Develop Situational awareness skills

Objective of SA is to avoid drawdowns and be proactive in adopting your trading to market conditions.

SA has to be daily exercise , you can not just think of SA when you get hit with big losses.

SA needs to be actionable. It might be like avoid new position , reduce risk to X %. Or move stops to protect profits.

SA should answer

What is your market bias today
Is there a plan to exploit it
Is there an alternative plan


If you want explosive returns study explosive moves

Swing traders try to capture short term explosive moves in stocks. Stocks move in explosive 3 to 5 days momentum bursts. Swing trader either use anticipation or breakout to profit from these explosive moves.

If you are serious about your trading and want to profit from swing trading you can do things that will make you a better swing trader.

Study everyday stocks up or down 20% or 10 dollars in last 5 days. 

The above 4 scans will give you stocks that  this week are making big explosive moves. Study them everyday and note down your observations.

As swing trader you want a scan or method to find these kind of setups daily. In order to do that you need to observe how they set up, how they breakout , how they progress and everything about them. 

Based on those observation you know which is a good setup. You do this study over several hundred candidates and you will learn the nature of these moves.

Based on those observation you know whether to buy stocks with prior day low range or negative day.

Based on those observation you know whether to buy stocks up 3 days or not.

Based on those observation you know where to put stop and why and how to move them.

Based on those observation you know where to exit and why.

Based on those observation you know whether to focus on all time high , 52 week high , 52 week low and why.

Based on those observation you know how high priced stocks move and how low priced stocks move.

Based on those observation you know whether p/e, or IBD ratings or p/s or any fundamentals matter or not for  swing trading.

Based on those observation you know whether EPS growth matters or not.

Based on your actual observation of these moves challenge every wisdom you hear or read about swing trading.

Every secret you need to swing trade successfully you will find if you daily study these explosive stocks.

Do this daily for 90 days and everyday your trading will improve and on 90th day you can burn all the books on trading ....

If you want explosive returns study explosive moves...


Learn to do it yourself

Do not just jump in to trade based on someone else signal.

Define your setup and trade your "own" setup
Keep things simple. Do not trade too many setups. Do not introduce unwanted elements in your decision making. Do not jump from setup to setup.
Perfect it to level where you are the authority on your setup. Study 5000 plus examples of how that setup has worked in the past.
Above all simplify , simplify, simplify. If a 10 year old can not understand your setup, you are doing something wrong."
"Do the same shit again and again and again , till you become that shit expert. "
Everyone trades same basic kinds of setups like breakout, pullback , pivots or exhaustion. There is nothing new or proprietary in that. Pick one setup idea and go in depth of it.
Do not worry too much about others setup.
Why you need to focus only on one setup is because procedural memory is task specific. Procedural memory is built only if you do same shit hundreds of time. The same process repeated again and again creates that process memory in your brain. Next time you can do the task effortlessly. It becomes automatic task.
Shorter the time frame you trade more refined the procedural memory you need. For scalpers if he is not responding in nano second speed the trade is gone. Same way for day traders they have highly task specific procedural memory. They can quickly identify trade , enter and exit. Knowing their setup alone will not help you till you have developed those quick reflexes. Absent that procedural memory you will be too slow to respond.
Procedural memory is key to trading any setup. Work on your procedural memory development rather than spending your time reading macro shit and bearish porn. As long as human society has existed, there has been only one way to make your living, by developing a procedural memory in a specialized task. Procedural memory makes you money. Knowledge does not."

In nature every animal uses a setup to hunt for food. If you watch National Geographic or Discovery channel a lot you will see each animal has a setup. The tiger waits patiently near the water source hiding, waiting for his prey to show up. Once all conditions line up he instinctively jumps and runs his prey down. He does not chase anything and everything , he waits for a perfect condition. Same way you need to wait for your setup and not worry about what others are doing.

When I see my setup , between identifying the setup and entering it there is less than 10 to 15 seconds gap. If I see a setup, instinctively first thing I do is hit the buy button. In fraction of a second from identifying good setup I am in in all the accounts I trade. Same way for exit. I am watching a stock and feel it is not acting right or reaching target in few seconds I am out.
You can try many setups and many newsletters and many trading mentors and read all the books on trading psychology but unless you develop a procedural memory for a specific setup, nothing much is going to work.

If you want to make millions trading learn setup and processes. 


Stops and exit and a setup

Stops and exit are inherent to a setup

There can not be a stop or exit strategy independent of a setup.
They are inherent to your setup.
So if you have a problem of setting stop or exit you have setup problem.
For swing trading stops and exit are based on your swing trade setup.
If you are say buying support and selling at resistance , your stop will be violation of support for long postilion. Your exit will be near resistance.
For momentum burst kind setup stop at low of entry day is logical as any revisit to low of the day tells you the momentum burst failed.
For more aggressive momentum burst traders a stop even higher than low of day is workable.
Same way exiting before momentum fades are reverses is integral part of the setup. You are not entering that setup for long term hold.
Some swing trading setups like mean reversion or pullback buy setups do not use stops as the setup becomes even more attractive as it further pullback.
But then those people control risk using position sizing .
In essence for them size of position itself is a stop. And there exits are also time dependent or ATR based.
Stops for long term setup depend again on your setup. If using trend following setup then logical stop and exit is if the trend changes.
Trend followers typically give lot of room for their trades to run as few big trades in a year make their returns.
Many trend followers use faster trend definition to put stop as trade moves in their direction. So if entry is on say break above 50MA , then stop is breakdown below 50 MA.
Once the trade start to work they move stop to say 25MA and as it further progresses to 20 MA and 10 MA and so on to protect open profit, so they exit once stop gets hit. That way they can stay in trends for longer duration.
If your setup is valuation based then obviously if stock goes down valuation is even better, so they do not use stops. But again position size becomes stop for them. Exit for them is based on valuation reaching their goal or becoming stretched.
In short unless you have well defined long term setup, there is no general stop or exit rule.
Think through your total setup or strategy before just thinking of exit.

stops are inherent to set up.

