8833broc, Yes, your ideas have served as an inspiration for me. Trading using the strict mechanical rules that you've listed has been very kind to me, and I'm looking towards the future and asking what others' experiences have been. I think that Jack has laid out a lot of material for us, and it's up to us to pick up what we can and assemble a strategy that works for us. Still, I'm looking for a nudge in the right direction
If a stock on your hotlist goes to FRV at the open of the market because of a gap up, is it still a buy or should you avoid?
Rather than dive right in and focus on the specifics, let's try to focus on the bigger picture for a moment. We have a list of stocks (Final Universe) created from specific criteria. These criteria should provide future opportunity for profits. The single most important criteria for these equities stems from their ability to cycle. The more frequently a stock cycles, the more tradeable the stock becomes. In other words, repeatability provides the ability for profits. In Journal One, we used very specific entry and exit rules to enter trades with the highest probability of success. In short, we entered when money velocity improved, and exited when money velocity declined. Adding trendlines and focusing on the Dry Up, FRV, Peak paradigm improved the opportunity for success. By adding additional rule sets, such a The Bruno R Set Up, we attempt to increase the profits obtained from the middle of these 20% runs. During our Journey, we started by focusing on the middle moves where money velocity ranked highest. As we progress outward to the edges of these moves we often have slower money velocity, but improved gains. This phenomenon results from taking on increased risk. Ss we increase the risk, we see an increased rate of reward. Ideally, entering on the right trendline during Dry Up when the Stochastics (5,2,3) begins to improve from the 25 area should provide an opportunity to capture the majority (if not all) of the 20% price move. However, the market doesn't always react in a fashion which mirrors our ideal scenario. As a result, we need to focus on the sequences of events which often precede price improvement. Already, we can see how a change in price often shows by a preceding change in volume. As the pace of volume increases, we then see an increase in the pace of price change. We need to add additional tools (additional observations) in an effort to move beyond buying when price sits at the right side trend line, in Dry Up, with a score of zero (The perfect set up). In order to achieve the goal of 4 streams of money operating at maximum rates of compounding, we need to learn to enter and exit trades when the signals fall outside the optimal set up. In other words, take a step back (push your chair away from the computer screen if need be) and try to 'see' at what point in the cycle price currently finds itself. To begin to learn to do this review how the previous 20% (or more) price moves materialized (for each equity in the Final Universe). Notice how the sequences of indicators unfolds over time. Break the run down into its individual components and reassemble them in your mind. Then, begin to learn to anticipate what to expect next as we move one day at a time into the future (for each equity). Although I missed the launch, COGO provides an excellent example of how this works. By correctly drawing in the channel trendlines, and marking the distance price already travelled since its last low, we have a template to anticipate future price movement. Now, we don't often get to see a 20% move within a single 24 hour period, but COGO did show improvement in price almost exactly as discussed in an earlier post (in terms of the distance we could expect movement to occur). We didn't need to know COGO and MSFT had signed a deal to anticipate price improvement. The deal simply accelerated the money velocity. The same patterns which repeat over and over throughout the Final Universe began to appear with COGO before the rocket launch. By learning to 'see' these clues earlier, a trader improves his / her opportunity for profits. Begin by doing what I call "sweeping for formations" as you review the charts each night. Look back in time and analyze what clues might have alerted you in the past to a rocket launch. After a while, you'll begin to notice in the now, that which always appears so clear in hindsight. This process trains your mind, so even if you anticipate incorrectly, you learn what flaws mark a failed breakout, and which signals best produce the winning trades. Start with the chart posted by candletrader, and continue outward from there. I hope you find the above information useful. - Spydertrader
Spydertrader - that was a very helpful broad perspective. Now that it is the end of the month and we are checking our final universe of stocks to see what still has rank, it would be great to see what other people have in their final universe going into November. I know that I plan to remove a couple of stocks that still rank but have other problems. For example, even though MIKR has done well recently, it's volume and float has gotten too low for me. I also plan to remove JOBS because of low volume and the fact that it has not cycled anytime in the last few months. Any thoughts on removing JOBS from the list? I find I do a better job with less stocks to look at instead of more. But that may be because I have to study each chart slowly since I am still a novice. P.S. I would also be interested to know what settings you are finding good in Stocktables in this current market.
