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11 year range breakout

2012-02-11T13:43:00.003-05:00

As Livermore says, when market breaks out of long multi year range, it is telling you something. Livermore had observed that when markets or stocks or commodities break out of multi year ranges it indicates something has changed in underlying conditions and it is indicator of a possible longer term trend.

Corrections will create non extended setup

2012-02-10T08:49:00.002-05:00

It is a bull market.

It is likely to last long.

Along the way there will be corrections...

But it is unlikely we will see end of bull move soon...

Corrections will create non extended setup..

Key is to remain focused and not get distracted.

Prudently manage risk...

Market keeps grinding higher

2012-02-09T08:25:00.000-05:00

The market continues to act well.

Stocks continue to breakout and any dips on index are quickly bought.

Market has not given back much of its gains.

It keeps grinding higher.

All bull markets have pullbacks/consolidations and shakeouts.

That is part of the game.

And sometime short term risk increases on extended positions.

But this is still a comparatively young bull market.

So continue to look for good quality setups that are not extended.

In the short run protect profits on open positions.

Think trading process

2012-02-08T09:28:00.000-05:00

Think process

Profit is an outcome of following a trading process.

If you want to be swing trader you need well defined process. You want to be position trader you need well defined process. You want to be a day trader you need well defined process.

Define your trading process, tweak it till you are satisfied and then run it again and again and again.

Process is a sequence of steps you need to do to achieve your trading goal.

Once you establish a process it is just a matter of repeating it daily or weekly.

If you do the same process thousand times you will build procedural memory. And you will be on autopilot.

Do the exact same shit at exact same time, in exact same sequence , using exactly same tools and you will become that shit expert.

There are thousands of trading setups possible. We have discussed hundreds of them on the Stockbee member site in past few years. Just pick one or two and then just define the process and refine and customize it to fit your own style. Some like to take quick profits, some like to hold for longer swing, some like pullbacks, some like breakout. Some like low priced stocks, some high priced stocks . There are setups for all of them.

Once you select your style focus on process building. When you define the process you will no more have unresolved questions because in the process building phase all of them would be answered.

Do not jump from setup to setup.

Define yourself , position trader, scalper, swing trader (3 to 5 days), swing trader (1 to 6 week), buy and hold....

And then stick to it and beat the shit out of the process.

You should have all scans setup.

You should have all your computers setup.

You should have all tools required to trade like position sizing and so on setup.

You should have your setup idea well setup in your mind. Where am I going to enter, where am I going to put the stop, where am I going to exit, how much risk am I going to take.

Process , process, process..

What is pre market process

What is during the market hour process

What is post market process...

If you want to develop your own edge think process...

Keep your nose to the grinding wheel

2012-02-08T08:46:00.000-05:00

It is a good bull market so keep looking for non extended breakouts.

Look for breakouts with 10 to 20 day consolidation prior to breakout.

Look for breakout that are not up 3 days in a row.

Look for breakout happening after a volatility squeeze.

Look for narrow range bars (several the better) prior to breakout

Look for breakout on high volume.

Look for breakout on high relative volume

Look to protect profit aggressively on extended setup.

Look for a setup to put bigger capital. Such setup should have very good setup and catalyst and preferable earnings behind them (b/o post earnings)

Look for pullback buy on recent earnings EP. Lot are setting up on this . Use EP month scan for this.

All the setups you will find using STIB, Dollar breakout, STLD, EP.

To anticipate b/o look at top 300 stocks by momentum using either TI 65 or MDT

Post b/o moves are smaller currently, so adjust your profit expectations accordingly.

Organize, organize, organize and set a process.

Shut out the noise....

You will have lots of opportunities.

Most important thing is not to follow someone else picks but to develop your own well thought out method and execute it. There are thousands of sites/ newsletters/blogs that will offer you picks based on proprietary/secrets methods. If you go that route you will not last long as a trader.

Develop your own methods, develop your own scans, develop your own process flow , develop your own risk strategy, develop your own individual style, develop your own edge. This is the right time to do that.

