Dr. Wish Notes

My trading style of buying breakouts in momentum stocks  has been a highwire act. It requires heightened risk management because I expect that many of my trades will fail.  I'm wondering  if there might not be a better way. That affords more margin of error.

A friend of mine keyed me on to Dr. Wish and gave me some links to review.  I took some notes for my weekend research.  It re-emphasised for me the importance of the broad market.   As good as I have been over periods, I frequently have been trading against the grain of the broad market.

Here is the video  I watched, http://videos.worden.com/webinars/HAL-PC_DrWish_12112012/HAL-PC_DrWish_12112012.html …  and my notes from the video:
Key points:

• Buy stocks making new highs -- Darvas
• Stay out of a bear market. Do not go against the Grain. 
• Weinstein Stages 
• 30 week average cross stage 2
• Only be in a stage 2 stock long -- Stage 4 for shorts 
• The importance of stage analysis is crucial.  Buy only stage 2 and short only stage 4.
• O'Neil CANSLIM
• M - Market indexes 3/4 stocks follow market trends
• Be on the right side of market averages
• There is a time to be out of the market
• Cup with handle
• It is a base in a stock that has already launched at least 30%
• 7 weeks
• Livermore -- Buy going up. " I never buy too cheap or too easily."
• Never average against a losing position. 
• Pyramid up 
• If a position fails. sell it
• if it gives another signal-- re-buy it often an initial failed trade an lead to big gains if it re-sets.

Guidelines for buying growth stocks

• Market must be in an uptrend
• GMI must be buy
• IBD market pulse
• "IBD is very good you don't want to go against them"
• other?s
• Stockbee Market monitor
• Great fundamentals -- IBD 50 
• new highs--- stocks up 100% from a year -- MDT
• Weinstein --
• Stage 2 -above 30 week.
• multi-month base
• MACD rising
• Stoch rebound from oversold
• 10 > 30 week > avg.
• price > 30 ma or close
• Exit -
• - below 30 week avg
• tops never lowered only raised
• tighten stop -- stop if GMI < 4 or TI2109 > 80-85% 
• sell if doesn't act like it is expected
• stops entry every trade as if it failed
• know where it failed 
• know what you are going to do. 
• Key to market -- preserve capital
• start with pilot buy
• buy up, never down
• options to hedge positions 

General Market Trend

• GMI
• Available at Wishingwealth.com
• Put /  Call Ratio
• if above 1-- people too bearish bounce likely 
• T1208  --% stocks > 40 ma. 
• Yearly if single digits -- start pilot buys in indexes and add as it goes up. 
• weekly 80 tops  -- < 20 bottoms
• Market Trend Checklist
• Warning-- when leading stocks break down-- its a leading indicator for the market
•  measured by % of stocks that  hit new highs 10 days ago that are higher now.

SCANS:
Darvas- -  TC2000

• percent of 52 Week high 90 -100
• EPS % change last quarter > 50
• c-30wkma >.01
• c/minlow250 >1.8
• Price > 30
• 4wkgt 10wkgt 30wktg = true

Results. I put the scan together and it produced one good stock.  However, due the Market conditions--O'Neil's "M", no stocks should be bought at this time.

 good fundamentals / Good technical Scan

• new high 250 days
• Return on equity > 14
• % change of rev last qtr >0
• price >20
• volume 20,000
• eps change last qtr >25

Results:  I ran this scan and came up with only 1 stock. Even without the price and volume requirements.  Likely because the market sold off so heavily there are no stocks making new highs.

Timing purchase

• 10.4.4 stochs
• MACD
• 30 day avg
• volume
• multiple time frames

Oversold and then cross 30 day avg buy signal

Other tool for buying stocks
look for cross of 10 week over 30 week.

• Green line charts
• Monthly - above 5 month average -- new monthly highs
• Yellow Line
• Now uses Guppy "Red white and blue" charts.

!!The same setup that works in an up trending market will fail in a downtrending market!!

More videos and Webinars 

http://www.

Doctor's Orders:  worden.com/Webinars/08_24_2010 …

Goal is to catch a trend and ride it till it ends.