There's a lot to digest in that. I recall in one of the early camtasia recordings, some of the audience said that they were experiencing problems but didn't know what questions they should be asking. I feel like I'm in that same boat. There is an incredible amount of information available and I'm struggling to erect a scaffolding into which to place everything. I feel like you have cleared up a lot. I can't see the end of my path, but I can make out distant landmarks and the path directly in front of me is clearer. It's all to easy to spend months in the thickets or to fall off cliffs without the light that you selflessly share with us. Thank you.
To answer your question, we need to take a look at what actually has happened prior to the open in order to produce such an event as you describe above. News, Earnings and other macro-economic factors can, on occasion, greatly influence the price of an equity. In order for an equity to breach FRV levels at the open, it needs to have an extraordinary amount of activity pre-market. Extreme levels of volume, prior to the open, normally cause large gaps in price. Remember, the amount of volume pre-market would need to exceed both Low Band Dry Up and Average Dry Up Volume Levels. The normal result of such activity would be a gap in price, and most likely, a large gap in price. I recommend avoiding these large gap stocks for beginning traders. One need look no further than RACK today to see how large gap open stocks can head in the opposite direction - and quickly. Keep in mind, that the scenarios described do not occur regularly. As such, I feel it a far better use of one's time to learn to trade the mundane before attempting to tackle the extraordinary. As a new trader gains experience from monitoring these large gap open stocks, one could, in the future, learn to trade such events profitably. In other words, better to learn to crawl before learning to walk, run or fly. Of course, your mileage may vary. - Spydertrader
I'll probably throw JOBS under the bus, but I plan to keep MIKR around. MIKR has improved as of late, and I feel MIKR deserves a few days to prove itself. RACK just moved 20% in 2 days, so it will regain rank when the current cycle completes. As a result, I'll keep it as well. TXCO appears to be in a fight to regain rank. I don't feel TXCO has enough gas to win this fight, but I'll give it a few days to see what happens. IIIN doesn't seem to have much life left in it, so it (like JOBS) can look forward to hitting the road. As far as my settings for sorting the initial universe, I currently use the 80 EPS and 80 RS settings for my initial Stocktables.com sort. I plan to continue to use these settings as long as the number of Stocks in The Final Universe remains low. - Spydertrader
Hello Spyder, et al First ET post. After spending a huge chunk of time going thru both journals, camtasias, and various documents, I'm starting my PVT journey. I'll be focused on the "beginner" DU method with a strong emphasis on channels. But I'll keep an eye on Unusual Volume and I'll be "sweeping" the indicators every 30 min bar. So, I'm hoping I'll be able to slowly transition to the intermediate setups. I started drawing channels back in early Sep. when Jack was regularly posting ES & YM charts on his blog. After a short while, my channels started to look more and more like his. So, for me, learning to draw them in real-time (2 & 5 min bars) really helped. Now I'm going to slow down and focus on learning PVT (as opposed to SCT). I obtained a FU 20 or so pages ago from Spyder and ran the StockTables scan this evening. After running the WL scripts and manually culling for eps, avg vol, and float, I didn't add any new stocks to the FU (that weren't already there). My watch List for for 11/1 DU stocks is: ALJ, ANDE, CTRN, DXPE, GMXR, NEU, OMNI. I've annotated the daily charts for these stocks and set up a watch list in QuoteTracker. But I still have to set up LBDU alerts, check for earning dates, and draw channels on the 30 min charts. But it took me most of the day to get this far I do have a question for Spyder (and others). It's pretty clear to me to look for LBDU being hit by 10:30. What's not so clear to me at this point is "2nd chance" entries. I'll be looking for indicator alignment at LBDU time, for sure. Any advice on 2nd chances would be greatly appreciated. Should I even bother with 2nd chances at this stage? I'm hoping to ramp up and be able to contribute to this journal over time. Sorry for the long newbie post. Thanks, spooz