What is your stops and exit strategy


Earnings Surprise= Free Money

There are always some stocks that have significant earnings surprise either to upside or downside. Such earnings surprises lead to rallies in such stocks.
PEAD (Post Earnings Announcement Drift) is a very well known and extensively studied market anomaly. Ball and Brown first documented the PEAD phenomenon in 1968. Since then hundreds of thousand studies have confirmed their findings across world markets.
As its name suggests, the PEAD is the tendency of stocks that beat earnings expectations to continue to drift upwards after the announcement, or likewise for stocks that miss earnings to continue to drift downwards.
Everyday during earnings season number of companies surpass earnings expectations or miss earnings. When earnings is announced it is compared to existing expectations. Iif the earnings is a major surprise to the market then the stocks reacts immediately to that news. Most of the time the stock with significant earnings surprise will make 40 to 100% move on earnings day itself. Depending on market conditions these stocks can go in to multi week rally. In uncertain market conditions, they tend to pullback and go sideways or form range and then breakout nearer to next earnings.
When looking for PEAD candidates , stocks with first or second significant earnings surprises and significant earnings growth lead to big moves. After a few quarters of earnings acceleration, everyone notices it and the reaction is more muted as the earnings get discounted. Very few stocks can consistently surprise on upside for more than few quarters.
There is a cockroach effect in earnings trends. One earnings surprise is typically followed by many more earnings surprises. When you focus on first earnings acceleration there is good chance your stock will have more such earnings. So effort spent in researching stocks during earnings season can pay you off for many quarters. The structural factors which contribute to earnings acceleration do not disappear in one quarter. That is why earnings trends persist and price trends persist.
To find these kind of stocks use NTRT/MTRT


Hunt for structural setup

If I have to give one advice to a new or struggling trader, it would be to hunt for a structural setup.

A structural setup is inherent to market behavior and is valid till market structure changes.

Lot of time discipline is touted as answer to trading problems, but if you do not have structural setup no amount of discipline and mindset is going to help you make money.

All successful traders trade a setup or a bunch of setups which they trade day in and day out. They have skill specific to their setup, which they have developed over several hundred trades and .

Setup is a set of conditions used to enter and exit a trade. It is a set of controllable actions a trader can take to identify, enter and exit a trade.

Successful traders have vast expertise on trading a very niche setup.

The problem for beginner trader is that as a beginner you will not understand the importance of a setup. Because there is no manual or book which tells you that the key to trading is to find setup.

The other problem is in the beginning you will not be able to distinguish between a structural setup and a fleeting setup idea. 

Any expertise is task specific. So defining a specific task to become an expert at is very critical.The first step in becoming a good trader is to arrive at a tradable structural setup. And then become an expert in trading that particular setup. It is a very microscopic skill.

What is involved in developing a setup is you start with a structural tendency of the market and develop process and guidelines to trade it. Then you refine the process and guidelines till it works. This is a iterative process.

The task for novice trader is to go from their current stage to a level where they have a setup which works for them and suits them perfectly. You will have immense confidence once you reach that destination. Once you can make a setup work, then it is easier to make other setups work or develop other setups.

So if you are a trader looking to progress your trading further hunt for structural setup and develop expertise to trade them.


How to find growth stocks using Marketsmith

Marketsmith is a scanning software offered by Investors Business Daily. It can be used to find growth stocks.
Growth stocks tend to make big moves during their aggressive growth phase. Identifying these stocks during such growth phase can help you find and trade many profitable moves.

EP 100/19

This scan is good for finding extremely fast  profit growing companies. For example a stock like SQ would show up on this scan last year during its fast move last year. 

EP Projected 50% EPS

Market is forward looking so this scan looks for stocks whose estimated growth is high for next quarter and next year.

EPS surprise 99% plus and growth 40% plus

Market rewards companies with big earnings surprise. PEADS post earnings announcement drift is well known stock tendency. This scan will help you find those stocks. 

Sales Growth 39% plus
Some companies are not yet profitable but growing sales rapidly. These are typically early stage growth companies.

Sales growth annual and quarter 39% plus

Both sales growth for quarter and year are above 39%.

IBD Cream
Classic growth stock screen to find stocks with good sales, eps, and margin.

IBD 29/29 EPS leaders Early Detection
Future leaders in earnings you want to find early. 

IBD 909090 (for busy people run only this scan)
High quality growth stocks with momentum currently favored by market. 

Mark Minervini Code 33
Based on his book

IBD funds increase
Stocks being aggressively bought by funds in last six month

IBD funds Decrease
Stocks being dumped by funds aggressively

IPO 8 years Profitable
Young companies with growth can be big movers . This finds stocks that IPOed in last 8 years and are profitable 



Three Year growth Stars (for Duration moves)
Some companies can grow for long period of time. They tend to make multi year moves.
Five years growth star (for duration moves)
Similar to scan above but with last 3 year growth faster than last 5 year growth. These are rare stocks.