As a general rule of thumb you want price to hold important reference levels on a closing basis. This means that you can allow for an intraday move below the mark. This is commonly referred to as a shakeout. However you must be aware that some shakeouts can be severe, especially in the high octane swing stocks. Due to this it totally depends on the individual situation if a trader should scale-out some quickly on the first intraday violation of support or wait until end of day with the risk to fall victim to a nasty shakeout. If a stock closes below the expected “support” w/o a shakeout it tells you that:
A) The stock changed character and could be in for a deeper pullback/consolidation or maybe it is gone for good
B) You failed at identifying a proper support level
C) The stock has only strong hands on board which are not prone to overreacting.
If the latter is the case you can scale-out and then simply scale-in again once price moves up through the mark tomorrow and or the days ahead. Large cap stocks which are widely followed move more like a ocean tanker so support and changing direction can be a multiday process which often sees closes below support.
The quintessence is this: You want your stock to show you that it adheres to proper support in one way or the other. If a stock stops doing what you want it to do you have to think about letting it go.
That is a very good question indeed! From hearsay and my own experience I can tell you that most money is lost when traders jump back into a stock too early. While nobody can predict the short term, let alone long term price development it is very important to always have a couple realisitic scenarios in the back of your mind. This means that when a stock made a move and starts to pullback or flash topping signs I start to imagine what a proper consolidation could look like at this point. This thought process forces you to be objective and helps to tackle down feelings such as hope (The hope that your beloved stock will stop going lower) or fear (The fear that it will quickly turn around and continues to rally without you on board).
When a stock ran up 150% in 3 months then it will take time to digest the move and you must not jump back in on the first little rally off a logical but weak support. You can watch it and it often flashes setups which then falter. Generally speaking the most powerful stocks must digest the move and draw the attention away. Realistic consolidations typically have 2 or three little waves down or they at least test prior lows or former pivots. In order to get the timing right you must realize that stocks often wait for the 50d MA to catch-up with price. The most explosive names just wait for the 20d or even 10d MA on their way up. However once a short term top is in (Stock printed a clear red flag) it is often the 50d MA which comes into play.
Give a stock time to go through the much needed psychological stages of A) Getting rid of weak hands B) Drawing attention away and then C) Attracting smart money again. This can take weeks to months. Rinse and repeat.
Actually that is exactly the opposite of what I really do or try to do. Most of the time I have a couple position trades running which matured over time (couple months). Many of those started as swings. I then add most fresh money swing trades when I see quality setups showing up after a period of market turmoil. This is what I often refer to an opening window of opportunity. Those early movers of an opportunity cycle are the stocks I focus on the most as most traders will miss out on them waiting for more confirmation. When these early movers ran their course and start to hit logical resistance or even flash red flags I DO NOT just rotate to the next hot group. This is because those early movers are in sync and the next hot thing is obvious to everyone and often attracts the late comers and FOMO traders. I don’t say that they can’t go up, but overcomitting to those stocks more often than not messes with my market timing. The cardinal sin of swing trading is to not be able to sell into strength when swings reach their natural price targets. If you are unable to fight your greed and stick to swings with full position you will be forced to sell them on the way down which puts you in a weak position. The cardinal sin of position trading however is to overcommit to the next hot group which then corrects and increases the heat until you are forced to sell your strong position trades. If that happens always sell the recent swings you entered! The correct thing to do is as follows. You must be able to engage with the early movers without fear when others still lick their wounds. Then you sell partial profits of your swings into unusual strength when the late comers push the markets higher. Then you wait for those early movers to go through a natural pullback or correction. You can of course always engage with fresh stock ideas along the way but make sure not to overcommit! Try to stick to your position trades all way through and even think about adding swings (scale-in) on top of your regular position when a proper setup emerges in one of them. All this is an organic process without strict rules, you go over charts and listen to the feedback of stocks. Over time you will learn to create a feel for the market and understand how it moves in a waves in order to inflict specific emotions into the crowd at specific times (the 90%+ who lose so that you can excel). Once you manage to be ahead like this you turn into an observer from above, reading the collective hive mind ready to strike at the correct opportunistic moment. For this to work you MUST isolate yourself from all the noise. It is all hidden in the charts, trust me! It will take time to develop this skill.
