stockbee

http://stockbee.biz/blog/2007/04/?page=2

PEAD Trading Methods

http://stockbee.blogspot.com/2010/01/earnings-season-and-cinderella-strategy.html

https://lasertrader.wordpress.com/2012/01/21/using-pead-post-earnings-announcement-drift-to-give-you-an-edge/

http://mysimplequant.blogspot.com/2011/01/how-i-plan-to-use-stockbees-breakout.html

Chartpattern Trading Rules

DAN'S 10 GOLDEN STOCK RULES AND TRADING TIPS

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1. Make sure the stock has a well formed base or pattern such as one described on this web site and can be found on the tab "Understanding Chart Patterns" on the home page, before considering purchase. Dan highlights stocks with these patterns in his newsletter.
2. Consider the stock as it moves over the trend line of that base or pattern and make sure that volume is above recent trend shortly after this "breakout" occurs. Never pay up by more than 5% above the trend line. You should also get to know your stocks' thirty day moving average volume, which you can find on most stock quote pages such as eSignal's quote page.
3. Be very quick to sell your stock should it return back under the trend line or breakout point. Usually stops should be set about $1 below the breakout point. The more expensive the stock, the more leeway you can give it, but never have more than a $2 stop loss. Some people employ a 5% stop loss rule. This may mean selling a stock that just tried to breakout and fails in 20 minutes or 3 hours from the time it just broke out above your purchase price.
4. Sell 20 to 30% of your position as the stock moves up 15 to 20% from its breakout point.
5. Hold your strongest stocks the longest and sell stocks that stop moving up or are acting sluggish quickly. Remember stocks are only good when they are moving up.
6. Identify and follow strong groups of stocks and try to keep your selections in these groups
7. After the market has moved for a substantial period of time, your stocks will become vulnerable to a sell off, which can happen so fast and hard you won't believe it. Learn to set new higher trend lines and learn reversal patterns to help your exit of stocks. Some of you may benefit from reading a book on Candlesticks or reading Encyclopedia of Chart Patterns, by Bulkowski. These books can be purchased from our Recommended Reading page.
8. Remember it takes volume to move stocks, so start getting to know your stock's volume behavior and the how it reacts to spikes in volume. You can see these spikes on any chart. Volume is the key to your stock's movement and success or failure.
9. Many stocks are mentioned in the newsletter with buy points. However just because it's mentioned with a buy point does not mean it's an outright buy when a buy point is touched. One must first see the action in the stock and combine it with its volume for the day at the time that buy point is hit and take keen notice of the overall market environment before considering purchase. Are stocks moving briskly or are they acting sluggish or even worse, are we in a hefty sell off?
10. Never go on margin until you have mastered the market, charts and your emotions. Margin can wipe you out.

StockBee's Read newpaper and make money

Read newspaper and make money

James Cramer has a popular book called Mad Money: Watch TV, Get Rich. Some people claim to make occasional money watching him. But if you want to make big money and systematicaly find growth stocks that make dramatic moves of 100% plus in a year, you may find Investor Business Daily a better bet.

Like in religion, once you get convinced and adopt a trading philosophy, you can find many ways of achieving your trading nirvana. In trading my primary religion is growth. Growth in price or growth in earnings. Now one of the publication which exclusively focuses on growth stocks is Investors Business Daily. It is not really a newspaper, it is more like an evangelical publication aimed at followers of growth religion.

All most all my big ideas where I risk 5% to 10% on single idea or pyramid aggressively in to , I find using systematic study of IBD. There is a method to madness in everything in IBD. It exclusively focuses on high growth stocks. It very clearly highlights certain growth stock which in their judgement they feel are likely to make major moves. It constantly changes focus based on sector moves and market moves. If it feels a trend or stock or sector has big potential it will do a saturation coverage of the stock.

Now I am sure there are many IBD subscribers and they read it regularly. In my experience many of the subscribers do not really get in to depth or look for the big ideas in it. Many don't know how the EPS , RPS ratings, the accumulation distribution and other ratings are calculated. I attended a IBD meetup couple of times where 99% of the talk was about cup with handle, flat bases and chart patterns.

Everyday I read IBD in detail and then research few key ideas in greater detail using other sources, from these in a year I find a dozen ideas or so where I have conviction to put lot of capital to work and really pyramid in to them or press my bets on them.

