DISQUS

SRSFinance · 7 months ago

Michael, there is a question I've been meaning to ask you for a while and am just now getting around to it.

I like your approach of not second guessing but just trading the momentum. Following your blog for a few months now I can see it works rather well for you. Moreover, picking tops is just a loser's game, so I think you are right to wait to join the party after a trend is in place.

My question then is how do you pick your entries and where do you set stops? I've noticed you often trade stocks that are already flying high. Do you just buy the minor dips in these and then set a stop below the previous day's low?

BTW, if you ever tire of trading you have a great opportunity in writing. Prose and stock commentary don't generally go hand in hand, but your blog is the exception to the rule.

Best regards,

Don

Centrifugal_Deforest · 7 months ago

Thx very much for the thoughtful comment.

If the market trend is sufficient (with reasonable volatility) then yes, i like to key on the strongest (oft high-flying) stocks and play the dips as you suggest. I identify these through following relative strength (screening the groups and then the individual winners within the groups). Then if we have a swing set-up (long in recent times) then I would look to the leadership of that day (group-wise), but also current rising, upward trending groups ( where money flow is presently accelerating); then look at set-ups of the individual winners.

Today as an example, the market followed-through from yesterday's recovery/reversal pivot and if we recall prior to the pullback, the SNDA, NTES group had been the most powerful for a few weeks going upward (both in price as well as a decent vault in group-strength ((although if there was a sub-group addressing Chinese Internet Content specifically, it would have been top-ranked some weeks ago - as it was, the US content companies had hid some the intense rise in the smaller sub-group)) - anyway long story short, if I can recognize the hot money, then I will look there when the market turns upward - today NTES made a new alltime high early, but SNDA hadn't really yet taken off and I actually prefered the near-term look on the chart of SNDA (near-term only - SNDA still needs to consolidate overall probably); so it was an obvious candidate - this is also a little of why I've had faith in CYOU recently as well (being in the hot-money group and also showing itself as a strong, young IPO ((Rising, decent volume and able to make higher highs; very important to trust such a young stock)); in a mkt that has few IPO's (which as a group have been good last few months).

That covers momentum longs, but without saying a lot about gauging the market. As far as playing market direction, I would argue that as long as volatility is high we'll see reasonable set-ups (long or short // sometimes trending and sometimes choppy). Once volatility subsides, I have to change it up and usually then admit a supercomputer can kick my ass.

Stops are complex for me and I may tighten or loosen mentally based on infinite things. If I can tell something is not acting how it should to justify initiating a position then and there, I might play very tight. Other times I might let it live a bit; especially if I like the market then and the group we expect should be strong. Ex. I sold WNR and ARST only because they didn't kick in today-or-yesterday and if we happened to start topping late today (possible), then I fear anything that didn't rally (I hate when things do not participate). Charts on their own there are fine at moment (they may even explode up tomorrow if the mkt rallies again), but I'll plug possible holes when something smells bad and am not bothered to miss-out if it moves without me.

In general, I like to play high beta - but I try to prioritize not-getting-hurt higher than potential opportunity; if that makes sense. Speed on the freeway, but only when I think I can get away with it AND there is sufficient upside.

Need a nap now before the open ;) -best luck - rock on!