Articles tagged Trading Guide

How to find short opportunities :Part 1

 

The market has had a approximately 10% move from its bottom in last 30 trading days before reversing hard. In the last 30 days some stocks have made big moves and some stocks lagged the market. Both of these kind of stocks offer opportunities for short sell. During market corrections or bearish phase stocks which have ran up a lot correct 20 to 25% and laggards start going down. You have short opportunities at both end of the market. You can look for buyer exhaustion setups in stocks that ran up a lot and you can look at breakdowns move in stocks which were under performing during the rally. 


The following 100 stocks are top ranked stock by % gains in last 30 days. Stock priced below 5 are eliminated and stocks with less than 100000 average volume in last 4 days are excluded to calculate top 100 list.
 
ABG
ADCT
AEIS
AFFY
AGCO
AGO
AGU
APC
APL
ARGN
ARNA
ASYS
ATAC
AXL
AXTI
BC
BCS
BID
BP
BUCY
CAGC
CCO
CGA
CLF
CNH
CRUS
CTXS
DCTH
FDML
FOE
FSYS
FUQI
GENZ
GRA
HEAT
HEW
HGRD
HTHT
IDSA
IGTE
INCY
INFN
ING
IOC
IPG
IPGP
ISLN
IVN
JASO
JKS
KRA
LAD
LDK
LFL
LIZ
LLEN
LNCE
MBI
MDCO
MNTA
MOD
MTL
NEWP
NR
NTGR
NTY
NVMI
OEH
ONXX
OPLK
OWW
PCLN
POL
POT
PPCO
PTRY
PWER
RES
ROC
SCMR
SDRL
SFN
SMP
SOLF
SOLR
TEN
THRX
TKR
TKS
TRS
TRW
TSTC
UCTT
UIS
URI
WHX
WLK
XJT
XTXI
YONG

 



Some leading stocks by price % change in last 30 days are:

ARNA up 109%

 

JKS up 102%
 


And you can see more stocks ranked by % change like this...
 
 
If you see the above stock IDSA, it has corrected 19% in last 6 days from high. Like this many of the strong stocks will have sharp pullbacks if the market continues its down move. A stock like JKS is vulnerable to 10 to 20% correction (JKS has earnings due on16th so be careful). 
 
Some of these 100 stocks will  pullbacks 15 to 255 in next couple of weeks  if market continues to go down. They  offer   opportunities on short side. In a broad based correction all strong stocks are vulnerable to such correction. And in this market we have seen that when things go up everything goes up and when things go down everything goes down. So if you are looking for quick profit short opportunities the 100 stocks above offer you those opportunities. On a list like this you can either run a breakdown scan or a swing exhaustion scan. That way you will get only 5-6 opportunities to work with instead of 100.

To find  these 100 stocks using Telechart, you need to be familiar with the "Custom Date Sort" function. Using the "Custom Date Sort" you can sort the "Common Stocks" for the period between July 1st  (the lowest point in the rally) and August 9th (the highest point in the rally). July 1st was the bottom of this uptrend. Once you get the sort you need to select Top 100 stocks by % change between those 2 dates. You can also look at Top 200 stocks instead of 100 if you are looking for more opportunities

If you want to use the filters I used to eliminate low priced and low liquidity stocks then you need to first apply the filter and create a Easyscan and then sort the Easyscan list by the Date sort.

Here is a step by step way to do this:
  1. Create a liquidity PCF: MINV3.1 >= 1000 This gives you stocks which had minimum 100k volume in each of the last 3  trading days excluding todays trading day.
  2. Create a Easyscan with following conditions:
  • Common Stocks
  • Price per share>5
  • Liquidity PCF =true

Once you have this list setup go to Custom Date Sort and set sort date as:

Start Date: 07/01/10
End Date: 08/09/10
Select % change
and then run the sort.

This will sort your newly created Easyscan by the % change between those two dates. Select top 100 or 200  stocks from that and create a new watchlist "Rally Leaders". On this list you can use two kinds of scans to further reduce number of opportunities:

Stockbee Breakdown Scan

C <= .96 * C1 AND V >= 1000 AND V > V1
 
Or
 
Stockbee Swing Exhaustion Scan
 
C < C1 AND C1 > C2 AND C2 > C3 AND C1 > O1 AND C2 > O2 AND C3 > O3


Keep an eye on these leaders for breakdown opportunities. If market continues its correction many of them will offer 10 to 25% opportunities.