As of now no signs of distribution

2012-02-07T08:28:00.000-05:00

It is a bull market. As of now I do not see signs of distribution. When you see series of 300 plus day on downside is when you need to get worried.

Keep looking for non extended breakouts. Some extended stocks are vulnerable to correction and so selling them in to strength or protecting profit is the key on them. Look for breakouts with 10 to 20 days plus consolidation. There are number of stocks setting up like that correctly.

Sector rotation is visible with oil stocks attracting buy interest recently. Many of them had gone sideways after first rally leg in October.

This is the time to focus on momentum and earnings breakout. Not a time to do untested stuff.

Short term looks way frothy

2012-02-05T10:33:00.001-05:00

Short term it is most likely we will get some sort of consolidation/pullback.

Some extended stocks likely to pullback. Some fade of strength short will work here. Look at stocks up 25% in month for possible fade candidates. Those trade might be very short term as those stock go in range. There might be some failed breakout.

If you are sitting in a very extended stock, tighten your stop. Use the strength to take profit.

Look for setups that are starting new move from longer consolidation for longs. There are lot of that kind of stocks setup currently. Money will rotate in to new sectors.

My judgement is still this is young bull market with lot more upside, but short term it is now extremely frothy and might shakeout lot of people.

As always as individual investor one has flexibility to get in and out quickly if the scenario does not work out.

Joe Fahmy Interview

2012-02-04T13:57:00.002-05:00

Joe Fahmy has invited me to speak at his seminar so I interviewed him. He is a relative strength trader.

1. How did you get started in trading?

My father got me interested in trading back in the mid 1990's. Back then, I was strictly a buy-and-hold investor. Basically, I had no sell rules and thought stocks went up forever. It wasn't until I went to work on Wall Street and studied the market that I began to understand how stocks really work. That's when I got rid of the buy-and-hold mentality and became a trader.

2. What kind of instruments do you trade?

I mainly trade stocks (US equities) on the long side. I occasionally short stocks, but I find that shorting is way too challenging. Therefore, I focus on what I know and stick to it. I also use options to give me leverage when I have conviction on a stock.

3. How do you find stocks you like to trade?

I screen the market every night using mostly fundamental and technical criteria. I use 8 main screens that produce roughly 1,000 stocks. I go through each chart individually looking for stocks that share characteristics of big winners from the past. I will share these screens at my seminar in a real-time interactive session where we'll go through stocks and comment on them individually.

4. What are your typical entry criteria or checklist?

Fundamentally, I look for stocks with strong earnings and sales growth. After that, I try to combine the proper technical time to trade these stocks based on chart patterns and market conditions. Finding a low-risk entry point is one of the most important parts of my trading.

5. How much do you risk on per trade basis?

My average position size is 10% and my maximum loss is 10%. Therefore, my maximum risk is 1.0% of capital. However, over the past 5 years and thousands of trades, my average loss is 3%. So, my average risk is 0.3% of capital per trade.

6. What are your exit criteria?

I have 10 different sell rules which I will discuss in detail at my seminar. Overall, I do my best to sell into strength, mainly because that's when you will find the best liquidity. When I am wrong, I try to stop myself out as quick as possible to avoid any major damage.

7. Do you scale in to positions?

Yes, I scale in, especially when I find 2 or 3 pivots around my entry area. For example, I might buy a stock at 100 and then add at a near-term pivot of 102, add again at a swing-pivot of 104 and possibly add again near another breakout area. It really depends on the stock, market conditions, and many other factors.

8. Do you scale out of positions?

Yes, many times I will sell half my position into strength to lock-in some profits. If the stock really blows-off and gets extended, I will sell the entire position.

9. What kind of options strategies you use?

Because options are an eroding asset, I try to give myself as much time as possible. I look for options 3-6 months out. I also like to buy options "in the money" so they at least have some intrinsic value to them. Too many people try to buy cheap options way out of the money to turn a little into a lot. This works sometimes, but it's tough to consistently profit with that strategy.

