EXPLAINING MY TOP SETUP, and Setups for 10/26/11

October 26, 2011 3:29 pm 3:29 pm / by / no comments

All of these setups were automatically identified using my Compression Breakout and Compression Breakout Mini algorithms. This is both my shopping list and illustrative of the types of stocks I trade.

What the CBOs find are stocks that are already in an uptrend, and further, are breaking out of some type of consolidation zone.

What we have done is automate the classic up-flat-up pattern that is characteristic of momentum stocks. The UFU pattern is detailed below in two examples from a post-mortem review I did for another trader.

Up-Flat-Up, cup and handle, wedge, whatever you want to call it, it doesn’t matter. Almost all stocks exhibit a technical pattern when you look at them (look up apophenia), which incidentally is what makes a lot of patterns useless.

A symmetrical triangle busts out but doesn’t followthough and now it’s just a horizontal rectangle, that begins to take the shape of a rounding top, which then false breaks to the downside before shooting up and creating a flag pattern.

That’s why I loathe a lot of conventional TA.  It tells you a lot about nothing, unless applied specifically to a certain setup. This is different, because we are analyzing a number of quantitative factors that are math based, not assumption based, on why price is doing what it is doing.

With all that said, there are no guarantees in trading or life.  Not every arrow offers a risk reward that is attractive,  Not every arrow will be a great trade, but almost all of my great trades come from the arrows.  We do not take any arrows period in a bearish market (we use the TradeTimer to determine), so if you see arrows that did not work below, remember it’s possible they occurred during a bearish market, or before earnings, or some critical factor where the overall odds for success are markedly lower.

All arrows exhibit the right criteria, but if it were so simple, then this would be an automated system.  In reality, it is 75% automated, 25% me.  Through actual trading, I know what characteristics tend to work better and worse, and it is easier to identify visually in this curated list than to automate it properly (tricks of the trade, as it were).

This is one of many setups a trader can use, and it is the one I use most often, and my favorite.

Every day different stocks populate this list, usually there are between 20-50 candidates.  This is helpful because you already have a narrowed down list of focus stocks, and don’t necessarily need to click through 1,000 charts each night.

Extensive review and study has shown to me my lists very consistently outperform the market (these are older posts but illustrative, 1, 2, 3), and that’s why I keep using them.

Here are the stocks that were identified today, with all of the traditional caveats applied.  Also, THIS LIST INCLUDES STOCKS WITH EARNINGS DUE SOON, so there’s that.

If there is NO arrow under price, it means it was just something I found along the way today that looked interesting and NOT a CBO of any kind.