The @StockTwits Edge $$
Lindzon, Pearlman, Ivanhoff
@Zlucido 's Blog Zlucido.tumblr.com
Find Trends, Ride Them, and Get Off
After 20+ years I can't believe how much time you can spend away from the screens and still be successful as a trader.
Less is More
Stock trading at all time highs, the odds are the underlying company is growing very fast, and under accumulation from institutions. Every holder is in a winning position.
General rule is that mkts trend 15-30 percent of the time and they are range bound the remainder.
The market will be favorable for trend trading only 2-3 times a year.
Looking for gains of 25%+ and losses no larger than 7-10% (or smaller)
Risk 1-3% of total capital
Scan for base formations on quiet volume
Weekly first to establish acc/dist along w/ volume confirmation.
You don't have to be right all the time to be profitable.
Focus on market leaders and manage risk accordingly.
every time a stock makes a high volume breakout from a multi-year range, you should pay attention.
Something significant has happened, and it has changed the supply/demand dynamics.
High volume is an indicator of institutional involvement, and most institutional investors don't start accumulating positions without doing their homework.
Only Price Pays
Stocks are either advancing, declining, or in a neutral period
Accumulation, markup, distribution, decline
Trend traders want to be long in stage 2, short in 4 and avoid 1 & 3
Observe location of stock in relation to 50 sma & slope of the ma
Look for pattern of expanding volume in the direction of the trend followed by lighter volume as volatility contracts and short term corrections ensue.
Intermediate time frame swing trader will consider 65 or 30 min candles. Observe 20-30 day time frame
More accurate to observe 6 periods of 65 minute bars or 13 periods of 13 minute bars
5 day ma: each day mkt open for 13 30 min periods. Over 5 days there are 65 30 min periods, so a 65 period ma on a 30 min chart gives us a dynamic 5 day ma.
Longs should be entered as the stock is above a 5 day ma that is starting to slope upward and is acting as support.
Flags & Wedges
My market philosophy couldn't be any simpler. Following the money flow is key for me.
Experience and skill = SCREEN HOURS
Took me five years to play the game intelligently enough to make big money when I was right.
It's commonsense part of trading that many people still have difficulty implementing.
Never let a gain turn into a loss.
Breakout from a tight base
My edge comes from rigorous daily analysis of the price action and trading volumes of individual issues, sectors and indexes.
Looking to allocate my capital only when I notice a chart pattern that gives me a discernible edge.
Without it, I just sit on my hands.
Individual trader, I use my ability to be nimble and selective to my advantage.
3 ?'s: Broad mkt healthy? S&P 220 ma rising? Above 50 ma?
Clear group of stocks leading us higher? Identify and participate in strongest of leadership stocks.
Breakout from a tight base, quiet period is bullish, traders have accepted price level with ease
Always consider potential stop-loss zone before I hit the bid.
When the broad mkt is not healthy, discipline will be your saving grace.
Take profits just as quickly as you cut losing positions, and you will keep your head above water in choppy mkts.
PTJ: Losers average down losers; Winners add to winners.
If you personalize losses, you can't trade.
The Base is Everything
Buying close to the base gives us protection.
Biggest mistake novice traders make is to buy after an extended vertical move away from any base or 20 ma.
When price reverses, it has no base to fall into and enters a price vacuum.
The base provides a logical place to put a stop. Its your safety net.
Trading People, Not Stocks
stocks near end of consolidation range show narrowing of daily range.
Stocks will have large swings as mkt participants attempt to find a fair price after a trend move.
As mkt participantds reach equilibrium, stocks price will narrow in range, typically on contracting volume.
Begins to emerge from this range offers great R:R setup.
Waiting for narrow range candles minimizes risk by placing stop closer to the price action.
Waiting for stock to emerge from consolidation, trader can increase odds by letting mkt confirm strength rather than attempting to guess the next direction right.
My method focuses on initial breakout from narrow consolidation range, i set stops just under the range.
Setup conditions: stock near end of consolidation in uptrend. trading above 20 & 50 sma
patterns revealing participants sentiment.
volume patterns to gauge market participants urgency.
Stops keep risk manageable.
Reasonable target is at least 3 R's away.
Identifying Trend Shifts
Sell your losers & never average down.
Many factors determine what a stock is worth when we make a sell decision, but the price paid should not be one of them. It is a sunk cost that unfortunately bears an outsized psychological trap for many.
Reality is that human emotion drives the trending and correcting processes, which occur over and over again.
A Chart will Never Lie to You
Journal: ticker, date, #, price, date sold, sale price, net P/L, % made/lost, hold duration
why bought, why sold, chart pattern, mkt condition, supp/res levels.
notes: stock is making new highs, higher highs
No longer hold into earnings
Price is what pays and should always be your first indicator.
