When the survey comes out, this can be one of the ways I can provide helpful information to traders and investors. What information, you ask? How to position long swing trades! I use these databases in conjunction with NeuroShell Day Trader Professional (Office Network) from Ward Systems Group to find swing trading signals. They are based off of Fibonacci patterns first described by H.M. Gartley’s book “Profits In The Stock Market” which have been popularized by one of my mentors Larry Pesavento and many others who trade such patterns.
To cut to the chase, I can scan the US equity and ETF markets for set-ups that are based on DAILY INFORMATION that I gather from my own database and from a couple I collect data from. To reduce the time (and to help traders who want LIQUID names, something that can be an issue in today’s markets), I have set up a few criteria:
1) The price, in virtually every case, will be HIGHER than $10. I really don’t care for pink sheet and lower value stocks, save in the case of a real value that could be held longer term. I may find a few of those over time, but I tend to avoid them in most cases.
2) I tend to favor swing trading stocks that have more than 1,000,000 shares in daily volume. Liquidity is the main reason for doing so.
3) I like to see price close above the open on a day for which the volume is 150% of the 50 day moving average of volume. Typically, there can be institutional interest in some of these names, and this can aid (BUT NOT GUARANTEE BY ANY MEANS) the movement of the stock to a higher price.
3) Though, in the current environment, it can be tough to do so, I also like to be long only stocks that are trading at a discount of their after tax profitability or enterprise cash flow. The reason for that is simple. You will, over time, see buyers, particularly institutional buyers drift to market sectors or industry segments (I dislike the term “space” adopted in the dot-bomb era to describe industry segments, but the cool kids have warped the language, so I run with it). When you see volume activity in such names, something can be going on. Over the last couple of days, one of those names showed up, and I will demonstrate that in a minute.
4) I also use a proprietary momentum indicator, designed by Andrew Cardwell of Cardwell Financial Group in Atlanta, to identify short term reversals. I do not use it exactly the way he uses it, but I do use it in the spirit in which is was designed, to capture signficant turns in price momentum. What I have found over the years is that when combined with price patterns, this indicator can do an incredible job, when used in context with neural net analysis of price patterns to find decent momentum lows that can be used to make buying decisions with stocks.
What I will do today is show you a stock that appeared over the weekend (CFG) and one that appeared Monday night (ADBE). Remember, NOT EVERY ONE OF THESE NAMES WILL BE SUCCESSFUL, but the odds of them being successful are typically higher than 60% (in some cases, a lot higher), and they are based on a CONSISTENT framework of analysis. General George Patton was once quoted as saying “A good plan violently executed now is better than a perfect plan executed next week.” Lets replace “violently” with “consistently”, but you get my point. Consistency can do violence to unprofitability if it is honed and used over and over again. That is why I devised this plan, and why I have stuck with it over the years. This was originally designed in 2001 (not exactly a bullish time in the market) and it has held up decently well over time.
Quickly, lets get to one example, the first being the one that showed up for Monday, March 30, 2015 (CFG) Citizens Financial Group, Inc.
It has an after tax cash flow value of approximately (as it IS an estimate) of $38.98/share, which is approximately 160% of the current price, so it is a realistic bullish prospect longer term, and SHOULD BE RELATIVELY CHEAP (assuming everything goes according to the earnings forecast and business plan).
On Friday, the close was slightly above the open.
The momentum was positive based on the proprietary indicator.
The neural nets fired a buy order for Monday, and provided a general $2.42 of profit for every $1.00 loss on other predicted trades and with a win rate of 66.7%. This is not fool proof, but the odds are pretty nicely enhanced. A screen I used to accept any one model is $1.60/$1 (dollars won to dollars lost).
Typically, when I see these set ups, you will see news like this (see the video). It is a Northeastern US regional financial services and mortgage banking entity (and that could be subject to concern, even with its growth prospects in following year, should the economy sour).
The key thing here to remember is that these trades should be best operable (and tradable) in a 5 to 15 day window.
What would the targets be? Take a look (I will cover this in more detail later).
The basic set up is an asymmetrical ABCD pattern that has A-B a little shorter than C-D, but the neural net’s most-liked parameter is met, the 61.8% retracement, where the price drop stopped.
The stop on this one is a bit wider than usual (about 10% below entry). You can also use a tighter stop below the lowest swing low less 200% of the 7 day average true range, but that too is pretty wide. If that width bothers you from the standpoint of equity risk, then you can by-pass that trade and wait for the next one.
That is just one stock. Others will come along. AAPL and ADBE just recently hit and passed the screens as well.
Here is the dilemma currently though. I am fully engaged in trading during the week, and my trading begins with forex around 7 AM on Mondays and continues through the morning with equity index futures. For me to prepare all of this as a one person shop, it could take me up to 3 hours daily to prepare these trades every day, and currently, as I am a staff (and army) of one, and I have other business things to attend to, the timing would be extremely tight.
I could prepare this once per week on Monday, and provide most of the sector set up that leads up to it, with the top 3 or so stocks that pass the screens on the list.
If I can get some momentum via memberships, I may be able to get an assistant to help me with production of this data, which people have truly liked over the years (since 2004, when I first published it on the now defunct trading site, mrswing.com. It was the most popular thing there at the time, and that, at one time was often a top 10,000 website, back in the days of the internet when that used to mean something :).
At any rate, that is something I can begin to provide if THAT is what you want. Once I get the video up and running, I will hit you with a survey to see what drives your needs, and how I might service them!
In the meantime, I will continue to get the studio up and going and will return with more information. Thank you for supporting this blog!
Remember, go up to the top right and sign up for email alerts about posts and a coming newsletter! If you need assistance with an automated trading routine in EasyLanguage for TradeStation, contact Bruce Linker at www.linkertrader.com ! He appreciates your business!