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What to look for in a good swing breakout

Posted on 9/27/2017
First leg should be linear
Not up 3 days in a row
Orderly consolidation /pullback pre breakout
No 4% breakdowns in consolidation/pullback
Day prior to breakout is either negative day or narrow range day
Closes near high
These are the criterias used to select candidates from 4% b/o and $ b/o scans.

xone.png
XONE : First up leg linear . Breakout today (4b/o). Not up 3 days in a row. Closed near high.


rdnt.png
RDNT  : First up leg linear . Breakout today (4b/o). Not up 3 days in a row. Closed near high.

GOOS BRC ADTN other good setups

If you want to make money swing trading develop these scans and you will find good setups daily.

Stockbee Low Threshold Breakout (SLTB)

Posted on 9/25/2017
SLTB helps you find another buy point in a stock with established momentum. Not every stock shows up is Stockbee 4% breakout or Stockbee $ breakout scan because they often breakout with lower tyhreshold price or volume move. The SLTB helps you profit from those setups.


SLTB scan for Trend Intensity Above 1.05


minv3.1>=100000 and c>=1 and avgc7/avgc65>=1.05
and c>o and c>c1 and c/c1>c1/c2 and c1/c2<1.02


minv3.1>=100000  looks for stock with atleast 100000 plus volume in last 3 days
c>=1 stock  price is above 1


avgc7/avgc65>=1.05 finds stock with Trend Intensity above 1.05  (it gives you stocks with established momentum)


c>o close is above open


c>c1 price today is higher than price yesterday


c/c1>c1/c2 price % change today is > price % change yesterday


c1/c2<1.02  price % change yesterday was less than 2%


SLTB scan for stocks above 200 day moving average


Use this if you want more candidates . This looks for stocks above 200 day MA but that have TI 65 less than 1.05 that had SLTB


minv3.1>=100000 and c>=1 and c>o and c>c1 and c1/c2<1.02 and c/c1>c1/c2 and c>avgc200 and avgc7/avgc65<1.05


Guidelines for selecting setups from these scans are similar to 4% or $ breakout.


Major advantage of SLTB is low risk entries in established momentum stocks.


It can allow working people to find low risk entries which work with next day entry.


It allows you to put very close stops , reducing risk.

It allows you to find good low risk entries on pullback setups.


Super-performance Stocks By Richard Love : Key points

Posted on 9/19/2017

Super-performance StocksBy Richard Love: An Investment Strategy for Individual Investors based on 4 year political cycle


_______________________________________________________________
As the subtitle of the book indicates part of the book is based on the 4 year Political cycle. The author's contention is that because there is a Presidential election every four years, the economy is managed in such a way that two years prior to election there is a boom and most of the problem in economy surface after election. I do not necessarily agree with that reasoning and so the first part I will skip and look at rest of the book.