Volume should be used as away to confirm the price action and urgency of buyers and sellers
Price trumps all
Trade stocks that are leaders in their sector and sectors that are leading the mkt
There is only one side to the stock mkt: not the bull side or the bear side, just the right side, the side yet to be determined.
The Price tells the Story, Plain and Simple
Patience is key but I also must be disciplined in my exit strategy. I do not trade on hope. I lay out my R/R before the trade and execute those that meet my criteria.
Mkt must be cooperating with direction of the trade, you must know the trend, and not fight it.
The Birth of a New Trend
Reaction to the news is more important than the news itself
Probably I even invented some ways to lose money but i realize this would not be true
Human beings are involved and our nature hasn't changed for thousands of years.
emotional creatures who believe everything should be symmetrical and balanced as it is in nature.
Financial mkts are very different than the linear world.
A place where mean reversion is often delayed long enough to bankruptt the rational thinkers
A place where "once in 100 yrs" events happen every 5 years.
I am wrong about 50% of the time.
Accepting losses is part of the game and cutting them short most important step.
Stock doesn't know that you own it and doesn't care that you cant afford to lose.
Understand and accept your power, you cannot move the market, you cannot tell mr. market where to go and how fast.
You have to establish new connections which takes hard work via repetition and visualization.
Devote effort to studying past winners.
When elephants dance, they leave traces
mkts move in cycles defined by institutional capital allocation.
when institutions buy and sell, they do so in volume and leave clear traces.
Market is healthy a few times a year.
It is fruitless to fight the momentum, as it feeds on itself.
Higher prices boost risk appetite, which attracts fresh capital, which boosts prices even more.
Spot these periods and take advantage of them.
Real money is made at two extremes: value and momentum.
Mkt reflects our collective expectations and perceptions act the future.
Prices change when expectations and perceptions change.
Price changes and trends are fueled by catalysts.
Best performance comes form those that surprise the most often and by the highest margins.
Price trends are born and sustained by catalysts. behind each earnings trend there is a social trend that makes it possible.
Bulk of directional mlt moves tend to happen in just 10-15 % of the trading days.
The rest in nothing more than noise in a range.
high volume ( 3x 20 day avg) & price expansion ( 2x ATR past 20 days & 10 % move) guarantee institutional involvement
When institutions buy they leave traces.
They are heavy, slow buyers, therefore I have enough time to enter and exit as they build positions.
I look for stops breaking out of long sideways range, longer the better for the potential of the upside move.
Everyone who owns is a winner and this will naturally decrease the supply, making acc difficult and allowing slightest demand to sustain new highs in price.
Price is often the leading indicator, volume and risk appetite follow price.
No setup works all the time, success rate of any setup is a derivative of the current mkt environment.
Liquidity runs in cycles.
Event that changes perception of value usually leads to tremendous price appreciation in a short period.
Volume often follows price.
Initiate a position with a pilot buy and add after my thesis is confirmed by price action of the stock
Lock in partial gains on day I enter. Puts me in a position of strength, helping me remain in the trade.
Psychology is very difficult to buy stock that appreciated 20% in 2 days. Mean reversion is the normal state of mind.
Momentum traders are true contrarians, as willing to engage in as tock at price levels that are mentally uncomfortable for the average human being.
Nothing magical about moving averages. Just look like a natural zone of support for simple reason they have played this role so much in the past.
When enough pppl act on their beliefs, their expectations turn into a self-fulfilling prophecy and the stock bounces again.
When a stock closes below relevant moving avg is a clear sign the easy money has been made.
Stock is probably entering into a consolidation period and only a new catalyst can help defeat the gravity of the range.
Only constants are the change and the uncertainty.
Markets are always evolving and if you don't evolve you will be left behind.
Past successes mean next to nothing. Everyday is a new battle.
Successful trading is 90% psychology & 10% knowledge about the underlying forces that drive price. Most people defeat themselves. Cut your losses short, let your winners run and review your trades.
There are no perfect setups, it is about how you manage your position.
Change is the only Constant
No matter what we learned in the past, nothing lasts forever.
Pitching coaches take pitchers out of the game when they do not have their normal stuff working.
A good trader needs to know to pull himself out of the game, as there is no coach to do it for you.
The policy of being too cautious is the greatest risk of all.
Art of Trading
People learn in different ways, key toward greater success and fast relearning curve is to have well documented learning plan.
Plan your work and work your plan.
Accurate records and close evaluation of performance for multiple time periods.
those who perform the best, learn methods to separate opinions and beliefs form trading decisions.
