2/26/2016

Stocks starting to breakout












There has been an improvement in quality and quantity of stocks starting to breakout. Follow through buying on these will be good sign.

Market breadth is also showing signs of improvement. Not completely out of trouble but things are not getting bad. 

2/25/2016

NSA one of the better breakout setup


NSA is showing up in breakout scans today. Stock held up well during correction and is now breaking to new high.

How to learn to be a profitable trader


When market corrects, it is good time for traders to focus on developing their trading skills. Even for ordinary investors, in current ultra low and potentially negative interest rate environment, it is good idea to develop trading skills if you want to make money on your savings.

Learning to trade requires tools , information sources, right kind of scanning software , market understanding and specific setup level procedural memory. 

Trading success is about developing expertise on a specific trading setup or style. In order to develop that expertise you need to train the  procedural memory.If we know that the key is procedural memory then why is it difficult to develop procedural memory?

To develop procedural memory you need highly structured environment. When you attempt to develop procedural memory on your own, unless you are extremely motivated and driven (or the correct word according to psychologists is you have very high self efficacy beliefs) the task is difficult. This is the reason most traders fail before they can achieve profitability. They blame markets or other things for it but in many cases the fault lies with failure to train procedural memory.

If you look at procedural memory development situations outside of trading then you will see that all of them impose enormous structure. Dancing is a skill developed through procedural memory development. If you see the process used for training dancers you will see that it is highly structured and regimented. You are given specific skill to practice. There is close supervision of the practice. There is constant feedback loop. Enormous hours are spent on practice before a performance is attempted. The learning happens primarily from repeated practice. It takes 10 to 15 years of rigorous practice before ballerinas are considered suitable for major performance. Same is true of many skills like figure skating , gymnastic, sports , music and so on.

The  training is primarily about developing implicit memory. Implicit memories are unconscious memories. They are formed through automation. Procedural memory is memory about skill. In the case of a dancer the procedural memory challenge is about developing a complex skill which require enormous co-ordination of various muscles. Through repeated practice the skill becomes automatic and a procedural memory for it is developed. Same way a good trader primarily has developed procedural memory skills related to specific setup.

Developing procedural memory skills requires breaking down a skill in to process and then mastering those processes. Simpler skills are easy to master. For example riding a bike is easy skill to develop as procedural memory skills involved are relatively easy. The time taken to learn it is small. But if you have to learn extremely complex skills and skills requiring use of multiple skills simultaneously then the training involved for it has to simulate those situations and also allow allow the learner to gain confidence in his own skills. That is the basis for developing procedural memory skills for commandos.

If your objective is to become profitable training process would be similar. The only difference is you have to structure your own training and develop your own training material and then have the discipline to train yourself. Along the way there will be several setbacks and ability to persist under those circumstances is critical. Besides that you should survive the self training phase without blowing your account (which very few would do). That is the enormity of the task involved in becoming a successful trader. Which most novice have no idea about. Behind every successful self learned trader you will find similar story of extreme efforts and extreme frustration and then slowly discovery of profitable method. Unfortunately most people will not tell you that.

When you try to develop procedural memory on your own, you are your own supervisor, mentor, instructor, motivator and so on. Besides that you are developing your own syllabus. As against that in any structured environment they have studied procedural memory skills required for the job and have template to develop such skills in others.

That is the big challenge for trader who tries to learn trading on his own. And it is also the reason for high failure rate.

 What can trader do to survive such learning process and become successful:

Understand that learning to trade is about developing expertise. And specifically it is about training procedural memory.


Understand that procedural memory is task specific. So specializing in a setup is extremely critical. Once you select a setup then you develop procedural memory specific to that setup. A trader who is good at trading say momentum stocks on 3-10 days has developed a procedural memory specific to that setup.


Understand that selecting your trading time frame is critical. If you want to be day trader the kind of procedural memory development you will need is very different from if you decide to be swing trader.


Understand that less number of setups you focus on better it is. The entire logic behind the procedural memory development process is that it allows you to overcome cognitive load. The more setups you try and trade simultaneously more is cognitive load. When your short term memory gets overloaded you tend to make mistake and get frustrated. First master one setup then you will find mastering other setup easier.


Understand that there are no secrets in this business. The real secret is your ability to develop procedural memory. Procedural memory can only be developed through "How to " kind of knowledge. If someone gives you a secret way to put stops as a software plugin. It is perfectly useless. Because it does not allow you to develop your own procedural memory skill. Similarly someone gives you 3 picks daily and does not tel you in significant detail how that person actually arrived at those picks, what scans he used, what analytical methods he used to arrive at those 3 picks, you will learn nothing. It will not help you in anyway to develop procedural memory.


Understand that many profitable traders are not conscious of how they develop their own trading skill and how procedural memory work. in fact most would not have even heard of procedural memory unless they had background in psychology or are involved in training.

