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Look for low risk entries

Posted on 6/28/2017

Risk= entry-stop

Try and find setups were risk is lowest possible.
4% b/o setup detailed here requires 6 to 8% risk and is best on small and mid cap stocks or situation where stock is just breaking out from long consolidation. 
Anticipation  setup discussed here often requires 2% or less stop. It is very good for continuation moves. Gives you more time to plan your trade. Can be used by working people as it allows you to enter with limit order without watching market. 
$ b/o  setup requires often less than 4% stop. It is best for stock priced 40 or higher. Can be used by working people as it allows you to enter with limit order without watching market. 
Low threshold b/o requires less than 2 to 3% stop. Low threshold breakout setup is new setup I have developed in recent year to get in to stocks early.  Can be used by working people as it allows you to enter with limit order without watching market. 
Try and develop setups where your Entry-stop is very close. 

Anticipation setups watchlist for today

Posted on 6/27/2017

Anticipation Setups for today


To anticipate a breakout look at stocks currently not undergoing momentum burst.

Stock should be in extremely low momentum phase for anticipation .
It can be a shallow pullback or consolidation in established momentum phase.

To anticipate look for stock with extremely low volatility

A stock with low volatility in last 5 to 10 days is ideal candidate as part of a continuation setup.
Look for series of low range bars in last 5 to 10 days
Look for stocks with bollinger band squeeze.

Avoid Anticipation setups on extended stocks

First or second anticipation setup in established trend is best
Extended trends needs to be avoided for anticipation as failure is high on them

Look for early entry on anticipation candidates

Anticipating a breakout helps you get an early entry and can improve your per trade profits.
It also can lower your risk as your stop is closer.
It can help you profit from even smaller moves.
For that entry without waiting for breakout is best.

Anticipation requires more pre planning and effort than buying a breakout.

You need a process flow to do that.
The process should be efficient and done daily after the market close.
The suggested process flow is a template you can develop your own process.

Only 3 to 5 quality ideas should be tracked

"A" grade pre Momentum Burst setup should be your first priority
Once you have list of anticipation setups narrow them down to 1 to 5 for next day action.
Quality is more important than quantity

In order to find Bullish Anticipation setup use DT and TI 65 lists in Telechart

Double Trouble Scan

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


US Common stocks
avgc7/avgc65>1.05 and minv3.1>100000
Price % change Today between 1 to -1%

MDT Above 1.19

US Common stocks
c/avgc126>1.19 and minv3.1>100000
Price % change Today between 1 to -1%

After running these three scan merge them together as some stocks will be common.

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
This entire process once setup tales just 20 minutes daily. 
You can find 5 to 10 good set ups using this process daily. In good market conditions these setups can make 8 to 20% in just few days. 
So if you are serious about making money swing trading setup these scans and practice finding good setups.
You can find your own stock picks daily once you master this method and perfect it. It will help you develop your own trading skill  and you will not have to depend on anyone.

Improve your swing trading skills

Posted on 6/26/2017

To become the best swing trader run these two scans daily...
And study stocks that show up in it...

Bullish 8% plus or 5 dollar plus in 5 days

c/c5>=1.08 or c-c5>5 and minv3.1>100000 and c>=5

Bearish 8% plus or 5 dollars plus in 5 days

c/c5<.92 or c5-c>5 and minv3.1>100000 and c>=5

Every secret you need to swing trade successfully is in the study of those stocks

Do this daily for 90 days and everyday your trading will improve.

and on 90th day you can burn all the books on swing trading ....

Study the stock in these scans today to see how momentum burst works :
Where were good buy points.
Which scan would find them
Where was best stop for those entries
Where was best exits....
What was its Trend Intensity before breakout
Where was it a good anticipation setup
Everyday build your own setup library....

Do the same thing for Top 100 YTD winners

Study the 100 stock today to see how big moves statt , progress and end
Where did the move start
Was it near 52 week high before move start or near 52 week low
How many swings were in the move
Where were good buy points.
Which scan would find them
Where was best stop for those entries
Where was best exits....
What was its Trend Intensity before breakout
Where was it a good anticipation setup
How did the move end
Everyday build your own setup library.... 

