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One of the best way to make money in the stock market is to buy range expansion

Posted on 2/27/2017
Stocks go through periods of range contraction or trend periods and periods of range contraction or consolidation. One of the best way to make money in the stock market is to buy range expansion at the beginning of a swing after a stock has had series of range contraction days.



Buy range expansion after a period of 5 to 10 day consolidation and an orderly consolidation. Orderly consolidations are low volatility periods where buyer and seller at equilibrium. 

Buy range expansion preceded by low volatility period. A range expansion from that phase indicates fresh buying pressure. 

Buy range expansion after a negative day. A range expansion preceded by a negative day indicates start of a fresh swing.

Buy range expansion after a narrow range day. Narrower the range better it is. Narrow ranges often lead to explosive moves on range expansion.

Buy range expansion after a series of narrow range days. That is even better.


Buy range expansion if stock is not up 3 days in a row. 

As a swing trader, if you regularly buy stocks up 3 days in a row , you are likely to sooner or later blow up your account. The Professional trader buy on first day of the swing as soon as range expansion is signaled. Second day follow through id driven by residual buyers, newsletter followers or slow reactors. Third day is when many novice notice the move and get excited. the professionals sell in to that euphoria. They are happy with their 8 to 20% profit in 3 days and the third day buyer becomes the bag holder.

Buy range expansion early in a trend. 

Say a stock is rang bound for 3 to 6 month and then it breaks out then that is a young trend. Buying proper momentum burst setups in these your trend first or second or third time works . But same stock when it is up say 6 month and trading near its high and all time high at some stage buying a extended move on that kind of stock will likely hasten your death as a trader. Even if you have to trade those kind of extended moves , ensure extremely good risk control and position sizing. As trends get extended they can become vulnerable to swing failures.

The most important thing to remember as swing trader is that always buy range expansion at beginning of swing move. That one rule can make you millions and save you lot of heartburn.

In  order to find such stock setups daily scan for range contraction periods. From that list narrow your options and enter on range expansion day. 

Here are some of the stocks with range contraction setups:

BC JAZZ NSIT LW FNSR EFX IDXX SAGE DNKN MYL BEN CRCM DORM IMOS SANM AGN ELLI RF MDSO BLDR ACAD FBK

How to build your own trading method Part1

Posted on 2/16/2017


If you want to make money trading then you have to develop an edge. You have to find things that work in market and build your trading methods around

That kind of process requires good understanding of how markets operate and what works and why. If you base your methods on structural tendency of the market then you are likely to be profitable.

What makes some of this process difficult is that you have to figure out everything for yourself. There are many resources you can tap but ultimately the responsibility of making it work is your own.  

You have to figure out how markets work on different time frames and why. You have to figure out how different types of stocks behave over their lifetime. You have to figure out how IPO behave. You have to figure out how value and growth stocks behave. You have to figure out how momentum stocks behave. You have to figure out what factors drive stock returns.

You need to figure out how overall market direction affects the growth, value, and momentum stocks and how to adjust your style.

You have to figure out how to manage risk. You need to figure out how to determine safe periods for your strategy and how to avoid unsafe periods.You have to figure out how to control per trade risk as well as overall risk so that your draw downs remain very low and you can quickly recover from any setbacks.


You have to design your own method, devise your own rules and have enough confidence to trust your own method.

Unless you start your career in a big bracket investment bank or in a hedge fund, this is the reality of trading success. All individual traders who are profitable over the years have done this and each one has taken different route to get there and has spent different time frame to arrive at profitability.

Moses is not going to give you 10 commandments on how to trade, perfectly wrapped in a gift box. 

The ability to learn trading on your own is going to determine your success. Some people persist at it for years and then they find success. Some try it for few days or months and that is the end of it.

Even if you find a ready made profitable strategy you may not find success with it till you customize it for your own needs and beliefs and personality.