Here are couple of things I look for in IBD:

1 Page 1 story. When IBD puts a company on page 1, I always dig deep. The page 1 main focus stories have generated lot of big ideas for me.

2 The big picture: Everyday I make a list of stocks under the Leaders up in volume and Leaders down in volume. If you study the list carefully, IBD only highlights certain stocks in it. Often the commentary on that page gives you a hint about sector change or impending stock top or estimates coming down.

3 New America. This one is obvious place to look for ideas. Similarly the company in the news feature is very helpful for understanding certain upcoming trends.

4 Funds top new buys: I always look at unknown companies in this list or those with high Comp ratings. Most of the time you will find some of these stocks breakout in month or two if they appear in this list for several funds.

5 Largest positions of funds in Big cap index and Largest positions of funds in value index. This is an excellent list of around 20 stocks each. Last year I found Las Vegas Sands and Mastercards , two big plays for me , in this list. I always focus on new addition to the list and young companies which have recently IPOed. If they make it to this list, the rally usually has legs. Now in recent month I noticed two new stocks Saks and CBG in it. Both worth keeping an eye on.
The other good use of this list is for short selling , when stocks get dropped from it or something goes wrong on stocks in this list, tey make good shorts.

6 Stocks on the move and Timesaver table. This is obvious one.

7 IBD's top supply demand companies. This is again very good source of big ideas. The stocks in this list are selected based on recent stock turnover as % of its float. All major winners like GROW, NVEC, AXR and so on were in this list and they rallied 100% plus post appearing in the list. This list is one of the best source of ideas I have found for stock likely to make significant move.

8 Industry Group: My today's earlier post gives details of this

9 IBD top 200 composite stocks. If you trade only these 200 stocks, you can beat the market.
10 NYSE stocks in the news and NASDAQ stocks in the news: This is one of the best place for short term and long term trades. The first 2 stocks in the list invariably pop due to IBD effect. The first 2 stocks which will normally have a commentary on the side, are the ones according to IBD patterns philosophy near buy points(C&W, Flat bases, double bottom at top of range etc. ). So these stocks are highlighted before they breakout.

Now besides that the weekend 85- 85 and IBD 100 list is useful. Within that the black bordered stocks usually pop next week due to IBD effect.

Due to the nature of newspaper, most of the time one forgets what you read in it a week ago. So everyday I create a page or two summary and file it and keep referring back to it again and again. I scratch out ideas which do not work or have events which change fundamental assumption. The surviving ideas have legs. Plus the notes help in developing market and sector understanding over a period of time. All this takes me 45 minutes in the morning. But it has made lot of money for me. For example recently IBD highlighted the solar energy stocks after Germany changed it utilities law and after several solar companies announced earnings. Since then one after another solar companies like TSL, FSLR, ASTI, WFR etc popped. Some of them made 100% plus moves in few months. Similarly the medical device makers like HRT, CYNO, ROCM, have had saturation coverage for many months. Recently after the correction started IBD changed focus on fresh set of sectors. Now all this information is available ahead of time before most of these stocks breakout. What more do you want. Plus you know William O'Neil is very successful trader, so you are essentially getting a perspective on market from successful growth trader along with news and views.

Obviously this involves some effort, but few big ideas in a year is all you need to make a resoundingly profitable year. If you are motivated to make big money, reading a newspaper in microscopic details may not be a bad idea..

A book list of growth investing

Growth Investing Books

 There are predominantly two investing styles followed by investors:

1. Value
2. Growth

Growth investors invest in companies that are growing at above average growth rate. They are more focused on sales and earnings growth and willing to pay higher premium for such stocks.

Growth stock investors are high expectation investors as against value investors who are low expectation investor. The basic assumption behind growth investing is that the market will continue to reward a company growing faster than other companies. the key to success in growth investing is to identify early stage growth company and ride it till it is growing and abandon it before the growth slows down. Often growth investors are called patsies playing the greater fool game.

These are all books related to growth investing from my personal collection. Some of these I have reviewed before, but I will do a fresh review of some of the major books from this list. 