• Manage risk / Trade smart 

• General Market is key -- 
• if you know the overall trend you have half the battle won
• 70-80% stocks follow general market
• In a downtrend do not try to find the needle in the haystack.
• GMI/ GMRR
• Gets out of market < 4.
• In a good market stocks that hit new stops should keep going
• want to see 100 new highs
• IBD Mutual fund index   9currently bearish
• 
  

T2108  -- lowest every 1987 crash -- below 10 look for market bottoms.

• 80% tops out.
• Tracks every day
• MACD -- Nasdaq 100 stocks > MACD signal line. 

Stan Weinstein's stage analysis

longs only worth to own stocks in Stage 2

Only time worth shorting is Stage 4. 

• Sell stage 2 as 30 MA  starts to flat --- *Scot1and note, how about using MAMA to ascertain flattening?
• Consider guppy charts. 

• Win the easy ones
• When market is in stage 2 -- it easy to make money on longs
• if its not clearly in stage 2 it is better to be out of the market. 
• 
  

Submarine Scan -- stocks to short

http://videos.worden.com/webinars/DrEricWish041310.html …

Trading With SK

There's a contingent of loud mouths on Twitter that look to short every parabolic move. It works well, until it doesn't and they get run over.  That method has great winning percentages but risk blowing out an account in 15 minutes if their wrong.

Then there's the guys that know that it is far better to prey on the weak. The pack of wolves doesn't go after the strongest buffalo .. they hunt the weak.

My Friend SK (feel free to follow him on twitter)  goes after the weakest stocks.  The dude prints money.   And  he's not trying to sell anything. No memberships, DVDs handbooks, he's giving away his advice.  He has been very generous of his time and his secretes.  I must admit due to my schedule and a full time job - I can't keep up with his pace. That said, I've adapted many of his techniques for my swing trading.

He put a video together a video describing his method in detail, check it out.

Creating Scans from Indicators

Let's say you want to scan for a bearish Wilder RSI of < 30.   A very common question that I've gotten is how to create a scan for an indicator in TC2000.  The good news is that is very easy and you do not have to create a PCF or know any coding to pull off this feat.

Here's a quick video of how its done:

Trading without a plan

Here's what emotional trading  looks like. 

Introducing the Slingshot

Over the weekend, I spent some productive time working out a new power setup with a couple of my
trader friends.  We are fondly calling this setup the  "Slingshot."

This setup takes a stock that recently had a power move and has stretched back under the EMA 4 --- but not too far-- The EMA 9 should be the limit.  When it gets pulled back through the green side of the EMA 4 it has accumulated power and is ready to go.

The great thing about this setup is that it gets you in power stocks sooner, with tighter stops then waiting for a breakout.


Here's a perfect example: EFOI gets stretched through the 4 to the 9.  I picked it up at 13.24 as it came back through.

How did it do?  Only about 40% in the next 2 days.

TREE:

Aftermath: +20pt move and counting

SPNS:

EVHC:

Under the surface:

I'm a big fan of hourly charts. The weekly gives you the trend. The daily gives you the landscape, but it is the hourly that gives you the entry.

That said, I can get jumpy and I did this morning in ALJ.  It retook the 4 and broke the hourly downtrend channel in the first inning of today.  So I took a position. It was stuffed and I took a stop.

I'd be far better off waiting for 2 hour bars for confirmation.

Done correctly:

Follow through:

After the Slingshot shoots, the EMA 4 should never be breached on a close.  Consider it the trailing stop on the position.  Of course, take profits on the way up.

After I presented, this post I had a follow up question as to how this differs from the Fishhook.  There are two significant differences.

First, is the timing.  The Fishhook was designed for Week 1 moves.   Power move rest two days and boom!

The second is the trigger point.  The fishhook buys on confirmation when the first day high is taken out.  The Slingshot buys lower when the 4EMA is reclaimed.  (but again consult the shorter timeframe such as the hourly-- we want to see a break of the downtrend channel)

Short Scan Video-- How to do it

Here's how I've been setting up my Short Scans and a brief look on how I would find candidates to short:

. 