So much of trading is about individualization of methods to your own unique way of thinking and style. There are no standard methods. There are approaches. If you are smart, you would be able to build a method after studying some of the well known public domain approaches.

One of the big problem for many people is that they are waiting for Moses to give them detailed rules, guidelines and every single nuances. I have bad news for them. It is unlikely to happen.

God is too busy handling other big problems in the world than to offer you get rich scheme.

In series of posts we will look at how you can find approaches that work and build your own method around it and make profit.

To swing trade or to trend trade

Posted on 2/15/2017


The objective of swing trades is to generate .1 to 5% return on your account per trade while keeping draw downs as low as possible.
Swing trading methods became popular as antidote to trend following methods that were very popular but were leading to wide swings in account and draw downs.
As cost of trading decreased and spreads between bid and ask narrowed they became mainstay of active traders and hedge funds, Wall Street banks and now quant funds.
Swing trading has existed for hundreds of years for the same reason, that is it allows you to grow account without big draw downs like trend followers have. It helps you avoid the ulcers involved in trend following.
At one time largest amount of capital was allocated to trend following methods. Today only relatively modest amount is in pure trend following funds unless you classify passive index investing as trend following. .
Swing trading also evolved as a way for small accounts to grow their account rapidly by doing several trades and not seating in dead trend periods. Schwab lowered commissions to 39 dollars (from typical 100 dollars plus each way) and that led to swing trading boom. Subsequently commissions have kept on decreasing.
Ever since then Swing trading as a style as coexisted along with position trading and trend following and has become main style of trading. For all the sophistication involved in quant funds, at heart it is just swing trading method using high powered computers.
When you gun for 3 to 5 day moves, you have to do several hundred such trade in a year to make a difference to your account.
Success rates in swing trading is 50% or so. Success rate in trend following is 20 to 25%.
Which means you need to do upwards of 500 plus trade to make big returns in swing trading. Ask successful swing traders and see how many trades they do in a year.
Swing trading is primarily high volume game with low per trade profitability. You can increase your per trade profitability by increasing your per trade risk.
You can risk 1 to 2% per trade instead of conservative risk like and you can increase your returns significantly.
For a beginner I personally think swing trading is easier to learn than trend following or position trading. Things you do hundreds of time , ou can learn quickly. If you are going to make only 10 position trades in a year, by the time you realize whether you learned anything , years will be gone.

Stop whining about the markets

Posted on 2/10/2017
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You can not control the market but you can control your trading.
Too many traders blame markets, algos, shorts, volatility and so on and so on instead of focusing on making money. 
Those things are not under your control and your whining is not going to help you make money.
Focus on what is under your control.
Do a good job of that and then as you will see somewhere on Stockbee logo "Methods Trump Markets"

What is under your control

What markets to trade
What style to trade
What timeframe to trade
What setup to trade
What kind of stocks to trade
Where to enter
Where to put stop
Where to exit
How much to risk

If you focus on things like these you will find opportunities daily in the market. 


How to use your anticipation watch list to make money

Posted on 2/09/2017

This was my watchlist for breakout anticipation coming in to Wednesday market open. These stocks had a high probability of breakout during the day. In order to ensure I do not miss breakout on these stocks I had the stock watchlist already ready in broker platform.

But that alone is not sufficient if you want to get in to breakout early , you need to be quick to put in order once the trade triggers. So for select few stocks out of the above watchlist I already had 2 orders ready one a limit order at predetermined price slightly above their current price and another market order. that way if a stock goes up quickly and barrels through your limit price I can quickly trigger market price. Once the market opens then it just becomes easy task of clicking few orders on stocks that trigger.
MOMO was on watchlist stock triggered in first few minutes and the orders got triggered. The stock spent rest of the day going up and ended up 9.75% for the day.


If you use anticipation properly you can find opportunities like these and profit from them. Another stock on the watchlist also triggered same time BABA. I got in to it and the stock also went up post entry.


Some of the tactical element of process to trade are as important as the ability to find good trades. Execution can give you an edge.