Peter Lynch 
One Up On Wall Street : How To Use What You Already Know To Make Money In The Market

Beating the Street


Learn to Earn: A Beginner's Guide to the Basics of Investing and Business


William O'Neil

HOW TO MAKE MONEY IN STOCKS: A WINNING SYSTEM IN GOOD TIMES OR BAD 


How To Make Money In Stocks: A Winning System in Good Times or Bad, 3rd Edition

The Successful Investor: What 80 Million People Need to Know to Invest Profitably and Avoid Big Losses

24 Essential Lessons for Investment Success


Mark Boucher


The Hedge Fund Edge

Jesse Livermore


How to Trade In Stocks

Richard Love


Superperformance stocks: An investment strategy for the individual investor based on the 4-year political cycle

Nicolas Darvas


How I Made $2,000,000 In The Stock Market

Frank Cappiello


Frank Cappiello's New Guide to Finding the Next Superstock

Louis Navellier


The Little Book That Makes You Rich: A Proven Market-Beating Formula for Growth Investing 


Gary Kaultbaum

The Investor's Edge: How to Empower Yourself for a Lifetime of Investment Decisions


Michael Moe

Finding the Next Starbucks: How to Identify and Invest in the Hot Stocks of Tomorrow


Ralph Wanger

Zebra In Lion Country: The Dean Of Small Cap Stocks Explains How To Invest In Small Rapidly Growing Companies



John Boik


Monster Stocks: How They Set Up, Run Up, Top and Make You Money

How Legendary Traders Made Millions

Come rain or shine, everyday the last thing I do in my daily market analysis routine is to run a scan for stocks up 25% plus in a month. I run the scan, boil myself a pot of tea and systematically study each of them. I want to know:

1.  what makes a stock go up 25% plus in a month. 
2. How does it start the move
3. What are the volume patterns during the move
4. What are the price patterns during the move
5. What was its momentum ranking before the move started
6. How did its momentum ranking progress during the move
7. What kind of pullback did it have
8. In how many days did it make 25% plus move
9. What is its float
10. What was its dollar volume at breakout
11. What was its p/e, p/s, roi, margin, p/b, peg, debt to equity, 
12. What was their eps growth
13. What was their sales growth
14. What was their IBD ranking
15. How far are they from 52 week high or low
16. What was its price trend for last 1, 3, 5 years
17. What was their sector relative strength
18. What was their short interest
19. What was the insider buying trend
20. What was the trend intensity readings at breakout
21. How did the trend intensity readings progressed
22. What was the news on the stock for last one month
23. How far is this stock from last earnings or upcoming earnings
24. When did the stock IPO
25. 25 What is its fund holding trend

and so on. 

 

All this information is publicly available freely. The tools I use to do this analysis are:

1. Finviz
2. Moneycentral
3. Google Finance
4. Dailygraphs
5. Investor.com

On most days there are not many stocks meeting this condition so it takes 15 minutes to do it. Once in a while you get 200 plus stocks, then it takes a hour to do this.

 

The objective is clear to develop a model of stocks that make big move in short period of time and try and capture couple of moves in a year. The understanding from the exercise goes in to building better scanning criteria and validating or invalidating commonly touted trading wisdom or beliefs.

 

You will find answer to questions like :

1. does significant earnings surprise move stock
2. does nearness to 52 week high matter
3. should you focus on high priced or low priced stocks
4. should you focus on high daily average volume stocks or low daily average volume stocks
5. does IBD eps ratings matter
6. does float matter
7. what period relative strength/momentum  is best 
8. why prior period gains are most critical to picking winners

While it is difficult to generalize things because every phase of market has different kind of stocks making 25% plus moves, there are certain common themes you can find and the common themes in terms of factors that drive a stock to make 25% plus move in a month are:

1. Prior neglect
2. Catalyst. Big moves start with some catalyst.
3. Sector momentum is best predictor of short term probability of a stock making a big move
4. Price momentum is next most important criteria
5. Float, low price, low dollar volume prior to breakout are good

Rest of the factor really do not matter. In the short run fundamental factors do not matter. Immediate catalyst and sector momentum is most critical factors on a month time frame. 

 

How can you use this information in day to day trading. Focus on stocks with high sector momentum or sector catalyst (Bluefin Sector+price momentum and Emerging Opportunities scans). Focus on stock with immediate catalyst (Episodic Pivots). All things being equal low priced, low dollar volume and low float stocks tend to make biggest move.

