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Reaching the "Legend" ranking at www.chartarcade.com has been a lot of fun. Here are the rules I used to get there. It turns out these worked well on almost every chart.
1)Learn William O'Neil's market distinctions of accumulation, distribution, bases, pivot points, cup with handle, double bottom, flat base, tight trade, high tight flag, relative strength and 20% run in 3 weeks. His book is here http://www.amazon.com/How-Make-Money-Stocks-Winning/dp/0071614133/ref=sr_1_1?s=books&ie=UTF8&qid=1313333591&sr=1-1 $8.95???
2)Demand to see a prior, high volume thrust upward in your stock's behavior.
3)Look for the thrust to tighten up within 20% of the high of that thrust. The closer to the high the better.
4)Buy when the stock exhibits Dr. Kacher's "Pocket Pivot" - an up day in greater volume than any down day in the previous 10 days. His book written with Gil Morales is available here. http://www.amazon.com/Trade-Like-ONeil-Disciple-Trading/dp/0470616539/ref=sr_1_1?ie=UTF8&qid=1313333352&sr=8-1
5)Hold for 3 more days or a maximum 5% loss.
6)Expect follow on accumulation within 3 - 4 days.
7)If 4 days occur without follow on accumulation, sell.
8)If 3 days occur without accumulation and a distribution day, sell.
9)If 3 days occur without accumulation and the market is heading lower, sell.
10)If you get your follow on accumulation in 3-4 days, repeat rules 5-10 again and again.
One possible modification. If your stock pops back up toward the to highs of the thrust after 1-2 down days, this is an attribute of strength that may allow you to hold for 5-6 days without accumulation in an uptrending market.
Apply these 10 rules at www.chartarcade.com and you will start to see the gains rack up. Have fun and have at it!
Valuable Observations - The best gains seem to occur when the pocket pivot comes within the tight trade of a consolidation that exhibits a "Retracement Gap". This is where the price lows of the consolidation do not overlap the highs of the most recent, previous consolidation. Be sure to check the weekly chart and note on the index line how many months you are from the last bear market or 5 month consolidation in the index.
Nice post. I have been trying your rules loosely. At least I have stopped losing money but not making big gains either. How are you defining a "high volume thrust"? Could it be a high volume thrust off the bottom of the base? Are you buying any stocks that are more then 15% off the 52 week highs? Thx. Also, have you been able to successfuly apply these rules with real money in the recent market?
Right. I haven't really defined a "high volume thrust" 20% in 3 weeks definitely qualifies. Try sticking to tightening action that provides at least some sort of retracement gap.
I don't discuss open positions, but yes I just closed my position in PHYS due to the weak market and higher volume selling on a 30 minute chart. You are correct on each of your points. Yes buying near the 52 week high can be a good entry, however you have to consider where you are in the market rally. Near the start of a 2 year cycle or near the end? At the end of a bear, you have to look much deeper than the 52 week high and look at the power of the most recent thrust. See BIDU in March 09.
Abe, Would you mind defining and discussing the "retracement gap" concept? Thnx. Brad
I used some of your rules and stopped losing money and was able to rack up consistant gains. However my CAGR was only 12.5%, much lower then yours, so I must still be doing something wrong. Need to do more work to find out what.
Awesome. I am very glad to hear that these rules have been helpful. For a high CAGR notice that Zapper and I both have skipped a lot of charts in our highest CAGR slots(though I have played more of the tough ones and it shows in my 2nd place CAGR). For a very high CAGR it would be easy to skip all of the charts except for the highly recognizable 2009 bottom. But that might occur 3 or 4 times in your life. The rest of the time the rules above can keep you engaged an profitable.
Ongoingly, we have to go back to the O'Neil rules and follow the RS leaders. Look at LULU in November/December of 2010. This is ideal behavior. High volume thrust up, tight near the highs, volume drying up on the red days, and a gorgeous retracement gap, tested and confirmed on 12/3 as it held above $25. That 12/3 test turned right back upward and ended up with pocket pivot volume. Was this a perfect breakout of CwH, Dbl Btm, Ascd base? The market didn't care when it came running in with that 12/3 pocket pivot.