10. What can traders do to shorten their learning curve?

Find a mentor, read books, and be prepared to work hard at this! If you are looking to lose 20 pounds, you can do it on your own, but it is more efficient if you hire a personal trainer and study people who have lost weight effectively AND kept it off. Same goes for the market. Find a strategy that fits your personality, find someone who has been successful at that strategy, and then mimic it (with your own flavor of course). I DO NOT believe in reinventing the wheel.

Stockbee members readers can get a special discount for his seminar. You can go to: www.TradingBigWinners.com and enter the code: stockbee500. That code will work for either event (LA 2/18 and NYC 3/3).

Staying focused on the bullish side

2012-02-03T09:04:00.001-05:00

Short term there might be bumps on the road but as of now there is no proof of deterioration in market or setups. Nor do you see blowout moves. Which tells you that this move might have lot more legs.

The rally keeps broadening with more sectors joining the party. Many stocks are forming bases and having orderly correction.

The post breakout moves are in some cases small, but that does not matter if you adjust your holding time frame and target.

Last year was wild and had very high volatility , as against that in last 4 weeks we have seen the market showing characteristics that it tends to show during bull markets.

The first phase was dominated by most beaten down stocks, but slowly that theme is fading and we are getting rotation in to growth and more speculative momentum sectors.

Keep your focus on good and sound setups. Some days you may not find any, that should not lead to lowering your standard.

Always think of where you will exit a trade before entry. Look for selling in to strength as far as possible. That is the essence of swing traders methodology.

If a stock does not act right on entry just dump it and move on to next setup. Bad b/o or stock that do not act well post b/o suck up lot of your energy as you have to focus on them.

A good b/o should work instantly. It will have immediate follow through. It will not give up intraday gains easily. It will bounce back from minor selloff fast.

At this stage focus on handful of setup ideas. Do not try and learn new methods or do something exotic at this stage. If you are trying out some new untested methods and following some experimental methods, you might be wasting time. Do your R&D in bear markets.

If market shows signs of selling then we will change our view. Till then stay laser like focused on long side and finding good setups.

Focus on your setups and don't worry about others.

One of the better looking long term setup yesterday showing up in our scans was RAX. RAX is breaking out from a long multi month range. This video goes in to more details of it.

RAX: Long Range Breakout

Top Stocks By Trend Intensity

2012-02-02T09:13:00.000-05:00

Top hundred stocks by Trend Intensity and some nice swing trade setups.

Relative Strength Leaders Video

2012-02-01T09:15:00.002-05:00

Focus on few basic setups

2012-02-01T08:26:00.001-05:00

Focus on few setups (one or two) and get in to depth of it. You must expand your knowledge of setups but it does not mean you should trade all the setups.

Most setups are rehash of same basic ideas like range breakouts, pullbacks, pivots, exhaustion. Same soda , different color, flavor and bottle. The real key is to understand the essence of a setup and then decide whether your current setup achieves the same thing.You can pick up few tactics.

If you abruptly switch setup then , it is like driving with an unknown vehicle in an unknown country with unfamiliar road signs. Your procedural memory is not equipped to handle that.So you will be lost. And that is why your greatest losses will tend to happen when you switch time frames or change setups.

All setups have context and they work in certain market conditions, sometime when you are not making money, it is not the setup that is the problem, but market phase is. So you have to wait for market phase to align with your setup.

I focus on momentum and breakouts as two basic setup idea and I stay within those parameters. When market is favorable to that kind of setup is when I trade aggressively.

If you study traders who have survived for decade or more and have been profitable over that period, you will see that they trade only few setups and when they deviate from them, they come back to it. They might tweak a setup bit from time to time but the basic idea remains same.

Market came back

2012-01-31T08:17:00.000-05:00

Yesterday the market started on negative side with gap down but by end of the day managed to erase those losses. That is a sign of underlying bid in the market.

Individual stocks are showing orderly pullbacks and breakouts continue to expand and have follow through.

