- How To Use!
- HOLY GRAIL (HG column)
- STAN WEINSTEIN
- DAVE LANDRY’S PULLBACK SYSTEM
- TOBY CRABEL – HISTORICAL VOLATILITY
- REVERSAL SCANS
- INDICATOR DIVERGENCE SCANS
- TURTLE SOUP TRADING SCAN (From Raschke & Connors)How To Use!
If any of the systems mentioned below is of interest to you but you are not totally familiar and the discussion below is too brief, it is strongly suggested that you do an Internet search on the author of the system itself, and purchase the books in which they are discussed in detail!
When this section is completed (in due time *grin*) there will be many Market Scans – covering Indicators, Chart Patterns, and Fundamentals. These scans are intended to cover as much as possible differing time frames, risk tolerances, and trading style. No matter what your style you should be able to find good quality stocks to trade.
To begin with pick one or two of the scans. There are links to current charts as well as fundamental data for each. Click on the links, or view your own charts and fundamentals and pick some stocks to trade each day or when one appeals, according to your style and paper trade them to get a “feel” for what this particular scan may or may not be telling you. Over time you will get a feel for what is right and what is not and know exactly which ones to trade and which ones to pass.
Keep a good and accurate journal and over time you will not believe how much you gain and gain a “feel” for.
Despite our constant pursuit of knowledge, the market itself assures there is no shortcut. In the end, it is experience which is our ultimate teacher and believe me when I say there is no substitute. We can accept the inevitable setbacks and learn from them, or we can yield to our natural human stubbornness and be forced to repeat the lessons over and over again. The single most important secret is: learn to listen to the markets and do not impose your opinion upon them.
Every successful trader I have known has also discovered the necessity for consistency. You must trade with a coherent methodology. You must settle on a specific trading strategy. Although these scans cover multiple strategies, each one has the same essential starting point: minimizing risk first, then looking to maximize gains ONLY after risk has been defined and controlled. Please review Risk Management
As you review the different scans and strategies, pick ONE, that fits your time frame (select a time frame first) and your individual trading style. The scan that suits you may not be suitable for another, and that’s great. You only need ONE strategy to be prosperous. Some of the best traders are successful because they trade only one strategy. Settling on just one will increase your awareness of certain idiosyncrasies and will serve as a confirmation of your own market observations.
1) HOLY GRAIL (HG column):
In Linda Raschke’s book “Street Smarts” a system was mentioned that has since been dubbed the “Holy Grail System”. Basically this systems says to buy when the rising 20-day exponential moving average is broken and the ADX is above 30 indicating a strong trending market. And conversely to sell when the declining 20-day exponential moving average is broken on the upside and the ADX is above 30. Remember the ADX indicates the strength of the trend – Not the direction. I have also noticed that the first time the ADX is above 30 and you get the retracement to the 20-Day EMA is the strongest of the signals. This scan does not know how many times we have retraced to the 20-day ema during the move. Each successive retracement is a weaker signal than the first. Keep that in mind when checking this scan.
2) STAN WEINSTEIN:
This is a holdover from our previous scans and by popular demand I might add. Many have had good success here, keep that in mind. This screen looks for the following conditions:
- Closing price is higher (lower) than the average in the past 30 days.
- Volume at least 120% of last 2 months.
- Average volume least 500,000 shares
- Price today is higher (lower) than the month’s average
- Price today higher (lower) than in the last 3 weeks
There are no set rules for this scan i.e. buy points, sell points, risk paramaters. Some very nice short-term as well as intermediate term trades come out of this scan. The popular demand that it stay is testimony to that fact. Well worth following and making notes on this scan, IMHO!.
4) Dave Landry’s Pullback System:
A scan of the setup criteria that Dave Landry uses to trade pullbacks in an established trend. A buy stop (sell stop with limit) is placed above today’s high (low) to enter the position. A trailing stop is then used to capture any gains. He recommends placing your stop loss below (above) the nearest pivot point. The scan will give you the exact buy-stop point. For a further explanation, refer to “Dave Landry on Swing Trading” from MGordon Publishing.