In second part I will talk about how to find laggard 100 to 200 stocks during this 10% rally and look for short opportunities in them.  In Part 3 I will have a video to show you how to do this. I showed a quick way to do this in Daily Market Analysis Video today.

Market Monitor Guide Part 1


Market Monitor is a breadth based market timing system. I use it  primarily to decide which market phase is favorable for my style of breakout trading and which period should be avoided. I also use the Market Monitor to time long term retirement account (401k) fund allocation. 

I developed Market Monitor in the beginning of 2001. The impetus for developing the market monitor was couple big draw-downs after big profits. Prior to Market Monitor I often used to run up my account a lot during bull moves , but end up giving up lot of those profits during bearish periods. In 2001 I decided to do something about it. .

The process of developing Market Monitor started with an exhaustive study of commonly used market timing methods. I read every book, article, research study in public domain on market timing. I spent thousands of dollars on books and data and hundreds of hours and many sleepless nights till I found what I wanted. Everyday morning I would start work on this, experiment with hundreds of things and nothing would work. Everyday evening I would go for a long run near Princeton Lake, generate new ideas, come back and work on it till late in the night and next day the cycle would repeat. Basically for four months I had only one obsession in life, market timing. 

After hundreds of failed attempt I finally found a workable method. Most of the original models is intact since 2001. Over the years I have fine tuned it a bit but core logic is same. Since then I have avoided all major bearish moves successfully. Long standing members of the site who have been following this model since my public blog started will tell you how they avoided the worst bear market in history by using Market Monitor. There are several members who have built their own databases to monitor this information and many have refined and enhanced the model over the years. 

Once I started the blog I started publishing the figures on the blog and from that the spreadsheet evolved. Earlier I use to only look at the data daily and not maintain a running data series. 

When you study market timing you will soon discover that there are two camps. Those who believe market cannot be timed  and those who believe  market can be timed. Essence of speculation is in market timing. Speculators throw market studies and extreme development of skills have developed workable tools to time the market. 

The commonly used models used for market timings are based on:
  1. Technical analysis which looks for chart patterns or other indicators to time market
  2. Fundamental analyst who study fundamental macro factors like interest rates,Fed Fund rates, capacity utilisation, inflation, industrial production, and so on and predict likely market direction
  3. Sentiment analyst who look at investors, mutual funds, active option traders , newsletter writers and so on and look at sentiment extremes to time market
  4. Quantitative analyst who try and find hidden correlations to time market
  5. Cycle analyst who look for cycles in market
  6. Breadth analyst who study the extent of component stocks participating in a overall market move and determined market direction based on breadth trends.

The Market Monitor is based on market breadth. In 2001 I used a 40 years data of market breadth and found some data patterns which indicate likely start and end of a bull move. Other people have done similar studies and have developed variety of Market Timing models based on market breadth. One of the advantage of market breadth models over other models is it uses internally developed data points from market moves to decide market direction. As against that let us say you have market timing model based on length of skirts women wear, then the data point used in external. 

In 2001 when I developed by Market Timing model my goal was very clear: to avoid big draw downs. I knew that I could make big money by holding on to gain. So I was looking at a overall filter which will tell me when to trade my breakout kind methods and when to sit out. That is the basic objective of Market Monitor even today. 

The basic logic behind Market Monitor is that breadth extremes happen at turns and moves are confirmed by breadth cross over. Market Monitor measures the breadth of major moves in market as against other commonly used breadth measure which tends to be noisy. Market Monitor daily measures breadth of various magnitude and duration move. 

Market Monitor generates two types of signals: market extremes signal and market turn signal. In a bull market at some stage the market reaches a breadth extreme as measured by Market Monitor. That indicates likely turn zone or topping zone. Similarly in bear market at some stage market reach breadth extreme. That indicates likely turn zone or bottoming zone. Such extreme signals are often early indicator and actual topping and bottoming can be delayed by few weeks to few months.Rallies which start from such extreme levels tend to be major rallies lasting 8 to 12 months and result in market going up 20% plus. Extreme turn signals on end of day basis are rare. Often a bull or bear market reaches extreme in intraday basis and reverses. The second kind of signal Market Monitor gives is confirmation signal. It is indicated by breadth cross over. Breadth cross over signal safe periods for breakout trading. 