New sectors continue to breakout and also follow through is good. All in all so far a very orderly up move.

As long as heavy selling does not hit the market, this is market for momentum and breakout traders.

Breakouts and Watchlist Video for Jan 30, 2012

2012-01-30T19:48:00.001-05:00

Stocks highlighted in the video:
Breakouts: ABD, GTXI, CCIH, DSS
Watchlist: KOG MBI, XRTX, EOG, SIGI

It is a young bull market

2012-01-30T09:24:00.003-05:00

It is a young bull market.

A correction/consolidation will not be a rally killer unless we get a bearish breadth thrust.

Sector rotation is conducive to longer duration move.

Much better quality setups are showing up.

Market continues to reward breakout near lows, so look at them for swing trades. If you look at the stocks up most in last one week you will see that out of around 100 stocks up most almost 95% started their moves from lows.

Stockbee Member Feedback

2012-01-29T13:37:00.001-05:00

This site has changed my life. I just signed up for another two years. I'd sign up longer if the option was available.
by nprassas (A stockbee member)

Find out why 1700 members continue to be Stockbee members year after year. One of the best site to learn to develop your own swing trading method. You will get exposure to methods of other members and learn from them.

A minor pullback/consolidation may be the next step for markets

2012-01-27T08:44:00.004-05:00

When you have a very positive day after market being up for many days, lot of time the speculative juices get flowing and you lose situation awareness. Yesterday was one of those days where a gap up got too many excited. As I said in my early morning post such gaps tends to be faded.

It is important to understand why it tends to happen. Market consist of participants with different profit objectives and holding periods. Most short term traders would quickly book a profit of 5 to 105 in just 24 hours. So gap up is used for profit taking.

Besides that market has been going up for some time so more traders are prone to taking profits on extended position.

A minor pullback/consolidation may be the next step for markets.

Understanding the maths of swing trading

2012-01-26T09:09:00.004-05:00

Swing traders look for 5 to 20% kind of moves in a short period of time.

In order for these moves to make a difference to your account you need to understand the maths of returns.

Let us say you hold 20 positions of same size in your 100k account. Then each position becomes 5k. Let us say a stock you buy goes up 10% after entry , how much is it going to contribute to your overall profit.

Only .5%. You will need 200 such trade for a 100% returns.

But wait a minute for most traders the success rate of a trade actually working is going to be around 50% only. Which will mean 200 trades will not get you to doubling.

Supposing you risk 25% on each trade instead of 5% of capital. Then a trade with 10% potential will give you 2.5% overall return. If it is 20% return trade it will give you 5% overall return on your capital. You will need roughly 15 consecutive trades of 5% overall profit to double your money.

And you can keep on doing this math to understand the maths of swing trading better.

The implication of that is in order to make big returns in a year you will need anywhere from 300 to 100 trades depending on how much you risk per trade.

If you do not want to do that then position trade. You can if you have skills look for position trading method which will you that kind of return in 4 to 5 trades. Very few people in the trading world will have that skill.

The easier path is to swing trade and expect to make 300 to 400 trade if you are looking for triple digit kind of gains.

But at the same time, everyday look for opportunity where you can put in 25% or more of your capital in one idea. In a year if you get few of those big wins of 4 to 5% or 10% returns on your capital, it then drives your returns higher.

If you understand this maths you will also understand why good day traders make big returns. It is simple maths, there per position risk is higher. A day trader often puts in significantly large part of his capital in one single trade. So even a small 3 to 4% profit contributes more to his or her returns. Add to that leverage and you are looking at magnified returns.

Now let us suppose you understand this maths , how can you use it in real life trading.

1. Look for opportunities to put bigger amount of capital per trade while managing risk

2. Strive to keep per trade loss as low as possible. It does not matter if you have lot of scratch trades you close immediately if they do not work

3. Focus on Stockbee Dollar breakouts, they offer you opportunity to risk bigger per trade.

4. Stop dreaming about doubling money in few trades (if that happens that is bonus, but you do not base your method on that if you are swing trader)

5. If you are holding 40 to 50 small positions, realistically look at the probability of you making big returns. It will be low. Mutual funds do that and that is why their returns suck.

