Review of Muathe .com

Eric Muathe.  Muathe.com 

One of the members on Stockbee pointed me to Eric Muathe's "Ultimate Breakout"  This was an Eureka Moment  for me as it looks a lot like the method Stewart applies and is stated in a manner that is easy to understand.

Most people look at RSI as being  an "over bought / oversold" indicator" over bought being a sell signal and over bought being a potential buy signal on cross overs.  Muathe does not.   He wants RSI power but there's a catch.  He wants the RSI power to be on a monthly time frame.

Muathe's website subscription is inexpensive ($250 for the year) but it could use some updating and a message board would be great.  That said, his analysis is decent   and his videos are  lengthy.


Muathe's criteria using a monthly chart are:

1.  RSI over 69.10 (most people use 70 on the RSI but Muathe uses 69.10 as it is a fibonacci number)
2.  An RSI 3 year high?
3. A price breakout with RSI over 69.10

Muathe's risk management is to apply a stop 5-8% from the buy.

Fishhooks & Muathe's Rest Periods:

Last year I worked out a setup I call the fishhook, which is designed to catch the power moves off a significant event.  It was aimed at avoiding the "pop and drop" I figured that If a stock popped and was able to fight off the attempt by the bears to drop it and made a new high it could go a lot higher. My first description of the setup is here but I've made a few tweaks.

After subscribing to Muathe I realized that he also had a rule for trading those types of set ups. Muathe's technique for chasing extended stocks is brilliant and was eye opening for me.

1. On a daily chart a stock must have 2 days of rest 
2. On a weekly Breakout 2 weeks of rest
3. On a monthly 1 week of rest.

My Experience.

My experience using the Muathe's techniques has been limited as I've only been using it for a month.   I feel that it works well with the StockBee's momo burst setup.

My process for combining the StockBee Momo Burst With Muathe Ultimate Breakout:

1. Start with the Scan for 3 year RSI highs (Muathe uses 34 bars as that is the fibonacci number).  I usually get between 150-350 stocks.
2.  I then sort by highest MDT (on the daily) This tells me which stocks are currently enjoying the highest momentum AND a 3-year RSI high.
3. Look at charts for weekly breakouts and set alerts.  It's a weekly B/o if has had at least  2 weeks of rest.
4. Use the StockBee Momo Burst setup for an entry on a daily chart.  I will not take a weekly breakout if the stock is extended on a daily chart.  Although my sample size is still limited, I believe that the best trades result when a tight daily range triggers both a momo burst and a week 1 breakout.
5. Stock's Risk management works better for me as I feel the %5-8% rule is too nondescript.  On a cheap stock I can have a 20% stop and still only risk .25 of my account depending on position sizing.  That I understand. 

Example Trade:

I bought MRGE at 4.80  On week 2, I have over a 15% gain:

On the daily, Momo Burst on breakout day: Tight range and expansion.

Update:

I no longer found the service to be valuable.  The scans are interesting in that a high RSI on a weekly will identify trending stocks.  However, Muathe's "picks" and trade management were nothing special.

2 Week Rest Rule

One of Mauthe's criteria is that a new breakout must rest for 2 weeks before re-breaking out.  Here's an example of this "rule" in action:

Weekly:

Review of www.Stockbee.biz

I thought I would do a post about the stock trading sites I subscribe to, why I subscribe to them, and how I am trading the setups utilized by those sites.

The trading community that I have been a a member of the longest is a momentum trading group called

Stock Bee.

Stock Bee is run by Pradeep Bonde (a/k/a Easy Guru).   I followed his  free blog for over a year before taking the plunge and becoming a member. I have been a member for about 8 months now. I believe its about $300 for the year. It is an excellent value for the expense.

Subscribers are afforded access to a vibrant community with some excellent traders.  You will find that there a number of different strategies that are traded and members are very helpful showing the ropes to new traders and sharing the nuances of their setups and systems to each other.

You will not find stock picks here.  I like to tell my friends that Stock Bee trades setups not stocks.  By that I mean, there is a hyper focus on the quality of  individual setups but there is little to no discussion of the fundamentals for those stocks.

With that caveat, the bread and butter setups taught by Stock Bee is the the "Momo Burst".  The Momo Burst was a significant part of my trading strategy and a big reason why I made 47% last year.

A momo burst looks for:

(1) stocks in an uptrend (preferably the beginning of a new trend)
(2) a period of range contraction
(3) a range expansion that is bought
(4) a 3-5 day move

Risk Mangement:

(1) stops generally placed at the low of the day.  Stop hunting algos? We don't care a good burst should never look back.

(2).  EG's trade risk is usually around .25-.5 per trade, But I usually go 5 to .75 of my equity on a trade.

Stock's Free Blog highlighted  GMAN as  good setup and it is a perfect example of what an ideal momo Burst would look like.

It had a very powerful move and has then entered range contraction and on the right edge expanded.

PROS:
This set up appears 1000s of times a year.
Many opportunities to practice the trade
A postive expectancy.

CONS:
Are you mentally prepared to make 100s of losing trades a year? 10 loses in row?
Can be mentally exhausting

My Experience
 I had a 57% win rate in 2015 and an avg win / loss 1.03 / 1.00.  So not great but that small edge builds up over time.  Even so, I can attribute  a lot of my gains to just a few trades. For example, I had a trade in RWLK  I risked . 25% of my account and made 6.6% gain on my account on just a 1 day Burst.

My chief disappointment with the system is that there are a ton of failed range expansions and also there were a number of burst I sold for 5-8% gain winners on stocks that would run 100-200% from that point.

I want the monster moves!

The "Episoidic Pivot"  The EP trade is supposed to go after the monster move.  The Theory is that a stock goes through an major game changing event such as fantastic earnings after being neglected for years.  Stock Bee's summary is here.

On an EP you want to buy as soon as it happens even pre-market and your looking for 50% + gains moves. You want to see massive volume and a gain changing news:

Pros:
The gains can be enormous.  Jesse Stine used this type of strategy to take his account from 46K to over 6 Million in under 3 years.

Cons:
The setup appears infrequently.  The only EP I've had were NOK when it sold it's phone division to MSFT and RFM when it merged with TQNT.

My Experience:

I've been awful with this setup.   The true EP appears infrequently and there are many false positives. If you are buying pre-market gaps on non-EP's you usually get stuffed.  A lot of times great earnings can be subjective, and how do you really know whether a bio tech's news on a phase 1 or 2 trial really has significance?

I've also noticed that there are many stocks that make fantastic 100% +moves without ever having a true "EP"

It is these stocks that I've been studying and trying to figure out how do I get in them. Perhaps there's a way to quantify an EP type stock without having to read the tea leaves in press releases?


Update 2018:

My favorite part of stockbee is the forum-- which I affectionately call the beehive.  There are many different styles of traders in the room.  Although I've since moved to a longer term focus since first joining, there are other traders in the group that use my approach.  Others are 100% mechanical and there are a few day traders.

The people I've met in the group include people that that have placed in trading competition and are now doing national speaking engagement.  So its an amazing opportunity to learn from some great traders. I have benefited immensely from the free flow of ideas.