No longer seek to trade their opinions but to exploit opportunities.
trade consistently well must go against all natural instincts you have.
Undertsnading and having strong working knowledge of both human nature and emotion combined with own natural tendoncies must not be underestimated.
Once you learn to really los money in the market, you learn how to improve and succeed even more.
Traders who have learned to turn off and tune out all media input outperform significantly.
If you saw difference you would radically change how you spend your own research time.
If your goal is to make money, stop trying to make yourself look smart and turn off and tune out all noise.
Proper position sizing remains one of the least respected, underutilized and misunderstood concepts for most traders.
Proper risk mgmt will determine your success as a trader more than anything else.
Those who focus on one strategy fair better than those who work on multiple systems.
Those who tweak and adjust strategy all day underperform on multiple time frames.
too many traders know a lot of things but are not experts in any.
if you don't know your strategies weakness, its not b/c they do not exist, but rather you simply haven't discovered them yet.
making the simple complicate dis easy. making the complicated simple is brilliant.
simply strategies that can be explained to a10 yr old work far better than complex and difficult to explain ones.
Make your system simple, straightforward and match it to your personality
Avoid temptation to add layers of complexity and indicators to your approach.
Path to success resides within you and cannot be purchased from another human being.
Learn all you can from those around you, but ultimately you must carve your own approach and go your own way in the market.
December 10, 2011
Check Out @Zlucdio 's Blog at Zlucido.tumblr.com• Be cautious with brokers’ advice.
Nicholas Darvas: How I Made $2,000,000 in the Stock Market
Nicholas Darvas: How I Made $2,000,000 in the Stock Market
• Ignore Wall St sayings, no matter how ancient and revered
• Avoid over the counter, only buy in listed stocks where there is always a buyer when I want to sell
• Avoid rumors, no matter how well-founded they may appear
• Buy only in strongest industry groups & the best within those groups.
• There is no sure thing in the market, i was bound to be wrong half the time
• I must accept this fact and readjust accordingly, pride and ego subdued
• Become an impartial diagnostician
• Cannot merely take chance. first i must reduce my risks as far as humanly possible.
• Automatic stop loss = quick loss weapon
• I knew many times i would be stopped out for the sake of a pt just to see my stock climb up immediately after but i realized that the was not so important as stopping the big losses.
• Besides i could always buy back the stock by paying a higher price.
• My profits had to be bigger than my losses
• Most difficult problem was to discipline myself a rising stock too quickly.
• Hold on to a rising stock but at the same time keep raising my stop loss parallel with its rise.
• Keep it at a distance that a meaningless swing in price would not touch it off.
• If the stock really turned around and began to drop i would be sold out immediately.
• I would not be able to sell at the top
• Producer would be a fool to close the show when the theater is full every night
• It is only when he starts to notice empty seats that he considers closing the show
• I would be a fool to sell a stock as long as it keeps advancing
• Sell when the boxes start to go in reverse, when the pyramids started to tumble downwards, my trailing stock should take care of this.
• Objectives in the mkt: right stock, right time, small loss, big profit
• Weapons in the market: price and volume, box theory/tech analysis/patterns, automatic buy order, automatic stop loss and trailing stop
• As the trend continued i would buy more, as the trend reversed i would run like a thief.
• I knew i had to adopt a col, unemotional attitude toward stocks, that i must not fall in love with them when they rose and i must not get angry when they fell
• There are no such animals as good or bad stocks, there are only rising and falling stocks and i should hold the rising ones and sell those that fall.
• I had to bring my emotions, fear, greed and hope under complete control.
• I had no doubt that this would require a great amount of self-discipline, but i felt like a man who knew a room could be lit up and was fumbling for the switches.
• I only handled 5-8 stocks at a time, i automatically separated them from the confusing, jungle-like movement of the hundreds of stocks which surrounded them.
• I was influenced by nothing but the price of my stocks.
• I could not hear what people said, but i could see what they did. it was like a poker game in which i could not hear the betting, but i could see all the cards.
• Poker plays will constantly try to mislead me with their words but if i did not listen to their words, and constantly watched their cards, i could guess what they were doing
• Disregarding the influence of the general mkt is no better than trying to direct a battle by only looking at one section of the battle field
• I could not apply mechanical standards to the relationship between the average and individual stocks
• Judging this relationship was more like an art, in some ways it was like painting
• In the same way i found that the relationship between the average and my individual stocks were confined within certain principles, but they could not be measured exactly
• Watched the averages only to determine whether i was in a strong or a weak market because general mkt cycle influences almost every stock.
• They became like x rays for me. to the uninitiated x rays are meaningless. to physician it obtains all he needs.