5) Toby Crabel – Historical Volatility!
This is simply a mathematical measurement of how much prices fluctuate over the last 6 and the last 100 trading days. The theory is simply that once volatility starts to contract, it will continue to decrease until it reaches a critical reading. At this point, the cycle will reverse itself, then when the volatility expands the ensuing movement will propel price in one direction.
First we compare the 6 day and 100 day volatility patterns looking for a reading to be less than 1/2 the 100-day volatility. Once this condition is met we look for an Narrowest Range Day of the last 4 trading days. The rule is to place a buy stop (Sell Stop with Limit) 1/8 above (below) yesterday’s high (low) and a protective sell stop (buy stop) 1/8 below (above) yesterday’s low (high). If one is filled the other becomes your exit stop. Many traders will reverse position with their trailing stops, i.e. if short 100 shares then your buy stop would be for 200 shares. If filled you reverse from short to long that stock or market. If the market or stock moves with you move your stop accordingly. Some powerful moves occur with these signals. The stops presented are for the day only. If there is no fill today the signal is to be ignored.
For those of you who are quick traders I would paper trade this for awhile and add your own twists to it. Make sure the stock you are considering is very fluid and even check out the option pricing at the time, they may even prove more fruitful.
For the actual formula refer to: Nathanberg, Sheldon, “Option Volatility & Pricing, Advanced Trading Strategies and Techniques”, Probus Publishing 1994.
6) Reversal Scans– Including both UP & DOWN Reversals
Reversal signals are formed by the relationship of a single bar relative to the preceding bar(s). The signals vary greatly in strength: weak signals may only signal a peak or trough in the short cycle while extreme signals may indicate a change in the primary trend.
There are 4 major factors that affect signal strength: Reversal signals are most reliable if they occur after a strong trend:
a strong trend = a strong reversal signal.
If the trend is weak, so is the signal. Reversals are marked by:
– Days that spike.
– Wide-ranging days – days with a very wide range.
– Unusually high volumes. In these scans the volume must b 20% greater than the 21 day moving average of Volume to be considered
Open-Close reversals are powerful signals;
Pictures are courtesy of Colin Twiggs – Incredible Charts.com for further explanations of reversal patterns please visit his tutorials by Clicking Here
7) Indicator Divergence Scans
As we have discussed in various Newsletter’s one of the most popular ways to use indicators such as Stochastic, MACD, and RSI as well as many others, is to look for a divergence in the indicator with price. This scan will look for either bullish or bearish divergences in these indicators. The computer program pays attention to divergences occurring whithin the last 20 days, hence it is a short-term investigation. The following charts are examples of divergences using each indicators (Stochastic, MACD, RSI) and are courtesy of Stockcharts.com Chart School.
7) Turtle Soup Trading Scan (From Raschke & Connors)
In the 1980’s a group of traders known as the Turtles used a system that basically employed a 20-day break-out of prices. A four-week price break-out was also popularized by Richard Donchian as a trend following strategy. Basically if a stock or market made a new 20-day (4 week) high you would buy and if a stock or market made a new 20-day ( 4 week) low you would sell or go short. This can work if you trade a large basket of stocks or markets simply because their is usually a strong trend in force someplace. However, it also has a tendency to experience very large draw-downs.
Over the years many people have improved upon this concept. Very often stocks or markets break-down but it’s false and the stock or market quickly reverses. This new scan takes advantage of the potential wash out or blow off by positioning yourself on the other side of the market if certain conditions are met. So in essence this is not a trend following technique but a counter trend technique. Copyright laws prevent me from giving the actual formula for this scan. But basically we are looking for a stock or market making new Lows (High’s) and for today only are willing to go in the opposite direction if certain price points are met. The signals are good for the day only. If not filled today the signal is to be ignored. We are looking for a sharp trend reversal on the trade, indicating a washout or blow-off has occurred.
Added since this write up: Dr. Alexander Elders Triple Screen, Buying and Selling Climaxes per Don Wolunchuck, Pattern Recognition, and more.