Draw down table.

These stats are popular in trading publications but they are worth repeating:  A 5 loss is easy to overcome, a 10% loss can be overcome.  After that, things look pretty dark.

Drawdown	Gain to Recover
5 Percent	5.3% Gain
10 Percent	11.1% Gain
15 Percent	17.6% Gain
20 Percent	25% Gain
25 Percent	33% Gain
30 Percent	42.9% Gain
40 Percent	66.7% Gain
50 Percent	100% Gain
60 Percent	150% Gain
75 Percent	300% Gain
90 Percent	900% Gain

You Can't Time the Market.

We've heard forever from the that you can't time the market. I used to think that was nonsense. After all, isn't that what successful traders are doing every day. But I've been doing some contemplation. I now agree-- we can't time the market.  But that's not to say we can't make money from attempting timing the market.  

I'm sure that sounds like an inconsistent statement.  It's not. 

We can identify asymmetrical risk / reward opportunities and exploit them. Being focused on the R/R and thinking in terms of probabilities has been game changing philosophically for me. These realization has helped me overcome the need to be right. I lost on over 53% of my trades last month yet still achieved over an 8% gain. That wouldn't have happened if I had "confidence" in a trade. I would have held on and suffered a devastating loss as I have at some points in my trading. I guess I came to the realization that, I don't really care if my next trade is a winner so long as I've managed risk. I'm sure that realization is not novel systems traders don't care a bit about one particular trade so long as it fits in their models.  But as discretionary traders, we tend to placed too much importance on being right.   I now see how much that has cost me.  

How many trades would I have executed differently (position sizing, stop levels).  Would I have added to a losing trade, if I went into the trade with the view that it was just as likely to be a loser as a winner. Over the years my worst losses have been in the trades where I've had conviction in the fundamental view or the story behind the stock. ... no more.

URSA -- The Bear Scan

After weeks of tweaking, I'm ready to unveil URSA -- the Bear Power Scan:

Universe- US Common stocks -- liquidity condition true.

RSI- Filters

• Wilders Monthly < 49--  This was the trick-- too low and the stocks that it picked up would not be traceable.  So it's set just inside the bear territory on the monthly 
• Weekly Weekly -- shows recent weakness
• BOP - quarterly < 0  -- this one gets the stocks that have had a bull back breaker move-- a power full gap.
• Price >4 too hard to short stocks below
• Mystery short 39> 38 --- If you're a stock bee member you'll know what I'm talking bout willis.

Notes:  Unlike Mystery I do not rank.  I look for the back breaker move  and the countertrend rally draw the trend lines using the hourly or half-hourly chart for swing trading.

Great entries are a reversal move on the hourly.:

Example trade: CENX

Stewart Notes.

I've found a lot of inspiration in Steve Stewart's Picture of Power (P.O.P.) chart lists.  He has a good eye for finding the most powerful stocks this year.  I've sought to reverse engineer how he does it.

I was greatly assisted by a stockBee Member who lead me to Eric Muathe.  As it turns out, Muathe's ultimate breakout video series enabled me to find the Stewart type stocks.  

I can't believe I had missed it all this time, but a SB member pointed me to Stewart's youtube channel.  He explained his process good detail. 

The initial level is pure Muathe. If you've watched Eric's videos you know what I mean.  The thing however, was that I was never able to ascertain, the POP pull back method.... until now. 

After watching all of the Stewart Videos I've taken some notes and here they are: 

Scan process

Monthly

Power zone = monthly greater than 70.  Longer the base the bigger the space. Monthlies show power --- uses Muathe Criteria

Start at historic monthly

• RSI at 3 year high
• MACD (13,34,1) new high if met got to dailies.
• Price should be near ATH.  or multi-year high. 

Example:

Note Monthly Does Not Provide entry signals.

 Weeklies --- "Picture of Power" chart. 

• 2 year weekly. -RSI Should be >69.10

• OBV high

• Performance v. SPX high. 

If volume is increasing... Fantastic.