  • First consideration in buying stock is safety.
  • Safety is derived more from the good timing of purchase and less from the financial strength of the company.
  • The biggest stocks and growth stocks also decline during bear market. Even income stocks (stocks with high dividends) decline during bear market or periods of high inflation
  • Most stocks are price cyclical
  • Buying stocks as the market rebounds from bear market lows. It is the safest time and it offers the best opportunity for large capital gains.
  • The best time to buy most stocks is when market looks like a disaster. It is then that the risk is lowest and potential rewards are highest
  • Buy for large capital gains
  • I believe that the investor should look for stocks that are capable of tripling in value within two years. Since it is unlikely that the investor will buy the stock at lowest price and sell it at highest, it is more likely that he will double his investment rather than triple it.
  • Stocks should not be purchased unless there is a good chance of a big move.
  • Superperformance= SPF (as short form)
  • The selection of common stock for large capital gains depends primarily on a search- a search for super-performance (SPF)
  • I define SPF stock as one that tripled in last two years.
  • Rate of price increase >300 in two years
  • Move was considered ended if price failed to make a new high in last six months
  • Or a if there was a price correction of more than 25%
  • Super-performance has occurred in well known growth stocks and it has happened in well known mature companies at some stage in their growth.
  • It is triggered by many actions such as earnings, mergers , but most often it is found in stocks that are rebounding from oversold conditions, such as those characteristics of bear market bottoms.
  • When you invest in common stock you must make three correct decisions: when to buy, which stocks, and when to sell. The evidence is overwhelming that really good price gains are made by stocks as they rebound from bear market bottoms.
  • SPF price action is not consistent year after year in even the greatest growth stocks. The stock prices usually move rapidly upward for a period of months or several years. That stage might be followed by price reaction or sideways price moves. After a period of consolidation, which sometime lasts for years, there might be another SPF stage.
  • Price SPF phases like these can be highly rewarding financially in a relatively short period of time.
  • Many SPF moves can be correlated with earnings increase by companies.
  • Most SPF stocks belong to small companies with relatively few shares of stocks.
  • Most SPF stocks experience severe declines after SPF phase has run its course.
  • Three causes for price reactions in SPF: weakness in general market, overpricing of stocks, and drop in stock's earnings. Stock price begin to slide much before earnings slide.
  • A winning combination in potential SPF stock is rapidly rising earnings, a small supply of stock, low P/E, and a product that promises strong future growth.
  • Superperformance= SPF (as short form)
  • After you decide on ideal time to buy, next question is "which stock"
  • Look for price volatility . The volatility a stock experienced in past continues in future. Look for highly volatile stocks.
  • Volatility is a result of company's size and nature of the markets for its products, its financial leverage, and volume of trading in its stock.
  • Volatile stocks have larger swings.
  • Huge and mature corporations do not have high price volatility. Small and medium companies do.
  • Large % increase in price is caused by a number of factors, but particularly by the size of the float.
  • Demand for stock is determined by several factors including: price levels, price action, future outlook, earnings trend, overall market direction, sponsorship, cost and availability of money
  • Some of the strongest SPF price moves have been result of a severe imbalance between the limited supply and the demand of investors.
  • Opportunities for a big gains in stock market are most likely to occur in relatively small companies than in companies with many millions of shares outstanding. Look for small company introducing a unique product that is likely to become widely used. This is the combination that has time after time resulted in dynamic growth and volatile SPF price action.
  • Financial leverage in a stock is often responsible for high volatility in the stock's price. In such companies reported earnings can fluctuate greatly if there are large amounts of debt in the capitalization.
  • Stocks with high leverage offer good opportunities for profit provided you can time entries and exits. Such stocks are risky but very profitable.
  • A stock has high leverage if the company has high proportion of bonds and preferred stocks relative to the common stock.
  • A relatively modest increase in income in such companies leads to disproportional increase in EPS
  • Airlines and utilities are best examples of high leveraged companies.
  • When high leverage is combined with an erratic income pattern- such as railroads or certain cyclical businesses, volatility in EPS can occur resulting in great volatility in stock price.
  • Financial leverage is also found in warrants, stock options, and in many low priced stocks.
  • Retail sector is another high leverage sector . Retail tend to have high volume but low margin. Any improvement or deteriorations in margins have strong impact on EPS
  • High leverage is involved when a small company discovers large oil field or metal ores.
  • Safety is sacrificed when you select company with high leverage. High leverage companies have greater danger of going bankrupt.
  • During periods of recession, when profits decline for most businesses, companies that have large amounts of debt sometimes have no profits at all. But as the national economy emerges from recession, corporate sales and profit margins improve. The % increase in profits can usually be larger than for stocks with small leverage. Highly leveraged companies, then, are even more business cycle sensitive and often are buying opportunities when the stock price is depressed.
  • Another type of leverage is that found in low priced stocks.
  • Best place to look for Superperformance (SPF) stocks is among stocks selling at 5 to 20
  • Comparatively few high priced stocks move in to SPF action
  • Cyclical stocks often have abrupt declines in sales or earnings that are temporary.
  • Many low price stocks have only temporary problems and can rebound if earnings and sales rebound.
  • Another kind of leverage is warrants.
  • A warrant is preferable to buying common stock.
  • Avoid warrants with less than one year to go before rights expire and options become worthless.
  • Look for new earnings power
  • Primary objective of companies is profit.
  • Companies are not in a business to make automobiles or soap or television set or widget, they exist to make money.
  • Investors should evaluate companies from the point of view of their profit generating potential.
  • In established companies earnings are predictable. Most of them are too large to be affected by new products. Their product lines are too extensive for a new product to make dramatic change in profit.
  • But in smaller companies profit are strongly affected by change. Their prices often do not reflect changes like new product launch or new management.