If you want to make money trading then you have to go just beyond setup idea and build a well thought out strategic and tactical method to convert that trade idea in to profit. It requires rethinking several elements of execution.

It also depends on your size of account . If you are trading larger account the execution challenge in different. For a smaller account it is much easier to get in and out.

Here is some idea about what you can achieve with small account using the setups and ideas discussed here:
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Large account can not match the nimbleness on small account but still one can make  money trading setups like these. Here is one of the larger account using setups discussed here:
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In large account one has to focus on more liquid stocks, which do not move as fast as some small stocks. Plus you have to often take smaller size position as large orders can move the stock price.

Here is my anticipation watchlist for today:


  The easy part is making the watchlist the real trick is making money using the list.

If you are really serious about making money swing trading , find an idea that is around for years like buying breakout or buying pullback and then build a process around it. Refine and fine tune the process till it becomes part of you . If you can do that then you will find good success with trading.

I have detailed these setups here several times and if you are motivated to make money you can go through posts highlighted in sidebar and work on them and see if they work for you. Study the 4% breakout method detailed here multiple times. Study the earnings breakout method. Study the anticipation method (which is more suitable for working people).

If you are motivated and commit a year to making any method work then you can make money from it. You don't have to use my methods, there are several profitable methods in public domain.  They will work for you  as long as you are willing to put in effort to make them work and have persistence to make them work.

I know several highly profitable traders personally and each of them has spent years perfecting their method and they don't trade same methods. Each of them have voracious appetite to improve their trading and they are optimist people who believe in their ability to further innovate on their current skill sets.
 

How to use anticipation to get in to breakout early

Posted on 2/08/2017
CENX is an example of  stock with momentum that was setting up for possible breakout for some days.


Stocks with momentum like CENX go through orderly pauses during there up moves. An anticipation scan can help you find such stocks and enter as they are breaking out. In case of CENX it had established momentum . It had 10 days of sideways consolidation. I entered the trade in anticipation of breakout between 15.60 and 15.75 with a close stop at 15.43. Stock subsequently had a breakout and at one stage was up 7% before fading a bit as market faded. 

To find momentum stocks setting up for breakout one has to first scan for stocks with established momentum on either quarterly, half year, or yearly basis and then look for periods of low consolidation on those stocks. I do that by looking for a stock with between 1% to -1% price % change.  From a wider universe of stocks that meet the scan condition I create a watchlist to track for next day. For example this is the list I shared today that I am watching. 

All these stocks have some sort of pullback or pause in trend and they have momentum and capable of making explosive 8 to 20% or even bigger move in 3 to 5 days if they breakout.

While anticipation is one of the ways to get in to moves early , not all moves you can  anticipate. So I also focus on breakouts. Breakouts setups on stocks with momentum offer you a way to participate in a fast part of a swing move. 

These are moves of 3 to 5 days where stock make 8% to 20% move or 5 to 20 dollar moves. NVDA is a example of recent trade like that. 

NVDA is a stock with strong momentum for over a year. Stock had a correction post earnings rally. 6 days ago it showed up in 4% breakout scan I use. I entered on that day and stocks made 10% move in 5 days . I sold yesterday on gap up move. The stock has earnings due this week so risk increases if you hold it through earnings. 

Some of the stocks showing up in the breakout scan:

Bullish Breakouts: NFLX IBM IRTC
Bearish Breakdowns: FGP RYAM FOSL DEPO EBS FMC CTB CVX CRC HQY MSI





How to use momentum burst to find buying opportunities

Posted on 2/07/2017
Stocks go through periods of momentum and periods of chop or non trending periods. As a swing trader focusing on the momentum periods helps you participate in fast part of the move. It reduces your risk and allows you to sit out non trending period.

Here are examples of some of the recent trades like these:

AKAO made 42% move in just 11 days


CALA made a move of 50% in six days


HQY made 20% move in 7 days



How does one find stocks like these? For that you need to setup scans to find stocks with momentum that are entering a news swing  move.

