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Steps you can take to make serious money trading

Posted on 2/16/2018

However imperfect it is start first by setting up a process flow for trading any setup you like.

Setups are set of conditions that must be present to trade a stock. Setups are often also called trading strategies or patterns. There are many profitable setups in public domain which work very well. In 18 years of trading the markets I have not seen a secret setup. (many claim they have secrets , but dig a bit and they are just public domain setups cleverly marketed as secret sauce.)
I have extensively written about the setups I use and detailed them multiple times. They work for me and many people over the years have used them , adopted them , refined them.
The most important key to making money from any setup idea is to convert it in to process and fine tune the process. Just trying it for one week does not work. 
4% breakout, $ breakout , Anticipation , Episodic Pivots, Lemonade Strategy, momentum burst are some of the setups I trade and I have detailed them here. 

If you like $ b/o setup a process to trade it
If you like 4% momentum bursts setup develop a process flow
If you like anticipation setup develop a process flow
If you like trading news and upgrades then set up process flow
If you like CANSLIM, then setup process flow to find and buy IBd kind stocks
If you like 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 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.

Process orientation will make you an independent trader not dependent on others picks. It will help you develop confidence.
Once you have process you can start to improve it.
Once you have process you can do things in less time and start to focus your efforts.
However imperfect your process , it is the first starting point to becoming profitable trader.
Unless you understand that and internalise that you will continue to flirt from setup to setups or newsletters to newsletters or one stock picking service to another stock picking service. 

In the beginning run only one or two processes. Your brain will not be able to handle many processes simultaneously. So be less ambitious .

First question you should always ask is what is the process to do this. 
You read a trading book  by Market Wizard, fine but unless you have a process to convert that books trading idea nothing will happen.
You see some Twitter personality claiming he has made millions, fine , but unless you can replicate the process you are not going to make 100 dollars. 
Always hunt for processes not stock picks.  

Stop following others picks

Doing that will make you dependent instead ask what is the process flow the person uses.
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.
If you want to make money trading 4% breakout , setup a scan , process flow and then follow it . If you do it right you will find and trade exactly the same stocks I find using the same setup. 

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 over time. It takes years to master a process. Darvas struggled for 7 years before perfecting a process flow and then made 2 million in 18 months. Most Market Wizards struggled for 10 years before doing well.
All setup ideas I trade are very simple. They do not use complicated indicators or fancy maths. A 10 year old can understand my setup and processes. My daughter started doing this when she was 10 and she can run all my scans and processes on her own .
Become process oriented if you want to make money trading . Start today.

There is no magic in the scans I use

They are very simple scans and by just using those scans you will not go anywhere unless you design an efficient process flow around it.
Once you have process in flow things happen automatically.
Become process oriented today if you want to make millions of dollars trading....

Develop your setup understanding daily

Posted on 2/14/2018

First thing in the morning I obsessively study stocks that make 8% moves and 5 dollar plus moves in 5 days.
Those are the kind of stocks I want to be in next week.
By studying them daily, I remind myself of what works and what to look for in swing moves.
When you do it over and over again you start finding small nuances to look for in successful breakouts.
The process also help to embed in your brain a short term momentum burst move.
Sometime while going through them you start questioning some of your own guidelines for selecting trades or you start questioning commonly touted market rules.
One of the best reason for doing this is it is based on actual past winners in immediate time frame. It gives you lot of information on what is working currently.
Most days it takes only 10 to 15 minutes to do this. Some days while going through them you find something and then it can trigger a deeper study.

A 8% plus or 5 dollar plus move in a short 5 day time period is a explosive move and it is the kind of move everyday we are trying to exploit. Thousands of moves like this if traded with proper risk control and tight stops can make our year.
There are many traders who are obsessed by the index moves and you will see everyday they spend considerable time analyzing them using chart patterns or pivots or support and resistance.
But as a swing trader my primary focus is on finding individual stocks with explosive short term moves. Index is just a backdrop.
The process of going through these past immediate winners helps us incrementally improve our trading as we gain better insight.
As a swing trader we want to focus on explosive short term moves of 8 to 40% in 5 days or 5 to 25 dollars in 5 days.