 

But above all almost every move of 25% plus in magnitude in a month starts with a 4% breakout signal. Now how valuable is that information to you if you know how to exploit it....

Extremely simple breakout method Part1

What is a breakout.

It is a impulse move. Or a price increase on high volume in very simple language.

You people are making very complicated scans for it.

Here is a simple breakout scan :

Stock should be up 50 cents

Stock should have volume 10% higher than average 50 day volume.

Volume should be above 50000

A pcf for this would be: 

(C - C1) >.50 AND V>1.1* AVGV50and v>=500

IBD uses a similar approach to find breakout on CANSLIM stock.

The Stocks on the Move stocks are generated using this kind of scan. O'Neil in his book says on breakout day the stock should be up 50 cents and volume should be 40% more than 50 day average.

So the pcf would become:

(C - C1) >.50 AND V>1.4* AVGV50and v>=500

Extremely simple breakout method Part2

Many people object to my use of 4% breakout method by saying it does not take in to consideration average range. A stocks average range might be 5% so a 4% b/o is not significant they argue.

So you want to make simple average range breakout scan.

It is very easy. 

(C - H1) >(AVGH20- AVGL20) and v>v1

In this PCF you can vary the AVGH20- AVGL20 part from 5 days to 63 days depending on what range you want to consider for breakout. 

A range breakout scan like this will produce less frequent signals compared to my 4% breakout scan.

Setting up RSI2 in Telechart

Someone had requested scans for RSI2 and how to set it up in Telechart. 

 

The original post for this is here : Exhaustion Swing Trading Method using RSI2

 

This is a method I discussed in Swing Trading Bootcamp. It has been developed by Larry Connors.

 

I do not trade it , so I do not have expertise on it. 

 

This is for information purpose and those who want to perfect it from here on.

 

Must read the original posts and comments to understand this. 

 

RSI2 Bullish PCF

(50 * (C - XAVGC3.1) / 2 / (.500030519440884 * (ABS(C - C1) + .5 * (ABS(C1 - C2) + .5 * (ABS(C2 - C3) + .5 * (ABS(C3 - C4) + .5 * (ABS(C4 - C5) + .5 * (ABS(C5 - C6) + .5 * (ABS(C6 - C7) + .5 * (ABS(C7 - C8) + .5 * (ABS(C8 - C9) + .5 * (ABS(C9 - C10) + .5 * (ABS(C10 - C11) + .5 * (ABS(C11 - C12) + .5 * (ABS(C12 - C13) + .5 * (ABS(C13 - C14)))))))))))))))) + 50)<=2 and c>=avgc200

RSI2 Bearish PCF

(50 * (C - XAVGC3.1) / 2 / (.500030519440884 * (ABS(C - C1) + .5 * (ABS(C1 - C2) + .5 * (ABS(C2 - C3) + .5 * (ABS(C3 - C4) + .5 * (ABS(C4 - C5) + .5 * (ABS(C5 - C6) + .5 * (ABS(C6 - C7) + .5 * (ABS(C7 - C8) + .5 * (ABS(C8 - C9) + .5 * (ABS(C9 - C10) + .5 * (ABS(C10 - C11) + .5 * (ABS(C11 - C12) + .5 * (ABS(C12 - C13) + .5 * (ABS(C13 - C14)))))))))))))))) + 50)>=98 and c=<avgc200

RSI2 Chart Indicator (add under indicator)

50 * (C - XAVGC3.1) / 2 / (.500030519440884 * (ABS(C - C1) + .5 * (ABS(C1 - C2) + .5 * (ABS(C2 - C3) + .5 * (ABS(C3 - C4) + .5 * (ABS(C4 - C5) + .5 * (ABS(C5 - C6) + .5 * (ABS(C6 - C7) + .5 * (ABS(C7 - C8) + .5 * (ABS(C8 - C9) + .5 * (ABS(C9 - C10) + .5 * (ABS(C10 - C11) + .5 * (ABS(C11 - C12) + .5 * (ABS(C12 - C13) + .5 * (ABS(C13 - C14)))))))))))))))) + 50

Liquidity Volume

MINV3.1 >= 1000