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Most stocks start their swing move or big move with a 4% breakout. You can validate this for yourself by looking at every big winner last year.
Stock moves start with a momentum burst and that basic tendency of the stock moves has not changed since stock markets started.
If you just do a good job of focusing on 4% breakout you will find the best opportunities in market every week.
Process Loop
I run scans like 4% and $ breakout along with my anticipation watch list and low threshold breakouts throughout the day and trade candidates as and when they show up and meet my criteria.
The 4% scan and process loop
c/c1>=1.04 and v>v1 and v>100000
The scan looks for a stock with price and volume surge.
The stock should be up 4%,
volume should be higher than yesterday
and volume should be greater than 100000.
Once you run the scan you will get several stocks meeting the scan conditions , but they are all not buy candidate.
A buy candidate should meet the setup definition for a breakout swing trade. If the context of the breakout is right , it should be bought for 3 to 5 day hold trade.
A good setup should show following characters:
stock should close near high
prior to b/o day there should be a narrow range or negative bar
stock should not be up 3 days in a row
stock should have a narrow range sideways consolidation or narrow range orderly shallow pullback prior to b/o day
the previous leg of up move should be linear
the breakout should be first to third setup since start of the move
as far as possible look for young trend and not extended trend ( youngsters defined by number of days stock has been rallying in overall move)
first and second pullback/consolidation in rally are preferable
extended rallies are vulnerable to correction and b/o failure
In process term I run the above scan from 9:30 onward and look for candidates meeting setup definition. As and when they show up I enter. The stop is low of breakout day
This is an example of process flow to find swing trades daily.
The $ b/o scan and process loop
c-o>=.90 and v>100000
The scan looks for a stock up 90 cents plus. It is more useful on high priced stocks above 40 as they do not often breakout with 4% move.
The stock should be up 90 cents plus.
volume should be greater than 100000.
Once you run the scan you will get several stocks meeting the scan conditions , but they are all not buy candidate.
A buy candidate should meet the setup definition for a breakout swing trade. If the context of the breakout is right , it should be bought for 3 to 5 day hold trade.
A good setup should show following characters:
stock should close near high
prior to b/o day there should be a narrow range or negative bar
stock should not be up 3 days in a row
stock should have a narrow range sideways consolidation or narrow range orderly shallow pullback prior to b/o day
the previous leg of up move should be linear
the breakout should be first to third setup since start of the move
as far as possible look for young trend and not extended trend ( youngness defined by number of days stock has been rallying in overall move)
first and second pullback/consolidation in rally are preferable
extended rallies are vulnerable to correction and b/o failure
In process term I run the above scan from 9:30 onward and look for candidates meeting setup definition.
As and when they show up I enter. The stop is low of breakout day.
I am looking at hold periods of 3 to 5 days on these trades or even lower as long as they give 8% to 20% profit. For $ b/o I am looking for 5 to 20 dollars move in 3 to 10 days. Once I am profitable I am looking to move stop to break even and protecting open profit aggressively once it is more than 8 %.
Where to exit
These exit guidelines are specific to swing trading and 4% and $ b/o setups.
Exit at least 50% of position on third day at close. by third day the moment stocks goes up start protecting profit by moving stop 25 cents below the high.
When swing trading it is critical to take profits in to strength.
After your entry next day or same day if the stock goes up 8% or more exit 50% of the position and move stop 25 cents below the high of the day to protect profits.
Exit a stock in pre market or at open if it gaps up 20% or more after your entry next day or third day.
The essence of swing trading is about capturing such explosive moves and selling in to strength.
If a stock does not follow through in 3 days exit or move stops to break even If stock starts to fade gain after entry exit same day.
If you study the stocks up 25% or more in a month you will see that they make bulk of their move in 3 to 5 days out of 21 trading days in a month.
Typically most of them go up for 3 days after breakout and then spend next few days going sideways or giving up part of the gains made during those explosive 3-5 days.
These are exit guidelines for swing trade not absolute rules..
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