There is much more going on in the behavior of each stock than can be effectively discussed. But just like it is difficult to describe how you recognize your friend's face in a crowd of people, you still recognize strength in a market leader. The 12/3 retracement gap in LULU is a pretty clear example over a few weeks. Sharpen the pencil and take a look at LULU on 2/2/11 and 2/3/11 These two tight days(consolidation) are trading above the two tight days on 1/28/11 & 1/31/11. Do the the 2/2 and 2/3 days over lap the 1/28 & 1/31 days? No, they provide a retracement gap. The pocket pivot on 2/4 is then very, very buyable & the 4 days not accumulating sell rule would
close you out of the stock on 2/17 with almost an 8% gain in 2 weeks. Lather, rinse & repeat.
THat makes sense skipping charts. I played nearly all of them, though most were junk that I would not trade in real life. I don't see the retracements you are talking about. I simply do not know why you use the term "retracement gap". I have been involved in LULU for much of the run but clearly made mistakes along the way losing my position. Why would you have sold it on 2/17? What was your signal?
I have been trying to play around with Chart Arcade on shorts only, reseting my score, to see if I can learn anything. So far very difficult. Not much success but still trying.
Thanks for posting these rules. I haven't had time to review in detail, but I look forward to it.
Abe, Along with Tuscon, what triggered the 2/17 sale? I'm still trying to understand and visualize a "retracement gap". Looking specifically at the LULU example, the days of 1/28 &1/31 and 2/2 & 2/3 are positive signs of accumulation with the gap being a positive sign of ongoing accumulation pushing the price higher in a stair-step fashion? Is that right?I'm trying to understand what this pattern tells you about supply and demand leading up to the pocket pivot you highlighted. Thnx for all the great discussion! I'm regretting not attending Level 4 last month in Chicago! Brad
Right retracement gap is stairstepping higher with space above the previous consolidation. Note LULU's daily chart 9-20-2010 through 10-14-2010 where it moves higher slowly and the second and third consolidations overlap the previous consolidation - 10/8 BO fails. Then note LULU's daily chart 10-26-2010 through 12-8-2010. Each consolidation is well above the previous consolidation. So there is no surprise that the 12/8/2010 pocket pivot, within 4 months of the September follow through day, worked like a charm. I think I had just read Dr. K's chapter on pocket pivots that week my radar wasn't set for this type of trade. If you enter high above the 50 day you had better have a way to sell well above the 50 day. 2/17 trigger rule 7 above.
I still stand by these 10 rules above. Note LNKD today. Selling on day 3 or 4 with no accumulation and the price starts to slip.
Nice rules Abe. We added these to our Chart Arcade Facebook page: www.facebook.com/chartarcade
Thank you. I am very glad you liked them.
Abe...learning your 4 day accumulation rule..you mentioned LNKD...the price slips but then it pocket pivots on 3/8 and it turns out to be successful..also with SLXP..breakout is3/13...do you want to see 4 CONSECUTIVE days of accumulation in which case 4th day of 3/19 is not really an accumulation but the stock is still holding tight...so how strict are those rules...?? Thanks, Susanne
Also with LULU you say 2/17 triggered the sell rule but the stock fell into it's prior breakout range on 1/5/2010...so why wasn't it sold then??
Welcome to Wall Street. These rules definitely missed today's moves in LULU and LNKD as did I. These rules won't get you everything, however they will allow you to operate in powerful stocks as they launch in high volume from periods of consolidation and give you a framework for developing your own rules for handling those stocks.
I can't stand to lose money, so I am happy to pass up moves that don't adhere to these rules.
It's less of a question of how strict the rules are than "What are your measurements of accumulation and distribution in the first 4 days after a high volume launch in a CAN SLIM stock and what occured?" and "Can you develop a rule that will protect you from a loss and allow you to capture the gain?"
In my experience, it really takes looking at thousands of charts to get to be any good. That is why ChartArcade is so helpful. You can run through 50-100 charts in a weekend.
There are way too many things to learn to recognize and my ability to describe them is constantly evolving. They include 2% extensions to new highs on low volume, stutter stepping to new highs, wedging, heaviest volume bars averaging up, waterfall above the 50 day moving average, two legs up after the break out, twin tower volume bars, tight on top of tight trade, parabolic sweeps, daylight acceleration along the lows within a consolidation, retracement gaps, up two much, three tests above the 50 day, accelerating RS line, what year are you in of a 3-4 year bull market?