Most importantly understand the maths of swing trading means finding 20 or so swing trades in a year where you can risk big......

Money is rotating in to new stocks and new leadership is emerging

2012-01-25T08:29:00.004-05:00

It is a bull market and time to keep aggressively looking for opportunities.

Unless there is high volume selling , any dip is buy opportunity.

First time in a year so many stocks seems to be setting up well. There are many first and second stage bases being formed.

Money is rotating in to new stocks and new leadership is emerging. As long as you see good setups, it is good place to be in.

Markets are steadily climbing higher

2012-01-24T08:32:00.005-05:00

Markets are steadily climbing higher. In short run market is extended but the underlying buying pressure is strong. The quality of setups showing in breakout scans are good. So as of now a pullback may not kill the rally.

Two good breakouts

2012-01-23T10:09:00.004-05:00

ASPS: Altisource Portfolio Solutions

TDG : Trans Digm Group Inc

We are fast approaching extreme bullish breadth levels

2012-01-23T08:20:00.004-05:00

Stockbee Market Monitor

We are fast approaching extreme bullish breadth levels on the MM.

In the short run that is likely to lead to a correction/consolidation. However you would see many first stage bases on host of stocks. There are few late stage bases but most stocks have recently put in bottom and have started rallying. In light of that context this move may not be over and likely to continue for some time after correction.

The long sideways action after the October bottom has resulted in very good bases and unlike previous bounces in market you do not see V shaped moves.

Besides that absence of 300 plus days during this move indicates systematic accumulation and the footprints of large fund buyers.

The earlier phenomenon of all stocks moving together has also stopped. We are getting a stock pickers market.

All in all the context of this move indicates a possible start of a longer duration bull move.

In short run however expect a dip of 4 to 5%.

Market continues to have breadth thrust

2012-01-20T08:22:00.002-05:00

Market continues to have breadth thrust and is quickly approaching extreme positive breadth territory.

Secondary indicator of stocks up 50% in a month is above 20 . That indicates extremely strong buying environment. Typically such extreme breadth results in correction in next one to 2 weeks.

Extreme breadth by itself is not negative. But if it is followed by high volume selling then it is a worry area.

As of now the setups look good and cyclical and beaten down stocks continue to attract buyers in hoards.

Stocks breaking out to new high have had mixed response. Many have not moved much beyond b/o day.

Out of all the b/o and dollar b/o one of the buy ideas is CNW (Con Way Inc.

Joe Fahmy: FREE Webinar on Relative Strength

2012-01-18T08:49:00.007-05:00

Make sure to sign up for my FREE Webinar on Relative Strength today (Wednesday, January 18, 2012, 4:30PM EST).

Here’s the link: http://joefahmy.com/2012/01/11/free-webinar-on-relative-strength-wednesday-january-18th-430pm-est/

At the end of the Webinar, I will be offering a special discount code for my upcoming Seminars. The seminar promotion will only be available for 24 hours after the event.

Thank you,

Joe Fahmy

We are experiencing a bullish breadth thrust

2012-01-17T09:04:00.001-05:00

We are experiencing a bullish breadth thrust. Buyers have been in control for last 10 days or so. The dip on European downgrade was bought.

The market started this bull phase in October. After the initial burst of aggressive buying the market had a dip pullback and went sideways for few months. This has resulted on many momentum stocks setting up well as they made sideways moves or pulled back near high. Many of those are now breaking out.

Some of the sectors which lead the first leg of the move had failed breakouts in recent week. Oil and gas and railroads sectors are example of that.

Buying is still concentrated near 52 week low and follow through has been better on stocks near lows.

At this stage unless there are series of 300 plus day to the downside the move can still continue. But keep a close eye on sentiments and extreme readings on MM.

There were couple of good breakouts on Friday like VPHM and ELGX.