From this study develop your own swing trading rules. 

Focus on momentum to develop setup ideas

Posted on 6/21/2017

How does one develop a setup idea?

By focusing on a known and proven tendency of the stocks or markets you can develop setups around it to profit from that tendency.
Momentum is the number one tendency of stocks and has been proven anomaly.

Momentum investing looks for stocks rising faster than the overall market. Or in simple language it looks to buy strength and sell weakness.

Momentum has been extensively studied and studies show that stocks with the best price performance over the previous 3-12 month period tend to continue to outperform the market over the subsequent 3-12 month period while previous losers tend to continue underperforming.

The most celebrated study in the academic literature which documented this phenomenon was by Jegadeesh Narasimhan and Sheridan Titman in a study titled "Returns of buying winners and selling losers"

Jegadeesh, Narasimhan & Titman, Sheridan, 1993. " Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
This paper documents that strategies that buy stocks that have performed well in the past and sell stocks that have performed poorly in the past generate significant positive returns over three- to twelve-month holding periods. The authors find that the profitability of these strategies are not due to their systematic risk or to delayed stock price reactions to common factors. However, part of the abnormal returns generated in the first year after portfolio formation dissipates in the following two years. A similar pattern of returns around the earnings announcements of past winners and losers is also documented.

Practising traders were aware of this phenomenon for years and were exploiting it .Since then this phenomenon has been studied in detail and it has been shown that this works across markets and is persistent in spite of it being known to market participants for years.

Top Research Papers About Momentum

  1. CHAN, L., N. JEGADEESH and J. LAKONISHOK, 1996. Momentum Strategies. NBER Working Paper. [Cited by 297]
  2. GRINBLATT, M., S. TITMAN and R. WERMERS, 1995. Momentum investment strategies, portfolio performance, and herding: A study of mutual fund behavior. American Economic Review. [Cited by 255]
  3. ROUWENHORST, K.G., 1998. International Momentum Strategies. The Journal of Finance. [Cited by 216]
  4. JEGADEESH, N., S. TITMAN and M.P. PAGE, 2001. Profitability of Momentum Strategies: An Evaluation of Alternative Explanations. The Journal of Finance. [Cited by 193]
  5. LEE, C.M.C. and B. SWAMINATHAN, 2000. Price momentum and trading volume. The Journal of Finance.[Cited by 162]
  6. MOSKOWITZ, T.J. and M. GRINBLATT, 1999. Do Industries Explain Momentum?. The Journal of Finance.[Cited by 163]
  7. GRUNDY, B.D. and J.S. MARTIN, 2001. Understanding the nature of the risks and the source of the rewards to momentum investing. Review of Financial Studies. [Cited by 126]
  8. LIEW, J. and M. VASSALOU, 2000. Can book-to-market, size and momentum be risk factors that predict economic growth. Journal of Financial Economics. [Cited by 122]
In simple terms what we know from these various studies is that:
  1. Stocks exhibiting 3-6-12 month momentum are likely to outperform in subsequent 3-6-12 month period.
  2. 1 month momentum tends to lead to reversal.
  3. Longer term momentum of 2-3 years also tend to lead to reversal.
  4. Momentum effect is more pronounced for small capitalization stocks.
  5. Studies also show sector momentum works in similar manner to stock momentum.

Besides the academic world actual market practitioners have also studied momentum based strategies and found that momentum based strategies work. In next part we will look at some of these researches.

So your starting point for developing a setup should be to base it on momentum. There are many ways to rank stocks by momentum. Once you rank them by momentum you can look at entry on pullback or consolidation.

Momentum can make you millions once you understand how to exploit it.

