Wednesday, October 6, 2010

My process loop for longs...

This is the general pattern I scan for every day...


A stock breaking out of a base no deeper than 20% - 25% with high volume on the advance leading up to the start of the left of the base, little to almost no volume with in the base and then a price/ volume explosion out of the base to new 6 month, yearly or all time highs. If the stock has significant news fueling the breakout plus outstanding fundamentals, low float and little analyst coverage then I add them to my "Quality Long Ideas" if they either have obvious EP/sector momentum and poor fundamentals or EP with no obvious news at all but really clean technical setup, I add them to my "Speculative Long Ideas". If the stock is near to breaking out but has not done so as yet I will take the break out but if it has already broken out (as in the above example) I wait for a continuation set up (bull flag, pennant or wedge) like this...


I enter long with appropriate risk size based on whether the stock is a quality idea or speculative as well as market/industry conditions/other leading and speculative stocks (direction and short term/intermediate term breadth) when the set up triggers and hold on until it either stops me out or moves in my favor. If it moves in my favor, I allow the profit to grow by trailing a stop beneath support on the hourly chart for swing trade/beneath support on the daily for position trades. The end result of a perfect swing trade looks like this....


A 50% plus gain in less than two weeks on 7% risk (i.e. $1.00 stop loss from $14.00 entry).

This is the logic behind trade ideas like: SCMR, CHTP, DRYS, ACOM, RAX, LOGM, TRT and other stocks in my watch list.

Catch a handful of these trades every year while keeping the losers under strict control and sizing your trades according to your risk tolerance year after year and you will be rich!

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