All he data used for Market Monitor is derived using Telechart and the scans used for it are as follow:



4% plus daily


(100 * (C - C1) / C1) >= 4 AND V >= 1000 AND V > V1

4% plus down daily


(100 * (C - C1) / C1) <= ( - 4) AND V >= 1000 AND V > V1



25% plus  quarter

100 * ((C + .01) - ( MINC65 + .01)) / (MINC65 + .01) >= 25 and AVGC20 * AVGV20 >= 2500

25% plus quarter

(100 * ((C + .01) - (MAXC65 + .01)) / (MAXC65 + .01)) <= ( - 25) and AVGC20 * AVGV20 >= 2500



25% plus month



C20 >= 5 AND (AVGC20 * AVGV20) >= 2500 AND 100 * (C - C20) / C20 >= 25

25% down month

C20 >= 5 AND (AVGC20 * AVGV20) >= 2500 AND 100 * (C - C20) / C20 <= ( - 25)

34/13 Bull

100 * ((C + .01) - ( MINC34 + .01)) / (MINC34 + .01) >= 13 AND AVGC20 * AVGV20 >= 2500


34/13 bear
 

(100 * ((C + .01) - (MAXC34 + .01)) / (MAXC34 + .01)) <= ( - 13) AND AVGC20 * AVGV20 >= 2500



MMA+

XAVGC3 > XAVGC30 AND XAVGC5 > XAVGC30 AND XAVGC7 > XAVGC30 AND XAVGC10 > XAVGC30 AND XAVGC12 > XAVGC30 AND XAVGC15 > XAVGC30 AND XAVGC3 > XAVGC35 AND XAVGC5 > XAVGC35 AND XAVGC7 > XAVGC35 AND XAVGC10 > XAVGC35 AND XAVGC12 > XAVGC35 AND XAVGC15 > XAVGC35 AND XAVGC3 > XAVGC40 AND XAVGC5 > XAVGC40 AND XAVGC7 > XAVGC40 AND XAVGC10 > XAVGC40 AND XAVGC12 > XAVGC40 AND XAVGC15 > XAVGC40 AND XAVGC3 > XAVGC45 AND XAVGC5 > XAVGC45 AND XAVGC7 > XAVGC45 AND XAVGC10 > XAVGC45 AND XAVGC12 > XAVGC45 AND XAVGC15 > XAVGC45 AND XAVGC3 > XAVGC50 AND XAVGC5 > XAVGC50 AND XAVGC7 > XAVGC50 AND XAVGC10 > XAVGC50 AND XAVGC12 > XAVGC50 AND XAVGC15 > XAVGC50 AND XAVGC3 > XAVGC60 AND XAVGC5 > XAVGC60 AND XAVGC7 > XAVGC60 AND XAVGC10 > XAVGC60 AND XAVGC12 > XAVGC60 AND XAVGC15 > XAVGC60

MMA-

XAVGC3 < XAVGC30 AND XAVGC5 < XAVGC30 AND XAVGC7 < XAVGC30 AND XAVGC10 < XAVGC30 AND XAVGC12 < XAVGC30 AND XAVGC15 < XAVGC30 AND XAVGC3 < XAVGC35 AND XAVGC5 < XAVGC35 AND XAVGC7 < XAVGC35 AND XAVGC10 < XAVGC35 AND XAVGC12 < XAVGC35 AND XAVGC15 < XAVGC35 AND XAVGC3 < XAVGC40 AND XAVGC5 < XAVGC40 AND XAVGC7 < XAVGC40 AND XAVGC10 < XAVGC40 AND XAVGC12 < XAVGC40 AND XAVGC15 < XAVGC40 AND XAVGC3 < XAVGC45 AND XAVGC5 < XAVGC45 AND XAVGC7 < XAVGC45 AND XAVGC10 < XAVGC45 AND XAVGC12 < XAVGC45 AND XAVGC15 < XAVGC45 AND XAVGC3 < XAVGC50 AND XAVGC5 < XAVGC50 AND XAVGC7 < XAVGC50 AND XAVGC10 < XAVGC50 AND XAVGC12 < XAVGC50 AND XAVGC15 < XAVGC50 AND XAVGC3 < XAVGC60 AND XAVGC5 < XAVGC60 AND XAVGC7 < XAVGC60 AND XAVGC10 < XAVGC60 AND XAVGC12 < XAVGC60 AND XAVGC15 < XAVGC60

Data generated from these scans is fed in to a spreadsheet and in some cases a further value is derived using simple calculations. In second part I will look at how each of the Market Monitor  column is interpreted.  

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