Saturday, May 22, 2010

Day 1 of a rally attempt...

Followers of CANSLIM should be very excited now despite all the news and speculation all over the place since Friday marked day 1 of a new rally attempt. Should we get a follow through next week the CANSLIM traders and other position traders for that matter shoud be busy marking on the charts of stocks on their watchlist pivot buy points.

I prefer to be fully invested by day's 1 and 2 of a rally attempt given that the T2108 has dropped below 20, the market indexes have been correcting for a few weeks and I see either a bullish hammer or outside day (like Friday) on volume after successive days of decline and stocks in my watchlist either bouncing off support, breaking out from a handle or breaking past a pivot point.

However, one must rememeber that I manage risk different to the standard CANSLIM approach. I use tighter stops for one. Also if I do not see immediate follow through in the indexes and/or distribution days and stalling then I cut losses even before my stops are hit. I do not mind a string of losses. My longest losing streak was 10 in a row. Losing does not phase me as long I stick to my plans and loses are small.

Up until recently I was still in the process of refining my stock selection strategy. I believe I have perfected it or I am very near to perfecting it. In other words, I have my stock selection process down to a set of guideline that any one can follow and reproduce consistently. With regards to swing trades my entries are straight forward and basically the standard approach. Enter above the previous day's high with a stop below the day's low and size position based on a 2% account risk.

With regards to postion trades my entry and exit strategy is very much a work in progess. I generally do not like trading breakouts except off of short tight patterns. I do not like the breakout entry taught by IBD. I will not have a problem buying a standard IBD type breakout if the markets are just bouncing from oversold levels. However, after the markets have been up 7 - 8 days in a row it is easy to get stopped out from a one day pullback in the more volatile, lower priced stocks which I prefer to trade. So I am looking at entering on breaks of slightly sloping trendlines or off of weekly charts by entering on a break above the high of the previous week with a stop between 4 - 10% depending on the volatility of the stock.

Whenever I have finalized all of my tradng rules I will be sure to publish them on this site. Until then good luck and good trading!

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