Here is one of the stocks showing up in the scan yesterday early in firsr few hours of market open. The stock post entry went on to make further gains.


Stocks like these show up in scans once you take an effort to setup a well thought out scanning and trading regime.

Here are some of the stocks showing up yesterday in scans:

Bullish Breakouts
TSLA
GLBS
WB
LOB
PVG
CNAT
SALT
KRNT
BVN
GORO
MUX
CGIX
IAG
GPL
EGO

Bearish Breakouts

ATW
CLR
HNI

If you want to make money trading first step you should take is to setup a process to find explosive stock moves daily. Look for processes which will make you independent trader and not dependent on picks.

Should you become a full time trader

Posted on 2/02/2017


Every week I get emails from members or non members asking how can they become full time trader.
In order to become full time trader you need a structured method with edge. You need ability to take risk and persist in spite of setbacks .
You need ability to correct your own mistakes and develop and innovate when market changes.
You also need ability to take huge risk because outcome is not guaranteed in this business.
But above all you need capital and bigger the account you can trade the better it is .
Realistically speaking with less than 500k capital it is tough to make living in this business.
If you have sufficient capital then things are easier.
So don't give up your main job or business till you have large capital to trade. Keep growing your account till you have sufficient returns to live comfortably. 
There might be many people telling you impossible things like you can become full time trader with 5k or 30k. Don't buy in to that.If you have good trading skill look for financiers who can back you up for a % of profit.

Organize yourself for trading everyday

Posted on 2/01/2017


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Everyday do the same thing over and over in a systematic manner.
Once you have a well thought out method the day to day challenge is largely about implementing your plan.
That requires setting up a daily routine and adhering to it as far as possible.

Situational Awareness

We know swing setups work, but overall market conditions can have impact on the % of trades likely to work. So SA helps you in controlling your trade pace. In good environment you want to be more aggressive. In bad conditions you want to focus on risk management.
Question you need to ask daily for SA:
What is your market bias today
Is there a plan to exploit it
Is there an alternative plan

Anticipation

Anticipation allows you to control risk and get in to setups early or as they are breaking out. Anticipation is also useful on current open positions. If you have thought through what you will do under different circumstances on your open positions you are in better position.
Question you need to ask daily for Anticipation:
What homework have I done to identify good opportunities ?
What are the 3 to 5 very high probability opportunities I must focus on today
What is my plan for existing open positions

What is working currently

Different phases of market favor different kind of stocks or setups. Some time beaten down stocks do well. Sometime stocks with momentum do well. Some time value or growth is in favor. Knowing what is working helps you focus on hot opportunities.
Question you need to ask daily for What is working:
What is working in the market currently
What stocks and sectors are leading the market currently
What style and setups are working currently
What kind of follow through is happening

The hardware and software

All our good plans or intentions or setups are of no use if our hardware or software fails or is not optimum for trading.
Are you setup for today
Is your hardware in proper condition
Is your software working without glitch
What is your backup plan in case of failure.

Your mental state

Your mental state affects your trading. If your are well organised and in proper frame of mind for trading you will be successful. If you are excited, harried, angry, disorganized you will find same thing in your trading.
Are you calm, excited, harried , or confused today?
Are there distractions likely to affect your trading today?

Continuous improvement

As a trader you need to focus at least 25% of your daily efforts on developing new trading setups and ideas and on enhancing your trading skill and knowledge of market. A purposeful plan to do this will cumulatively help you transitions in to new setups and ideas as market changes.
What is your plan for enhancing your market knowledge today
What is your plan for enhancing your trading skills
What is your plan for enhancing your trading mindset

What needs to happen for me to be a confident and in control trader

Do I have resources to get there?
Do I have the burning drive to get there?
Everyday using this kind of framework will make you a better trader . If you rigorously follow these kind of checklist you will see improvements in your trading in 90 days.