avoiding to pay taxes by holding stocks for long term. Taxes are drag on returns. By avoiding taxes money compounds faster. Absent the significant leverage growth investing is better.
Study three approaches in detail before deciding on your style. One of the things about value investing is that it is intellectually very satisfying to practitioners, while not much brain is involved in growth or momentum investing. The value investors are the intellectual snobs of investing world.
Once you decided to focus on growth investing or momentum investing as your style , do a systematic study of growth investing and momentum investing. Most of those who follow this kind of style use similar approach.
By narrowing your focus on growth and momentum early in your trading career you will save ton of time and money.

What is your style?

image
Most active traders use swing trading style. Swing trading focuses on moves of 3 to 10 days and 5 to 20% magnitude.
Why do you think this style has been around for over 100 years and has survived in spite of market technology and structure change?
It is the most suitable style for speculators with small to medium size accounts. It allows you to make money while keeping your market risk low.
Swing traders try and exploit a structural tendency of market called momentum burst. Stocks or markets move in momentum bursts of 3 to 10 days and 8 to 40% magnitude.
These are sharp moves that happen hundreds of times in a year. Swing traders either try to anticipate such moves and enter before the start of this move or enter using limit orders when the move starts.
Another way to trade these momentum burst is by using breakouts. You enter on breakout day.
Swing traders use close stops and move stops to protect profit. Most swing traders use time stop to get out of moves that do not follow through.
Swing trading is easier style to master once you have good template for it.
Both  Stockbee 4% breakout and $ breakouts are examples of Swing trading using breakout. The Stockbee anticipation method is example of using anticipation to find closer entry in swing moves.
If you want to make money trading develop your own style.....

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