Chart Reading

  • What timeframe makes the most sense if one is to study individual charts?

    The daily chart is your bread and butter timeframe. It is meaningful because many traders act end of day or use the daily closing price as a signal generator for the next day. Thats why you often see a continuation of eod action into the next trading day. While I also employ the weekly, monthly and 15min charts, I don't think my trading would suffer much if I had to rely only on the daily. In my opinion one should actually focus 99% on it while only checking the weekly every once in a while. I like to put the -messy but useful- volume-by-price indicator on my weeklies so that my dailies remain clean and easy on the eyes.

  • How do you know if an idea is a position or swing trade?

    You must know that swing trading was my solution to engage in smaller high octane stocks. Most of the time I can only make an educated guess beforehand. But typically the smaller names will have the most aprupt moves which will make me scale-out more aggressively. Scaling out a lot obviously turns any trade into a swing trade.

  • What is a red flag for you which would make you exit a trade?

    Mostly huge climax reversals on large volume and moving average (MA) violations where a stock loses support after adhering to a MA for weeks to months. But I also exit quickly when a stock retraces a huge move right after flashing me an entry.

  • What exactly is the 10% scale-out rule?

    Whenever I enter a swing idea and the stock blasts higher and exceeds +10% on an intraday basis I automatically close out 1/4 to 1/3 of the position into strength. No questions asked!

  • What is your favourite entry setup?

    My bread and butter entry is a quiet and tight pullback into a PLL or the 10 and 20 day moving average. Quiet means that the volume should be well below average and tight means that the daily price range is small compared to the recent past. Such a setup tells me that the attention is drawn away from the stock and that it is ripe to blast higher leaving the crowd and late comers behind. The other one is a powerful breakaway gap in leading mid to large cap names. The latter is usually earnings related.

  • Why don't you use one of those expensive charting and screening tools?

    Well I did use them during my early years but over time I slowly realized that finding stock picks is the easy part of trading and that chart reading simply needs a lot of experience and nothing else. All you need is a lightning fast charting package and a slim real time screener. Finviz and Tradingview have perfect synergy when it comes to speed and ease of use.

  • How do you read the volume-by-price indicator?

    I watch out for Peak Liquidity Level (PLL) and Low Liquidity Level (LLL). The former is a price level where a lot of shares changed hands while the latter is a price level where little actual trading took place in the recent past. Price can often launch off a PLL and then rallies through a LLL zone without much resistance due to a vacuum of potential sellers. PLLs typically deviate slightly from pure technical support and resistance levels. In my opinion PLL is usually a much more reliable level for potential support and reistance.

  • Do you use a wide screen to filter for quality?

    Yes, I narrow down the us stock market to a way smaller list of quality growth stocks to engage with. I only trade in names which fulfill the following criteria: Effective Market Cap >200-250M $; Price >7$; Shares/float ratio <20; Average Daily Dollar Volume > 2-3M $. I also want to see strong fundamentals in either forward EPS or current sales.

  • Market Timing

  • Now seriously, how do you manage to catch all those monster swing trades right before the take-off?

    The trick is to just enter setups when they show up in real time. I may get stopped out 7 times before hitting the homerun. When I hit it I brag about it on twitter while I sweep the 7 stop loss hits needed to 'nail' it under the carpet. FYI: My typical 20 trade rolling winrate fluctuates between 25 and 45%!

  • Miscellaneous

  • How would you describe your approach?

    I trade in my own little universe of quality and fundamentally strong names which I scan for opportunisitc and non-obvious entries. I realize profits into unusual strength and logical price targets. Smaller names often turn into swing trades naturally due to my aggressive scale-outs while mid to large cap names are treated more like classical position trades. I never hold stocks through larger consolidations or earnings and I only enter or add when a stock flashes me a proper fresh money entry.

  • Do you disprize the CANSLIM trading system?

    In no way! William O'Neil's books are great and got me hooked in the first place. I actually label myself as a technical fundamentalist or technofundamentalist. However over the years I realized that you have to look beyond the CANSLIM 'frontend' with all the labels and 'simplified' rules. While I rarely buy any of the CANSLIM chart patterns I am always aware of them. One can argue that in todays age of instant information base breakouts are late entries. The mass psychological mechanics behind the patterns are still sound of course but you have to make sure that a pattern isn't too obvious. Tight weekly closes are golden and are often the breeding ground for my favourite quiet and tight swing entries.

  • Portfolio Management

  • How do you determine position size?

    I use a bottom up technique where I calculate the correct size according to logical stop loss and price target levels of the stock at hand. I only trade the ideas which exceed my profit/risk threshold.

  • What is your ratio of swing to position trading?

    Position trades typicially consume between 40 to 60% off my account size. I use the remaining 140 - 160% for swing trading in more explosive names. I rarely go over 200% on an intraday basis and when I do it it is mostly on the short side. I scale out of my swing trades aggressively and find myself mostly in position trades after a while. Rinse and repeat.

  • Trading Psychology

  • I experienced a huge loss, how can I cope with that?

    Get out of that losing trade if you are still in it, stick to your safety net rules and ignore your account balance! Continue to trade as if it was just a regular stop loss hit. In trading it is all about preserving emotional capital and remaining in a position of strength so that you can seize fresh opportunity ahead. Treat such a loss like a failed exam and simply keep studying. If the loss was huge it also helps to take time off the markets. After a couple days/weeks the joy and passion should be back and you should be eager to improve. If you truly stick to the safety net rules chances are very slim that you'll ever experience a huge loss. If you blew your account, save up another stack if you still feel the passion, if not leave trading alone.

  • Are you sure that there is no holy grail trading system which I can 'discover' online?

    No I am not, but the odds are slim. There are certainly techniques which put the odds a little more in your favour than others and applying advanced statistics like the rest of the corporate and scientific world will make any system more efficient. But those kind of things require an experienced trader to pull-off correctly. Maybe you are lucky and pick a method which suits your personality and at the same time provides you with an inherent edge! But even if you pick such a system it still requires an experienced and skillful trader behind the screen. So you would need to hire one early on until you accumulated the experience and skills yourself. Automated trading systems will certainly get a boost from artifical intelligence in the future so will see where this is heading.

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