Understand that profitable traders can not verbalize the process they follow. Procedural memories are implicit memories they can not be easily verbalized. A person who possess a skill in particular kind of trading may not be aware of steps he or she is following. 


Understand that once you develop procedural memory it is on auto pilot and it is lifetime skill. The bodies mechanism for handling procedural memories is for survival reason. If we did not have way to develop procedural memory we would not be able to perform any skilled task. In the absence of procedural memory you would be trying to remember steps of a skill and the method involved in performing task every time you perform it. Think of how your life would be if you were to drive like you were driving for first time every time you drive a car. Procedural memory primarily allows you to avoid short term memory overload.


Understand that most activities which make you money in your life involve procedural memory. Your procedural memories earn you your leaving. If you are a doctor, nurse, dentist, lawyer, teacher, firefighter, marine, actor, singer, dancer, software programmer and so on, what makes you money is your procedural memory. It is not knowledge that makes you money, it the "ability" to convert that knowledge in to some "professional skills" that makes you money. There are many people with superior knowledge but they can not make a living. In any field you will see that the people who earn higher amount of money have more refined procedural memory. Procedural memory is not specific to trading.


Understand that procedural memory is not developed through hardwork. There are many hardworking traders but they do not necessarily make lot of money. Why because they may not be having right procedural memory. In fact once you develop procedural memory you don't really need to work hard. that is the essential role of procedural memory.

2/24/2016

Bullish and bearish anticipation list for today

Bullish Anticipation watchlist

EW OGS LG COLM GRMN AVA CMO ENOC SWFT HTLD AGRO T AG IIIN LRN FN HUBG

Bearish Anticipation Watchlist

TREE MHK TSLA ZG AN Z ESL LNKD INCR NKE GKOS IDTI MNST DXCM ABC SPLK OSIS RL ROP

2/23/2016

Breakout Anticipation Setups for today



Anticipation Watchlist

COLM
SWFT
ACC
OGS
HUBG
LRN
STOR
AVA
ASPS
These are the stocks I am watching for possible breakouts  in next few days.

When stocks establish a momentum phase, they offer swing traders a low risk entry before making another move.

Stocks move in series of momentum bursts of 3 to 5 days. During those momentum burst moves they make 8 to 20% moves.

Typically a stock breaks out , goes up for few days and then established a narrow orderly consolidation. From that consolidation price breaks out and it further makes a move.

This phenomenon of momentum burst has been around for hundreds of years and is the basic tendency of stocks.

In order to profit from this observed tendency of stocks , you need to develop a daily process flow to identify these kind of stocks.

The easier way to find stocks like these is to scan for stocks with established momentum. That increases your probability of finding successful trade. That ensures a trade in direction of trend.

If you are serious a bout making money in the market then you can setup a simple process like this and spend 30 minutes daily to identify good candidates. 

2/22/2016

Breadth has shown improvement


Signs of breadth improvements are showing up . The market has had a good correction, at one stage one of the index dipped  almost 20%. From that oversold level in recent 5 days there has been improvement in breadth.

109 stocks are up 25% plus in a month as of Friday as per our database. These stocks are first to attract buy interests. Some of them will go on to make further gains.

Stocks up 25% in a month
ICON CTL RGLD SMCI BOOT AEM BPT CNX CHEF LITE GG SWFT CFX SLW XPO QUAD STRP DEST PAAS HUBG CGI AVNU INO KMI FN NAII CRAY MVG JOY TKR PJC SPKE NEM ITRI AYA KORS BWP DDD RRTS SAIA DLB ATI GLOG LRN UAN SWC STR CSCD AIMT GLOP AXLL CBMG COLL ABX SA GLNG RGLS ANFI TK CPG URBN OSTK ALR AAC CTRL EDE ADT ESIO WATT SCSC COTY BBOX WIN ZEUS CCRC TAHO MOD JBSS SONS LECO FOSL CVTI INVA AOSL MFLX IM TFM PMD NVGS PTEN HA IIVI FNV OCUL QUOT WYNN BDC GWR ETP TEX ROVI KNOP MTX BAP KSU CMPR NHTC COHR ELLI


2/16/2016

Defensive stocks are doing well

Markets have corrected to level from which enduring bottoms can form. So keeping an open mind for that . However breadth trends as of yet do not show signs of that.
In this market environment defensive stocks are doing well. Some of the good anticipation setups showing up in our scan are utilities.
Anticipation Watchlist
UGI
KORS
AVA
GXP
AOSL
VVC
CMS
PPL
WTR
SCG
ECHO
SAIA


What makes a good anticipation setup?
  • series of narrow range days in pullback/consolidation
  • orderly pullback with no 4% plus  breakdown 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

2/12/2016

How to use the IBD Stock Spotlight



Stock Spotlight.png

This is published daily and typically highlights 20 stocks. As you can see from description below the column , “spotlight looks for stocks with strong earnings, sales, and other fundamentals that are in base or breaking out”
Best of the best growth stocks that are in base are highlighted in this section during bull market. In early phase of bull markets growth stocks do very well as money flows into those stocks while other stocks lag as they are still having difficulties in their business. (as market ages the worst quality stocks also do well as speculative fever is at peak)

How to use the IBD Your Weekly Review to find profitable opportunities

How to use the IBD Your Weekly Review (85-85)

ywr.png

Every Friday the IBD newspaper publishes a list of stocks under Your Weekly Review. These stocks list is a curated list of stocks with growth and momentum and extremely good source of ideas for growth investor.