Become process oriented if you want to make money trading

Posted on 6/20/2017

Start with process flow if want to improve your trading

However imperfect it is start first by setting up a process flow for trading any setup you like.
Many setup ideas have been detailed on this site.
If you like Stockbee 4% b/o setup a process flow
If you like Stockbee  $ b/o setup a process flow
If you like Stockbee anticipation setup process flow
If you like trading news set up process flow
If you like mean reversion setup process flow
If you like beaten down stock setup process flow to identify and buy them
If you like Stockbee EP setup process flow to trade them
If you like to buy near 52 week high setup process flow to
If you like to trade earnings setup process flow
If you like to trade stocks that go up 300% in a year setup process flow to find and buy them
If you like Stockbee Lemonade strategy set up process flow to trade it
If you like to trade others picks setup a process flow to find and trade them
If you like to trade IPO setup process flow to find and trade them
If you want to trade options setup process flow to find and trade them.
If you like to trade stocks that start with A setup process flow to find them
If you like to trade stocks that start with Z setup a process flow to find them

Unless you have a process no miracle can make you good trader or investor.

Once you have process you can start to improve it
Once you have process you can do things in less time
However imperfect your process , it is the first starting point to becoming profitable trader.
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.
If you read say Darvas book, unless you have setup detailed step by step process to find those stocks and trade them , you will not find the 2 million like him.

Unless you have a process you will be overwhelmed and confused

Unless you have a process nothing happens.
Once you have process you start finding trades.
Once you have a process you follow it to enter those stock.
Once you have process you know when to exit them or put stop.
As you trade more a process you will find simpler ways to do same thing.
Once you have one good process for swing trading going well then you can add more processes.
When developing processes think simple.
Simpler a process and less the steps involved in it easier it is to perform.
If your process involves 10 steps something is wrong with it.
Learn to be process focused and money will come.
Learn from others who are highly process focused. They spend enormous amount of time setting up a process. The effort is one time. In the process of doing that they learn the method in detail.
Become process oriented if you want to make money trading . Start today.

To make money find setups

Posted on 6/19/2017

What do successful trader do that makes them successful. They trade specific setup ideas. Some trade only one kind of setup while some trade a bunch of setups. If market conditions change they change the setup or make minor adjustment to setups.

All successful traders have through research , empirical observation , setup templates from other traders have arrived at their own setup.

If you read How to Trade in Stocks by Jesse Livermore it details bunch of setups he discovered after trial and error.

If you read How I made 2 million in the stock market by Darvas it details how he developed his setup idea of trading high momentum and high growth stocks.

If you read How to make money in stocks by William O'neil it details the setups he uses to trade momentum and growth stocks.

If you read One up on Wall Street by Peter Lynch it details his setups to trade various situations.

If you read You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits by Joel Greenblatt you will see bunch of setups for value investors.

If you read Trade Like A Stock Market Wizard: How to Achieve Superperformance in Stocks in Any Market by Mark Minervini you will discover what setup he uses.

I have discussed several setup ideas on this site. I trade a bunch of setups around the core concept of momentum

Setups I trade
  • 4% bullish and bearish breakouts
  • $ bullish and bearish breakouts
  • Anticipation bullish and bearish 
  • Low threshold bullish and bearish breakout
  • Episodic Pivots
Traders specialize in setups and their thinking and behavior is driven by their understanding of setups. If they don't find their setups they do not trade. 

They know a vast amount about their own setups and why they work but they do not necessarily are experts on others setups.

If you talk to lot of successful traders you will find they had real breakthrough once they discovered a setup and focused on it.

If you do not understand the concept behind setup selection you will struggle for many years. You will flirt from ideas to ideas. You will curse the market. You will say market is rigged. You will say everyone is out to get your money.

Unless you understand setups as key to profitable trading you are unlikely to make much money. 

Learn setups. Setups give you complete set of rules for every element of a trade for a particular timeframe or style of trading. A well thought out set up for swing trading will give you everything you need to do to trade that setup successfully. Once you understand it you will be able to trade it on your own without needing help. Most people who have very well defined setups have taken 5 to 10 years to arrive at it.