• I could absorb the page at a glance and draw rapid conclusions from it, instead of painfully putting the letters together like a child
• Whenever i bought i wrote down my reason for doing so. i did the same when i sold it.
• When it ended in a loss i wrote the reason i thought caused it. then i tried not to repeat the same mistake.
• Started to see stocks have characters just like people. this is not so illogical, because they faithfully reflect the character of the people who buy and sell them
• Like human beings, stocks behave differently. some are calm, slow conservative, others are jumpy, nervous, tense.
• Some easy to predict, consistent in their moves, logical in their behavior. they were dependable like friends.
• I slowly came to see that i was becoming a diagnostician i could not be a prophet.
• When i found a stock strong all i can say is it is healthy now, today at this hour. i could not guarantee it would not catch a cold tomorrow.
• My educated guesses, no matter how cautious, many times turned out to be wrong.
• Did not upset me anymore. who was i to say what a stock should or should not do anyway?
• My mistakes did not make me unhappy
• If i was right so much better. if i was wrong i was sold out.
• This happened automatically, separate from me
• I was no longer proud when a stock went up, nor did i feel wounded if it fell
• I knew now that the word value cannot be used in relation to stocks. the value of the stock is the quoted price. this is in turn entirely dependent on supply and demand
• No such thing as a $50 stock. if it trades to $49 it was now a $49 stock.
• I succeeded in disassociating myself emotionally from every stock i held.
• I decided i would trade in the market by doing the right thing first, follow what a stocks behavior commands and care about taxes later
• In the same way i realized it was impossible for me to assess great historical turning points in the market when they began to happen. Whats fascinated me as wall st prices continued to fall was the gradual
• Realization that my system of ducking out quickly with my automatic trailing stop losses made such an assessment unnecessary
• I had simply gotten out on the basis of the behavior of my stocks.
• Buy and hold or put them away investors who consider themselves conservative investors , i now regarded as pure gamblers. a non gambler use get out when his stocks fall.
• I could remember how i almost felt myself willing and pushing that stock upwards. it was a very human feeling, but it had no effect upon the mkt an more than spectators have on a horse race
• I tried to detect those stocks that resisted the decline. reasoned that if they could swim against the stream, they were the ones that would advance most rapidly when the current changed.
• Majority were companies whose earnings trends pointed sharply upwards
• Capital was flowing into these stocks even in a bad market. the capital was following earnings improvements as a dog follows a scent.
• Stocks are slaves of earning power, i would select stocks based on their technical action and then only buy them when i could give improving eps power as my fundamental reason for doing so.
• Looked for stocks tied up with the future and where i could expect that revolutionary products would sharply increase earnings.
• All a balance sheet can tell you is the past and present. they cannot tell you the future
• Enter high territory trading: stocks on launchpad to make new highs, more expensive then ever before and would look too dear to the uninitiated.
• But they could become dearer. i made up my mind to buy high and sell higher
• Expensive-but-cheap high velocity stocks. closely observed their price action, i was on the alert for any unusual activity as well. i had not forgotten the importance of volume
• Bear mkts always followed by bull mkts. i felt calm and confident waiting for the mkt tide to turn.
• I did suspect that leaders in previous mkt would not lead again. they had fulfilled their place in history.
• I had to find new ones. they war sonly sleeping the promising sleep of the unborn. one day soon they were destined to wake up.
• Steady rise in price and the high volume indicated to me that there was tremendous interest.
• Although i felt secure win my judgement w/ merged technical and fundamental viewpoints i did not for one moment con side abandoning my chief defensive weapon the stop loss order
• No matter how well built your house is, you would not think of forgetting to insure it against fire.
• The truth was that as my pockets had strengthened, my head had weakened. i became overconfident and that is the most dangerous state of mind anyone can develop in the stock market.
• Now i know that it was caused by egotism leading to vanity leading to over confidence which in turn led to disaster. it was not the mkt that beat me but my own unreasoning instincts and uncontrolled emotions
• My ears were my enemy, i had operated simply on my daily telegram which gave me perspective. it showed me the way my stocks were behaving. there were no other influences.
• In this way everything happens in wall st while i am in bed. i am sleeping while they are working and they cannot reach nor worry me. my delegate, the stop loss order represents me in case something unforeseen happens
• I settle down to work when wall st sleeps.
• Let a stocks strength in the market be your guide
• It began to be a strange life, i sat in th plaza every evening reading my telegram and filing it. there was nothing further i could do. i felt elated and restless, but powerless.
• I did not have any reason to sell a rising stock. i would continue to jog along with the trend, trailing my stop loss behind me.
• As the trend increased, i would buy more. if the trend reversed? i would, as ever, flee like a disturbed burglar.