Basically it is list of stocks with:
  • 85 plus EPS ratings (that means they are in top 15% in relative rank in terms of their earnings growth)
  • 85 Relative Strength rating (that means in top 15% by price momentum rank )
  • 15% of 52 week high
  • 50 day daily average volume above 100000
Essentially it is a list of growth stocks with momentum. It is published on Friday so that subscribers can study it on weekend and create their watch list for next week.

If you are a growth investor with limited time to focus on market during the week, you should focus like laser on this list. Study the stocks in the list. See if any of them is setting up for a breakout. At what price should you buy it. Where should you put stop, you can figure that out ahead of time.

Study the new entrant to the list as they offer new opportunities in the market. Look at IPO making it to the list and steady them.

Growth investing tries to find few home run growth stocks during the year while swing trading other growth ideas for 10 to 20% gain. The focus of your IBD 85-85 list study should be to try and find that one or 2 explosive growth ideas that are likely to make big move of 100% to 500% or more in a year. Or a growth idea with multi year legs which will keep going up for many years as it is in secular growth trend. ywr4.png

If you subscribe to  Marketsmith, then you can generate this list daily by using a simple scan and that way you may not miss any stock that makes to the list during the week. The image shows how you can do that in that scanner.

The key to using it is to develop a process flow to analyse the list weekly or daily and then identify good anticipation setup and figure out your entry point and then focus on entering that position during the week if triggered.

This is must study list for growth investors.



2/09/2016

Heavy selling in many stocks owned by funds

Once in a while the market itself becomes the catalyst and individual stocks and catalyst for that period becomes secondary. Currently we are in that kind of situation.
Heavy selling in many stocks owned by funds is driving this as they reduce exposure. After selling down to a level there tends to be a brief pause before the fresh wave of selling comes in.
Many of the stocks that have broken down in last 4 weeks are not done going down. Any bounce in them is likely to be sold. Many of them may never come back to their former glory.
At some level in index buyers will get interested. But as of now we have not reached that level. That means every bounce is suspect and likely to fail.

If you are losing money in this market it is a sign of poor risk management and wrong timing. Lot of traders just can not bring themselves to cut their losses. Seating in losing position as losses pile up can be devastating and sets you up for failure as you will not be in a position to benefit when market reverses. 

2/08/2016

No surprise in market correction

Market bottomed in March 2009 . Since then it was going up for 6 years with some minor correction. So at some stage it was due for correction. We are in the midst of one of them.
Breadth on T2107 peaked in early 2014 and since then each successive rally was with less number of stocks leading the advance. December bounce was on very weak breadth and there were signs of trouble as it starts fading.
Corrections wipe out the excesses of bull market. During bull move good and ugly both rally. So a correction wipes out some stocks. But there is always something new that comes in and eventually money starts to move in to those stocks.
As of now real panic is yet to set in. Margin calls hitting people and longs throwing in towel with big spike in fear are required for a bottom. If selling persists for few days to weeks then that will set the market for another rebound.
Periods like these are good time to think about putting in place market timing models so that you don't get wiped out in these kind of corrections.

2/02/2016

ALRM is setting up for a breakout


ALRM has been holding up really well during this market correction. It is one to keep an eye on.
Other stocks setting up for possible breakout are : ANFI PLCE SIEN

To find good anticipation setups you need to develop a daily process flow and scan for them.

2/01/2016

PLCE is setting up for breakout



Market monitor suggests time to be aggressive. This might be the start of a new bull move or at least few weeks of tradable rally. Time to start looking for anticipation setups ready to breakout.

What makes a good anticipation setup?

  • series of narrow range days in pullback/consolidation
  • orderly pullback with no 4% plus  breakdown 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

PLCE is an example of such setup currently. It is setting up for possible breakout from this level.

Other stocks setting up for possible breakout are : ANFI ALRM PLAB

To find good anticipation setups you need to develop a daily process flow and scan for them.

Breadth is improving


The market started the year on sour note but signs of breadth improvement point to possible short term bottom and a tradable rally.

Friday was one of the biggest buy day on 4% breakout since 2011. This kind of buying is sign of institutional buying.

If more and sustained buys show up then stocks with momentum will start to make big moves. It is time to start making tentative moves in to some new breakouts.