That particular move we call momentum burst has certain unique dynamics to it and based on study of thousands of such past moves we have derived our trading scans and guidelines for entry, exit, risk, stops and setup selection.
If you want to trade breakout or anticipation setups , you should be your own expert on it. A book , or a blog , or a twit is not going to help you much unless you start getting in to depth of that move. And it is easy to do this once you set up time for this on daily basis.
You need to have very good understanding of 5 day timeframe. Same way if you want to be position trader you need to be expert on one year timeframe..
This kind of approach is very narrowly focused on a very specific phenomenon in market. It helps you to focus on most explosive part of a trend move.
In order to master a setup or an idea you need to be at it day in and day out. If you do it for few months , you see things others may not see , or gain insight others may not have. If you do this for six month on your own you will gain more insight in to markets and more importantly find very profitable setup and you will own it up as it is based on your own unique understanding of it.
Study these 8% moves closely to see how the move happens.
What was the setup before the start of the move
What was the 5 day action before start of this move
Was the stock up or down before start of the move
Was it near 52 week high or low
what kind of Trend Intensity it had
what triggered the move
what kind of breakout
How much was it up on first day of breakout
what kind of volume on breakout and pre breakout and post breakout
how did the move progress
what was the magnitude of move in first 3 days
and so on...
A daily effort like this cumulatively builds your understanding of the setup you trade.
Because if you want to find 8 to 20% moves in 3 to 5 days, you must know thousands of such moves. So that when a similar setup shows up you can instinctively and instantly react to it.
There are many variations of the 3 to 5 day momentum bursts you will find if you do this for months.
Some are high tight flags, some are double bottoms near top of the range, some are bottoming setups from 52 week low, some are part of range bound action. But most share some common characters.
Moves of 8 to 20% start from some kind of pullback or sideways moves.
They most often start with narrow range days.
They are not up 3 days in a row before start of the move.
Most have low volatility phase prior to breakout.
On the first day of start of their 8% plus move they have significant range expansion.
Most moves only last 3 to 5 days before having pullback.
If you know this you can anticipate some moves.
You can figure out where to enter, where to exit, where to put initial stop, where to move stops and so on.
The best part of doing it is , you will build your own knowledge and base your trading based on your own observation and your own derived rules based on what "actually" happens in a the market.

In order to do this I run 2 scan one bullish and bearish.

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
After running the scan everyday I study these moves. The first thing in the morning I review these candidates. Write down my observations, capture images of some of them, put notes on those setups and so on.
You can use the above pcf in Telechart as Custom PCF% True indicator. That will show you periods where this condition was true for that stock. That way you can study thousands of these past moves.
You can also use the Custom date sort feature in telechart to find 8% plus movers for any specific time frame in the past ( for example you want to find say 8% bullish moves during market correction)
For longer term moves study I stocks up 80% plus in a year.
Doing this daily everyday builds incremental expertise. If you do this you will also figure out what to look for in anticipation setups.
While there is lot of noise in the market and people peddling their own unique methods, and thousands of blogs and million twits a day on stocks we don't have to fall prey to them , we can build our own unique understanding of market one day at a time with small amount of daily effort.

Develop Situational Analysis (SA) skills to avoid big drawdowns

Posted on 2/13/2018
If you want to make money in the stock market you must develop good Situational Awareness (SA). 

SA allows you to be aggressive during good times and change your setups and tactics depending on market situation.

Situational Awareness (SA) is a US Air Force term coined during Vietnam war. It means pilot should always be proactively aware of their surroundings and other planes in their vicinity and accordingly adjust their flight paths.

SA is a higher level skills and once you develop it you will avoid drawdowns and be always 3 steps ahead of impending market moves. 

Developing Situational Analysis skill

Is about trying to gauge the conditions under which market is operating.
First thing in the morning spend few minutes developing Situational Awareness. Write it down.
Make it a habit. It takes six weeks for a habit to become part of you.

Look at questions on market like :

Where are we in longer term multi year trend.
Where are we in current bull or bearish phase (at start or near top)
What is driving this move
What is the predominant theme (growth, turnaround, value, junk)
What are the breadth trends telling us...
What is the likely 5 day scenario from here
How should I position myself accordingly.
How aggressive should I be in chasing breakout.
Should I wait for a short setup to develop...
Should I tighten stop...
Should I go in capital protection mode...
These kind of Situational Awareness you need to develop as part of your trading skills development.
Only way to do it is to do it daily. First few days you might be bad at it, but if you persist and do it for 6 weeks or more, it will become part of you. Instinctively you will do it first thing in the morning.

Making money from news plays

Posted on 2/12/2018

Last week was one of the best week for trading in 2018 due to high volatility and news plays making big moves.

SNAP was a big news play and offered a 25% move on day of earnings from open. TSLA was good short play on news after earnings making over 50 dollar down move before recovering. IRBT , CBOE, XOM, YELP, WFC were other good news plays.

Short term big moves in stocks often have a news catalyst. 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.

Watch breadth if you do not want surprise

Excess bullishness was building up for days. As you can see the number of stocks up 50% in a month was above 20 for long stretch. Such excess bullishness is precursor to market corrections.

Breadth deterioration in last 5 days prior to yesterday was another sign of distribution building up to the selling yesterday.

Enough warning was there about possible correction if you had right tools.

What happens next? Typically such panic induced moves resolve in short term bounces. A breadth extreme of 1000 plus day on stocks down 4% plus would be better. That washes out sellers.