If you have well defined setup , you would be able to instantly recognize good opportunities and enter or exit them.

If you have well defined setup, you will be able to prioritize ideas and not waste time on marginal stocks or others ideas.

If you have setup oriented mentality you will ask everyone who posts trade idea to find out what setup generated that trade.

If you have well defined setup you will know instantly your entry, exit stops rules and not be a clueless person post entry. You will not be asking others what you should be doing or what is the target on this stock.

If you have well defined setup, you will not be easily influenced by any and every new tactic people talk about or sell as the new new thing.

If you really understand the language of setups you will not waste your time on all the macro discussion and end of the world scenarios.That is not a tradable setup.People who write those scenarios do not have tradable setups so they spend time creating fiction.

Focus your energy on finding good setups and mastering them, once you do that trading is enjoyable activity. 

Short term big moves in stocks often have a news catalyst

Posted on 6/14/2017
Short term big moves in stocks often have a news catalyst.

TSLA was up 16 dollar yesterday on analyst upgrade. Such moves can be highly profitable for nimble traders.

In order to catch such moves early run a pre market scan looking for stocks up 2% plus before open. Not all of them will be big winners but some can make explosive moves.

If you are looking for short term swings or day trade then systematic analysis of daily news offers you daily candidates roaster.

Stocks release news after hours and before market open. This kind of news can move the stock immediately and in some cases start a multi month or multi year rally.

News that tends to move stocks big often is of following kinds:
  • earnings surprise to either side
  • earnings guidance
  • brokerage upgrades/downgrades
  • CEO/ CFO change
  • insider buying
  • new product/service launch
  • analyst conference
  • new drug approval
  • govt policy change
  • SEC action
  • IBD front page story
  • IBD New America highlight
  • Seeking Alpha pump and dump

If you want to catch good day trade moves focus on these everyday. Become an expert in reading and analyzing news. Everyday at end of the day look at stock that went up big for the day and look at what kind of news precipitated that move. If you do it for 6 month plus you will understand what news moves the market and what news to ignore.

There are many paid sources of news like Bloomberg, Briefings, Fly on the Wall and several others that give you news as it happens. Many free sources like Marketwatch, Seeking Alpha , Benzinga and many others are free.

A good news paired with good setup can often lead to explosive moves. If a stock already is setting up well and news comes in it is best setup.

Spend early morning hours pre open looking at price moving news. Compile a watch list and then focus on those stocks during the day.

Use absolute momentum if you want to make money

Posted on 6/01/2017
There are two kinds of momentum: relative and absolute momentum.
Relative Momentum
Relative momentum is used as rank function to find stocks performance relative to other stocks or an index. 
Relative momentum in simplest form is ratio of stocks price % change for a given period to indexes or others stocks price % change. 
The IBD relative Strength ranking method is an example of that. It ranks stocks from 99 to 1 based on a 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
Absolute Momentum does not rank stock in relation to other but identifies the direction and strength of momentum.
Absolute momentum compares stocks current momentum to its past momentum and tells you when a stock has started momentum phase and when it ends it.
Absolute Momentum tells you when stock is in momentum phase and it also tells you the velocity of the momentum move.

Absolute momentum allows you to identify start of a momentum phase and get on the trend earlier.
Best way to understand relative momentum and absolute momentum is by taking an example of a bear market.
Let us say we are in protracted bear market where every stock in US market is down at least 30%.
Now in that market IBD relative ratings will still give you top 50 stocks by momentum, But each of those stock will be in downtrend.
Absolute momentum scans like TI65 , MDT, DT, or even Minervini Trend Template will give you 0 stocks meeting momentum criteria.
Relative momentum by itself is not much of use that is why even I BD uses Relative momentum + absolute momentum (stock has to be within 15% of 52 week high) to find stocks.
For whatever reason IBD ranked the stocks the way it did and popularised it , but you don't have to be lemming and follow it blindly if there are better ways to find momentum.

If you want to make money trading learn about absolute momentum. It will allow you to find stocks right at start of their momentum phase.