GBS Trading System: Gary Blake Smith from TheStreet.com (for more, see archives for Technician's Take. Essential GBS articles are outlined in his 5/3/99 GBS Primer: Rules: 1. Buy on breakouts from 20 (preferrably 25+) days of congestion, where the breakout day has a price increase of at least $1 and the volume surges +50% above the 50-day moving average. 2. Gary prefers the average volume to be at least 50K; he also likes it to be fairly consistent. He also looks at liquidity, by scanning the prior day's transaction log and noting the size of the blocks and size of the spreads. If he sees large spreads and predominately small lots, he passes. If you're trading less than a 1000 shares, you can pick stocks with a smaller average volume, but avoid stocks that have days of less than 30K. 3. The minimum price stock Gary looks at used to be $20, but because his equity and lot size have grown he changed it to $25. 4. Stocks don't have to be breaking out to new 52 week high. 5. EPS/RS don't have to be > 80. In fact, he doesn't use Investor's Business Daily anymore. 6. Beware of stocks that break out more than 6% above prior resistance. 7. Put in market order to buy stock before market opens. 8. As soon as you get your fill, put in a sell limit order for a 5% profit. If the stock starts having problems, change the order to a stop loss of 6% below the fill price. 9. Generally, the tighter the base the better. Avoid the big V formations. Or, if you want to take a positive approach, look for the resistance line to have at least a few tests before the breakout. Watch what happened in the days right before the trade. 10. To measure how far a breakout can go, look at the number of points within the current congestion. A good rule of thumb says if resistance is taken out, then the succeeding rise should move by the same amount of points. 11. If an acquiring company breaks out it's OK. The reverse is not OK. Also, Gary tends to shy away from companies that fall or rise in sympathy with another company in the news. If it's just one specific sympathy stock, don't trade it. If it's a whole industry, something is endemically wrong, and it is OK to trade those. 12. Average hold time is 12 days for longs and 3 days for shorts. Closes the trade if still open after 20 days. 13. The maximum number of open positions he favors is about 20. He averages 15-20. His formula for determining lot size =(2*cash)/1000 where cash equals your net equity in your account. 14. Look for short candidates as well. When shorting, there must be a major downside break of at least 1 point. This break can be either from an uptrend of at least a 20 days or a break through clearly defined support level. The stock does not have to fall below it's 50 day moving average. Volume should be +100% or more. Don't short stocks that are already in a down trend for the few days or weeks, unless the break takes out a clearly defined support level. Otherwise, a big down day after a downtrend might just be a blow-off and a bottom. The size of the drop isn't important as long as the stock looks broken. The same 5% profit, 6% loss applies. 15. If your stock has gone up, but then starts to decline slowly on decreasing volume, that's OK, as long as it doesn't violate its previous support level. Dipping on heavy volume is bad. 16. When he buys and holds stocks, for an exit, he'd probably start out using the 50-day moving average as a stop loss, but then use a 20-day moving average as the trailing stop. 17. With regard to expected returns, Gary shoots for 100% return, compounded, per year. In 1996 he got 77%. In 1997 it was 46%. In 1998 86%. Long: (C > 20) and (AVGV50 > 500) and (C > MAXC5.1) and (C > C1 + 1) and (V > 1.5 * AVGV50) Example: (Long) See chart attached at the bottom Shorts: (C > 20) and (AVGV50 > 500) and (C < MINC5.1) and (C < C1 - 1) and (V > 1.5 * AVGV50) Example: (Short) See next post Message 12829 http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=14700038 (Gary B. Smith) scan for longs is: (C>20)and(AVGV50>500)and(C>MAXC5.1)and(C>C1+1)and(V>1.58*AVGV50) http://www.tradeon.com/tradeon/tc2000/gbs.html Rules: >> 1. Buy on breakouts from 20 (preferrably 25+) days of congestion, Resistance: MAXH25.1 Support: MINL25.1 Congestion (20%): (MAXH25.1<(MINL25.1*1.2)) Suggestion: Other Support and Resistance methods: simple moving averages Fib Retracement http://clubs.yahoo.com/clubs/telechart2000usergroup . message 11304 >> where the breakout day (today) (C>MAXH25.1) >> has a price increase of at least $1 (C>(O+1)) Note: (C>C1+1) doesnât account for a gap with an open to close reversal (O>C) >> the