  • One place to look for new earnings power is to look where change is happening.
  • Change means opportunity, and change is one thing that is certain.
  • Wars begin and end
  • Fed policy changes from tight to plentiful
  • Technology changes constantly
  • Technology changes during past century have afforded countless opportunities for profit.
  • New industries in last century were
  • railroads
  • automobile
  • airplanes
  • electricity
  • radio
  • computers
  • rocketry
  • electronics
  • birth control pills
  • mobile houses
  • travel
  • Many shareholders who bought shares of these companies at early stages profited handsomely
  • Today there are other companies in similar early stage of development
  • Change in company might involve change of management or acquisition of another company
  • Major mineral or oil find
  • Change implies the introduction of a new element that has not been factored in to current stock price.

Look for structural setups

Posted on 9/14/2017
In your trading journey you will have significant breakthroughs once you learn the language of setups. Profitable traders think in setup language while novices think in individual stock term.
Novices dream about holding stocks forever. Novices think in terms of killing it in market without knowing how. Novices are suckers for stock picks.
In a day you will see several posts by members about individual stocks. Something catches their fancy and or they know about a particular stock and they are enamored by it and want to know whether it is good buy or not.That thinking is not much of help.
Setup oriented thinking is about finding a basic strategy with significant edge. Setup oriented thinking is about timeframes, holding periods, size, risk management.
Setup oriented thinking is process based thinking. It is how do I find this kind of stock again and again kind of thinking. It is about ways to catch fish.
Setup selection is key to successful trading. Setup selection allows you to condition your behavior. It allows you to develop your procedural memory. It allows you to automate your thinking. Setup selection will bring clarity to your thinking
When it comes to setup selection your time frame is very critical. A setup that is good for day trader may not be good for swing trader. A swing trading setup may be extended setup for position trader.
First step in setup selection is to decide your timeframe and then look for setups in that timeframes. If you want to be position trader , then study position trading setups.

Look for " Structural Setups"

Structural setups are inherent to how markets operate.
Momentum burst is structural phenomenon
Range contraction is followed by range expansion is structural
Mean reversion is structural
Momentum is structural phenomenon
PEAD (earnings b/o) is structural

Setups I trade

EP
4%
$ b/o
Low threshold b/o
Anticipation

Write your own ACTIONABLE Situational Awareness (SA) Daily

Posted on 9/08/2017


Make a habit of writing your own SA everyday. It should be actionable SA like say be aggressive on long side, stay out of market till reversal happen, or anticipate a turn, or tighten stop on existing position, or sell in to strength, or fade this move.
Situational Awareness is very critical for swing traders and position traders. By definition day traders have to trade everyday so it does no matter to them.
Situational Awareness will help you avoid risky periods where your setup is not likely to work.
It will help you identify periods where your setup is likely to do very well and then you can step on gas pedal.
SA will allow you to adjust your tactics like say letting trade run if your SA tells you this is start of a new bull market. Or take profit early if the trend becomes weak or likely to fade.
While some stocks will work independent of the market direction, majority are influenced by the market. Especially at turning points in market this is important.
If you want to be in this game for long term and keep your profits develop SA skills by practicing daily.
You will see that all successful traders have some sort of market timing model which helps them avoid some periods in markets.

Don't focus on what others think.

Develop a logical framework for your own SA. My framework is driven by market breadth trends, but you can develop your own framework based on market structure.
Do your own analysis and write just 4 to 5 lines everyday.
See if market is acting as per your SA. Refine and refine your process over days or months till you are very confident in the game.
In few months you will develop confidence in your own judgement and SA will become integral part of your daily market thinking.
Above all SA will help you to make and keep money.

What is your SA for today

For active traders anticipation gives you good risk reward

Posted on 9/06/2017


Let us look at NVDA trade recently.
Because it was in anticipation watchlist and I had orders ready for entry , the entry was very close to breakout.
Entry= 166.53
Stop= 166
Exit at 171.2
Risk = 53 cents per 100 shares
Profit = 467 per 100 shares
Reward/risk= 467/53= 8.8

So even though the trade in % term made only 2.8 in R/R term it was 8.8 times risk trade.

How many of would you like to find and trade setups where your risk /reward is 8 times plus.
Anticipation allows you to do this. That is why your first priority setup should be anticipation. Better job you do of anticipation better will be your risk reward.

Risk= entry-stop

The closer you can keep your stop to entry better it is.

On lower price stock you may not be able to get very close stop even with anticipation but on higher priced stocks anticipation can give you extremely close stops and the R/R can work in your favor very quickly.
Think about this  if you are full time active trader.