Real Trading Report – 10/15/2017

Last week I bought the breakout in INTT.  This is a very similar setup to COHU a few weeks ago.  As I’ve stated previously I look for entries where the stock is less than 20% above the 30-week MA (which is shown on the chart below on the PPO which measures the percent above the 30-week MA).  Ideally I’d like to buy as close the the 30-week MA as possible.  To accomplish that the best time to buy is either the break above the 30-week MA or a consolidation back to the 30-week MA.

The gap higher in INTT allows me to raise my stop above the 30-week MA (and thus less than 20% of risk, where the current PPO is a little over 30%) and right below the gap which occurred on 5x average volume.  This is because a stock that gaps higher on massive volume is showing a big increase in accumulation at that price level.  And since I only want to be long stocks under accumulation I can now use that price level as a signal to exit the market if things change.

I also took some partial profits (which means I reduced my position size but still hold a position) in stocks that I’ve mentioned on the RTR (DAIO and NVMI) and stocks that I’ve mentioned on Twitter (ICHR and YRD).  This is done to reduce risk in case a market correction does materialize, and if it doesn’t I can look for setups in other stocks since I have fresh cash to deploy back into the market.

Checkout my new Stage Analysis Screening Tool at: http://screener.nextbigtrade.com

Checkout my trading videos on Youtube

Twitter: @nextbigtrade

The original article and much more can be found at: http://www.nextbigtrade.com

The views and opinions expressed are for informational purposes only, and should not be considered as investment advice. Please see the disclaimer.

 

Real Trading Report – 10/8/2017

Last week I bought the breakout in TEAM.  As shown on the chart below TEAM broke out of a multi-month sideways consolidation on above average volume.

This trade had a great risk reward setup because the trading range support was right at 34 and so is the 30-week moving average.  The stock was less than 15% above this level  if you look at the PPO shown above.  As I discussed previously I look for trades that not only look good technically but have superior risk/reward setups.

This stock checks all the boxes I am looking for:  outperforming the S&P 500, making new all time and 52-week highs (and thus no overhead resistance), in a strong industry group (application software, see the charts of WDAY, TTD), taking above average volume and a good trade setup with well-defined risk.

I didn’t take a full position in this stock though even though the risk/reward was good.  Why?  Because they have earnings coming up October 19th.  Earnings can greatly influence a stock both positively or negatively, and since its impossible to predict which direction it’s not worth the risk to try.  After earnings I will size up the position depending on how it trades, and obviously if it moves below 34 I’ll be out of the position as that is my risk level on this entry.

Which brings me to the other trades I’m tracking currently for this series, DAIO, NVMI, and COHU.  All 3 have earnings coming up in October.  I will likely reduce position sizes in those leading into earnings as well to manage risk.

Position sizing is one topic I might explore more in an upcoming post since it is rarely talked about but is one of the most important aspects of trading successfully.  Most people tend to take too large of positions in stocks, and only reduce size when they are forced to by a declining market.  Or they always remain 100% invested no matter what is going on and never take partial profits in positions that are doing well.  Not being fully invested in the market has a lot of advantages:  it keeps you liquid for new opportunities and reduces risk if market volatility increases.

Checkout my new Stage Analysis Screening Tool at: http://screener.nextbigtrade.com

Checkout my trading videos on Youtube

Twitter: @nextbigtrade

The original article and much more can be found at: http://www.nextbigtrade.com

The views and opinions expressed are for informational purposes only, and should not be considered as investment advice. Please see the disclaimer.

Thoughts On The Energy Sector

A reader asked me today what I thought of the energy sector and if I would look at it using Stage Analysis.  I have been noticing some energy stocks appearing on my stock scans, and that hasn’t happened in quite a long time so that’s a positive.  But here’s what I’m not seeing that hasn’t made me want to load up on energy stocks yet:

  1. Large number of energy stocks across the sector breaking out to new highs on big increases in volume
  2. Energy stocks outperforming the S&P 500 and other sectors
  3. Crude oil in an uptrend
  4. Commodities as a group in an uptrend (I tend to use the GCC ETF to view that)

Here’s a longer term chart of XLE.  A couple of things to note on this chart.  I’d rather see a nice long base here to launch into a new bull market, but all we have so far is a bounce higher from the 2016 bottom.  I could see energy stocks basing for a while longer here and digesting the previous bear market.  I want to see XLE outperforming the $SPX on the middle section of the chart too, and that’s clearly not the case.  If you look at semiconductors or biotech (SMH or XBI) you’ll see the exact opposite of what you see here and that’s why I like those sectors right now.

I actually did recently trade one energy stock WTI because I liked the chart but I didn’t trade it as a sustainable uptrend.  Maybe I’ll be wrong and energy stocks have bottomed here but I don’t see that yet in the charts.  On this chart of WTI though you can see how we have a nice Stage 1 base that it exploded higher off from on massive volume.  But notice how it did the same thing in late 2016 only to turn out to be a fake rally that failed.  I wouldn’t be surprised if the same thing happens here unless we see more strength across the sector.

I see the same thing in energy in other commodity sectors like gold stocks.  A few stocks breaking out higher but that tends to be the exception more than the rule.  That was why I didn’t think the August to September rally in gold was going to lead to a new rally as well, I saw a lot of gold stocks acting terribly when they should have been gearing up for a big move.

Checkout my new Stage Analysis Screening Tool at: http://screener.nextbigtrade.com

Twitter: @nextbigtrade

The original article and much more can be found at: http://www.nextbigtrade.com

The views and opinions expressed are for informational purposes only, and should not be considered as investment advice. Please see the disclaimer.