volume surges +50% above the 50-day moving average (V>(AVGV50.1*1.5)) 2. Gary prefers the average volume to be at least 50K http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=14720699 âRaise Volume from 50K to 500Kâ http://clubs.yahoo.com/clubs/telechart2000usergroup message 12825 by Goober4_4 âraise the vol to 500Kâ >>> He also looks at liquidity, by scanning the prior day's transaction log and noting the size of the blocks and size of the spreads. ** If he sees large spreads and predominately small lots, he passes. ** 3. The minimum price stock Gary looks at used to be $20, but because his equity and lot size have grown he changed it to $25. Suggestion: Focus on the stocks that youâll actually buy, i.e. (C>20ANDC<40). Each price range is a micro universe with unique movement and rules; most individuals spend too much time analyzing and agonizing over equities that are outside their price range. 6. Beware of stocks that break out more than 6% above prior resistance. See Rule 1 assuming resistance is MAXH25.1 (C>MAXH25.1)AND(C<(MAXH25.1*1.06)) Suggested PCFs for GBS Long strategy: #1 GBS Congestion (MAXH25.1<(MINL25.1*1.2)) #2 GBS BreakOut ((C>MAXH25.1)AND(C>(O+1))) #3 GBS Volume ((V>(AVGV50.1*1.5))AND(AVGV50>5000)) = = = = = = = = Suggestioned EasyScan for Longs: [Add condition]s . Price Per Share â H . . . Value . . 20 to 40 (see suggestion, Rule 3) . Price vs. 200 Day Moving Average . . . Value . . 100 to Max . Price vs. 40 Day Moving Average . . . Value . . 100 to Max . #1 GBS Congestion . #2 GBS BreakOut . #3 GBS Volume [Save] Name if new EasyScan [Scan Charts] Indicator Tab# Top . Price â xxx chart . . Moving Average â 40 bars â Simple . . Moving Average â 200 bars â Simple Middle or Bottom . Volume . . Moving Average - 50 bars - Simple = = = = = Message 12845 - More on GBS Strategy Notes As message 12825 points out, â(Gary B Smith) just "knows" its the right one based on past experienceâ. For more âexperienceâ, review the strategy at http://www.tradeon.com/tradeon/tc2000/gbs.html Experiential notes: 4. Stocks don't have to be breaking out to a new 52 week high. 9. Generally, THE TIGHTER THE BASE THE BETTER. Avoid the big V formations. Or, if you want to take a positive approach, look for the resistance line to have at least a few tests before the breakout. Watch what happened in the days right before the trade. 11. If an acquiring company breaks out it's OK. The reverse is not OK. Also, Gary tends to shy away from companies that fall or rise in sympathy with another company in the news. If it's just one specific sympathy stock, don't trade it. If it's a whole industry, something is endemically wrong, and it is OK to trade those. 15. If your stock has gone up, but then starts to decline slowly on decreasing volume, that's OK, as long as it doesn't violate its previous support level. Dipping on heavy volume is bad. Entry Strategy: 7. Put in market order to buy stock before market opens. Suggestion: The adage is - Volume precedes Price. What is the stockâs average hourly volume? The market is open 6.5 hours per trading day, so divide the stockâs average 50-day volume by 6.5 or as a PCF: (AVGV50/6.5) During the first hour after the open, wait until the stockâs volume is over the average hourly volume, then determine the direction of the price rather than get caught an âamateur hourâ whipsaw. See Rule 15 (above) if the volume appears to be decreasing or the price is dipping on increased volume. Stops: 8. As soon as you get your fill, put in a sell limit order for a 5% profit. If the stock starts having problems, change the order to a stop loss at 6% below the fill price. 16. When he buys and holds stocks, for an exit he'd probably start out using the 50-day moving average as a stop loss, but then use a 20-day moving average as the trailing stop. Risk / Reward: 10. To measure how far a breakout can go, look at the number of points within the current congestion. A good rule of thumb says if resistance is taken out, then the succeeding rise should move by the same amount of points. (Gary B Smithâs) formula for determining lot size = (2*cash) / 1000 where cash equals your net equity in your account. 12. Average hold time is 12 days for longs. Close the trade if still open after 20 days.
I remember reading a book a while ago that told the true story of a former NYSE janitor who became wealthy buying breakouts of the 52 week high. Forgot his name. The system in your post seems too complicated for my simple mind. I like simple things.
How about a recent example (not '99)? I would like to compare it to what I do (complexicated vs. sinful).