List these attributes out and add them into an "other attributes" column next to your trade analysis in Excel as you spot them. Of course you should have a "CAN SLIM attributes" column and your "Base type" column to identify what you see in each trade. You will see other attributes that I do not. Create your own list of attributes. We are not trying to make pizza's here. We are trying to make millions in the stock market.
None of these attributes of trade are 100% indicative of direction, however as you weigh them together you really can stack the odds in your favor. Priority one is preservation of capital, so if I get two attributes of weakness I am out, though sometimes not.
I knew a Shaivist philosopher from Rochester New York who said once, "As your contemplation of Shiva deepens, you are not offered an answer. You are offered a dance". I see it as the same thing to contemplate your own success in making rules for buying and selling stocks. The composite opinion is required.
I think you mean LULU on 1/5/2011. You might hold LULU through January of 2011 because of the 8 week rule or because you only had 1 leg up from the breakout during November and December of 2010.
Or if you followed the rules above very strictlym you could have sold LULU on December 23 2010 and bought it back on 2/1/2011.
As a noobie, let me say that I am learning a lot from your posts, abe. Thank you for your excellent contributions.
You are welcome.
interesting post. I just notice today, however.
I may miss something, but concerning rule 5 to rule 10, are you talking about individual stock? or you talking about general market? or you use genral market condition (accumulation/distribution) to time individual stock buy or sell?
Looks like rule4 is on individual stock, but the rules after that is on the GM, please clarify. thanks.
Since Chart Arcade does not provide accumulation or distribution on the index, all of the volume rules for Chart Arcade are based on the individual stock.
Abe, Does a follow on accumulation needs to be a sizable gain in high volume? Please elaborate.
I have not made extensive comparisons on the size of the follow on accumulation. Simply accumulation every three or four days, in the first two legs of a breakout seems to be adequate in a healthy market. Again I would steer you toward noting the on balance accumulation/distribution weighting on a four or five day basis.
Great Post! Thx for Sharing Abe
Hi Abe, your rules work well, especially in these volatile and trendless times. If a stock sells off for a day or two, does the count reset if it has a day of accumulation? Also, what if a stock is almost unchanged from the prior day - how do you count that, if at all. The only problem I find with the rules is when you have a slower moving stock that goes nowhere for a few days... it's important to stick with potential winners which will sometimes mull around for a week or more before resuming their uptrend. I think further work is needed to determine what to do with stocks that don't move much in either direction for a few days. Take a look at ALXN back on 12/27/11 and follow it to April ... the rules might have been tough to implement. Thx
dtepmest, it is true that these rules would not have handled ALXN properly. I am happy to exchange a big win in ALXN for the numerous bursts and the protection that these rules deliver.
To specifically answer your questions, it is my opinion that a count or weighting should be "reset" every three or four days regardless of the accumulation / distribution. Each of us has to study and assess the trends in that time frame or pay a substatntial price of loss or underperformance. Moving up and consolidating tight near the highs tends to be positive. Moving down and consolidating tight, lower in price than your heaviest volume bars tends to be negative.
I disagree that "it's important to stick with potential winners which will sometimes mull around" It is my opinion that the price of time paid in laggard stocks accompanied by the increased occurance of 7% losses is not worth it for the occaisional ALXN. Some stocks do go up slow. I like quickness in my stocks.
ALXN is just one example.... there are probably a dozen highly ranked stocks that had 20 to 30% gains in the December 2011 through April 2012 period, that made their gains slowly, and had periods where they mulled around for a few days. I understand your preference for quick stocks... don't we all, but how many quick stocks were there in that same time period? Anyway - it's not a debate, but as a community, we ought to be able to pool our brain power and refine the rules.
Abe, don't you sleep ? Is it necessary to get on the computer at 5 AM to do well ? I have been making consistant gains in Chartarcade by trading baised on S&P , RS and volume. I pay attention to hammer up closes as a buy point. The trades are made a the closing price in Chartarcade is that what you do in real life? Would trading be done adter hours then ? Thanks for your 10 steps. I have read them several times so I remember them. TDG hoding up inspite of S&P 500 pull back.
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