Real Trading Report – 9/27/2017

Last Sunday I launched a new series where I’m posting about real trades.  Tonight I’m going to discuss COHU, a stock I purchased more of today.  I bought my first position in COHU when it gapped higher on huge volume last Monday.

Like a lot of semiconductor stocks COHU established a trading range over the summer.  When COHU gapped higher on massive volume it offered a great entry point because the gap provides a great way to manage risk.  From now on there is no reason COHU should go below $20 since it was in heavy demand on the gap higher above $20.  So if it does go below $20 there is something seriously wrong with the stock and you should get out.

I use the 30-week moving average as my risk management line.  Strong stocks in a Stage 2 uptrend tend to respect this moving average and only retest it briefly before resuming their advance higher.  That’s why it provides a good way to manage risk since we shouldn’t see much price action, if any, below this line.  That’s also why I use the PPO on the chart because that tells me the percent the stock is above the 30-week moving average.  Ideally I want that percent to be as low as possible, under 20 percent is generally what I look for.

With COHU though I can manage risk now above the moving average and use $20 as my stop since it should respect the gap higher.  And at $23 it’s still only 15% above $20 which is an acceptable risk for my system.

The semiconductor sector continues to act well with many names taking volume and making new 52-week highs.  DAIO made a new high today and NVMI is close to breaking out.  In general there’s a lot of positive price action across different sectors, on the Stage Analysis Screener there are now over 500 stocks moving into Stage 2.  I’m not sure if I’ve seen the number that high all year.

Remember managing risk is the most important aspect of trading.  Heed the wisdom of Jesse Livermore:

“The only thing to do when a person is wrong is to be right, by ceasing to be wrong. Cut your losses quickly, without hesitation. Don’t waste time. When a stock moves below a mental-stop, sell it immediately.”

Checkout my new Stage Analysis Screening Tool at: http://screener.nextbigtrade.com

Twitter: @nextbigtrade

The original article and much more can be found at: http://www.nextbigtrade.com

The views and opinions expressed are for informational purposes only, and should not be considered as investment advice. Please see the disclaimer.

Introducing The Real Trading Report – 9/24/2017

Most of the people who write about trading on the Internet do one or more or all of the following 4 things:

  1. Never talk about losing trades.
  2. Don’t have a real system for trading the markets.
  3. Believe that they are smart enough to predict the future.
  4. Are biased to their favorite asset class.

I define a real system as a system that clearly defines entry and exit criteria for winning and losing trades.  Something that you can write down and explain to someone else.  The system makes no attempts to predict the future.  The rules of the system have to be followed.  Many smart traders are aware of different systems and may say that they use them, but when push comes to shove they are NOT really following the rules.

Bias to their favorite asset class means they constantly look for bullish theories for assets they are bullish on, and vice versa for assets they are bearish on.  Whether they are willing to admit it or not, they start with their bullish or bearish outlook first and then try to build a theory behind that outlook to justify their opinion.

I’ve been guilty of all 4 of these things earlier in my trading career.  Until I adopted Stage Analysis I had no real system, but even after I studied Stage Analysis initially I still wasn’t following the rules.  Mostly because I had some inherent biases to different asset classes, notably commodity related assets.  And a lot of those biases came from listening to people who just predict the future and are guilty of the other 3 things above.

In this new series of content on my site at www.nextbigtrade.com I’m going to do the opposite of the 4 things above since I believe that is the real way to trade the markets:  1) talk about winning AND losing trades 2) use a REAL system to trade the markets and follow the rules 3) no predictions and 4) no biases.

For the first report I’m going to take a look at the semiconductors sector and 2 semiconductor stocks that I have positions in.  I like the semiconductors sector because it is clearly in a Stage 2 advance and a number of stocks in that sector are at or near all time highs.  Looking at the chart of SMH below over the last 6 weeks it has started to breakout to the upside after consolidating for a few months over the summer.  SMH has been outperforming the S&P 500 since it broke out in mid-2016 and hasn’t gotten overextended from the 30-week moving average yet (as shown by looking at the PPO below).  According to Stage Analysis when the market is bullish, you want to be in sectors that are outperforming the overall market and in the best stocks in those sectors.

I’ve been tweeting about semiconductor stocks for the last few weeks since I’ve been observing the price action in many names starting to act well.

I made my first entry in NVMI in mid-August and have added some more shares since.  I use the 30-week moving average as a line to measure risk against.  The further I buy above this moving average the more risk I’m taking since the stop loss is right below this line, so this impacts my position sizing.  The closer I buy to the moving average the bigger the position size I can take.  The ideal time to buy is either the breakout above the moving average or a pullback to it during a consolidation.

DAIO looks like a lot of other semiconductor related stocks.  Broke out of a base on explosive volume in mid-2016 then followed it up with another explosive breakout in May of this year.  Consolidated for the rest of the summer but recently has been acting well and might be ready to breakout soon.

My goal is to continue this series with real trading results and be a different format than the majority of what is out there on the Internet.  I will follow up with what happens with these 2 trades and have future trades to discuss as the series progresses.

Checkout my new Stage Analysis Screening Tool at: http://screener.nextbigtrade.com

Twitter: @nextbigtrade

The original article and much more can be found at: http://www.nextbigtrade.com

The views and opinions expressed are for informational purposes only, and should not be considered as investment advice. Please see the disclaimer.