Short answer: No I don’t move stops to breakeven!
Long answer: I never ever move my initial stop loss before a trade hits my R-multiple threshold. However this is mainly due to my sharp stops. If you use wider stops it might make sense to sell on a proper red flag before hitting the R-multiple threshold. But in my honest opinion it is better to avoid any intervention after the entry thus allowing the market to do the magic for you!
I do use scale-outs to avoid being shaken out on natural pullbacks which more often than not coincide with stocks hitting the widely followed 3R mark from widely followed entries such as pivot breakouts and pocket pivots. Once I scaled out the initial stop loss becomes meaningless and I will trail it up to the next logical level of support. However this is a just a safety mechanism for protecting me against a flash crash as I will sell on a proper red flag independent on the “trailing” stop. Also be aware that such a protection trailing stop must be placed ABOVE support so that you are getting filled before all the other stops in the case of a sudden crash. This is the exact opposite to a regular stop loss, which must be placed below PLL support in order to avoid regular shakeouts. A protection trailing stop is just an intraday protection mechanism when you are not sitting in front of the computer.
The daily chart is your bread and butter timeframe. It is meaningful because many traders act end of day or use the daily closing price as a signal generator for the next day. Thats why you often see a continuation or carry over of end-of-day action into the next trading session. While I also employ the weekly, monthly and 15min charts, I don’t think my trading would suffer much if I had to rely only on the daily. In my opinion one should actually focus almost all of the time on it while only checking the weekly every once in a while. I like to put the (messy but useful; PLL anyone?) volume-by-price indicator on my weeklies so that my dailies remain clean and easy on the eyes. I also check the weekly to judge the quality of bases. Oftentimes a stock appears choppy on the daily, but when you check the weekly a lot of the daily noise is hidden. I sometimes dismiss non-ideal daily price & volume action when it’s hidden in a very constructive weekly chart. Reason is that big money rather focus on the long term. They accumulate based on the weekly/monthly and fundamentals.
Yes, I narrow down the us stock market to a way smaller list of quality growth stocks to engage with. I only trade in names which fulfill the following criteria: Effective Market Cap >200-250M $; Price >7$; Shares/float ratio <20 (I violate this occasionally); Average Daily Dollar Volume > 2-3M $. I also want to see strong fundamentals in either forward EPS and current quaterly sales.
I trade in my own little universe of quality and fundamentally strong names which I scan for opportunisitc and non-obvious entries. I realize profits into unusual strength and logical price targets. Small and mid cap names often turn into swing trades naturally due to my aggressive scale-outs while large cap names rather turn into classical position trades. I never hold stocks through larger consolidations or earnings and I only enter or add when a stock flashes me a proper fresh money entry according to my rules.
No I am not, but the odds are slim. There are certainly techniques which put the odds a little more in your favour than others and applying advanced statistics like the rest of the corporate and scientific world will make any system more efficient. But those kind of things require an experienced trader to pull-off correctly. Maybe you are lucky and pick a method which suits your personality and at the same time provides you with an inherent edge! But even if you pick such a system it still requires an experienced and skillful trader behind the screen. So you would need to hire one early on until you accumulated the experience and skills yourself. Automated trading systems will certainly get a boost from artifical intelligence in the future so will see where this is heading.
In no way! William O’Neil’s books are great and got me hooked in the first place. I actually label myself as a technical fundamentalist or technofundamentalist. However over the years I realized that you have to look beyond the CANSLIM ‘frontend’ with all the labels and ‘simplified’ rules. While I rarely buy any of the CANSLIM chart patterns I am always aware of them. One can argue that in todays age of instant information base breakouts are late entries. The mass psychological mechanics behind the patterns are still sound of course but you have to make sure that a pattern isn’t too obvious. Tight weekly closes are golden and are often the breeding ground for my favourite quiet and tight swing entries.