Weekly POP chart: 

Setup EMA 10

RSI

OBV

RS v. SPX

Daily:

RSI above 70=  bull breath halitosis 

RSI is not overbought or oversold  it is the muscle on the skeleton.

Massive volume spike-- bull snort.

• EMA  4  9, 20, 50
• Full Stochs and ADX (10)

Big clue is RSI > going back over 70 again after bull snort. 

MAs on Daily 4, 9, 20, 50

Entry signals:

1. Week 1 pivot.   Guided by EMA 4. 

•  week 2 follow through -- claims is signature setup.
• Focus long violent bars not short and stubby.

2. Grail Trade Setup --  based of ADX   --

• ADX> 30 & pull back to 20EMA.  --- *Scot1and's note an SD50 would work as well. 

3. Pull back to decision line.  

I don't know if this is how stewart would see it but, I guess that this would be what he is talking about  when looking for the decision line pull backs. 

Exit Signal:

Failure of major decision line. 

Fundamentals

New product new service?  Float size .. small float = knife through hot butter. 

Sector

yahoo finance eps 

• earning estimates increasing 

• Earning surprise %

Fat Pitch:  --- use during period of bearish activity.  

Momo stock with a hard bout of profit taking.  Looking for momo cheap.   Bearish Volume comparative to bullish volume. 

• Major Trendline?

◦ if none check fib levels. 

• Look to hourly time frame

◦ Hourly channels -- downtrend channel Slope of hope

◦ look for divergence in the RSI and MACD divergence 

◦ Stop at lower trendline or breakout on the DT Channel 

• Daily RSI should be close to 30. 

3-4 day rally.  

Buy the DIP

Let's say we have a pull back to 10week avg. This may a good area to buy but need to zoom into hourly charts. Look for Divergence, support trendily etc:

TWO Day Rest:

I had previously worked out the Fishhook... it looks like stewart also uses it.  In addition to the criteria that I've explained in my Fishhook posts, Stewart wants the rest to stay above the 9ema at the low and preferably close above the 4 ema ... on the daily. 

Anyway, here is how he would draw it up:

Stewart Also uses "Cycle Momo."

The term TAILWINDS describes some condition or situation that will help move growth higher. For example, falling gas prices will help
a delivery company be more profitable. Lower gas prices is said to be a tailwind for the freight services industry. HEADWINDS are just
the opposite. Its a situation what will make growth more difficult. For example, if the price of beef goes much higher, McDonald's is facing
headwinds.

NOTE: Cycle MoMo is NOT to be used in deciding if you should or should not trade a particular stock.
The chart of the stock you are considering taking risk with (micro) should be your guide. Cycle MoMo (macro) simply tells
us if there are TAILWINDS or HEADWINDS when taking risk with a momentum stock. For me, Cycle MoMo comes at the END
of my decision process to take risk, NOT the beginning. In Map Syntax land, MICRO always takes precedence over MACRO.

But what is this proprietary indicator? What we are looking at is the RSI for the Nasdaq summation index: NASI:

NASI

Discipline in Action

I came into this month with my main goal to be disciplined.  I wanted to be hyper focused on cutting my losses.  I swore that I would not let any position become a big loss.  I would not have any losses greater than 1% of my equity.

So how did I do?  I'll take it.

This was not an easy month. Gains did not come rapidly or in big chunks.  I actually lost money on 53% of my trades (I had over 90 of them).  But I saw that I had a small edge and my average winners were larger than the average losers.  I didn't have many big winners.  I did have a single loser over 1% --1.12% to be exact. Biggest winner was 2.34% of equity.  By trading small, being nimble, booking gains and cutting losses. I was able to post a respectable month.  Rinse wash repeat.

The Dollar Scan.

The $dollar scan is simple but effective stock that many of the top traders look for is stocks that are in play for the day.

Here's the easy you can do it in TC2000

Step 1:
Right Click on symbol in  Price chart
Create Easy Scan.
Step 2
pick up moving up net
pick $1

Step 3:
Select your stock universe and liquidity conditions.