Monday, August 7, 2017

Use Accumulation Volume To Find Big Winners

Hey folks, 

As promised to Art of Trading members in the private twitter stream on Friday, I'm doing a detailed educational post on "ACCUMULATION Volume" and why it's such a POWERFUL tool to have in your arsenal ! ...
"ACCUMULATION VOLUME" is also known as "Institutional Accumulation" or "Institutional Buying".  

Institutional investors are what's known as the "SMART MONEY". These are the the highly paid individuals who roll up their sleeves and do thorough research about the companies they're about to invest money in. Keep in mind, these people aren't investing few thousands bucks, they're investing millions and sometimes even billions in some of the companies they decide are worthy. So when they "click the buy button" their footsteps can be clearly seen via the VOLUME of shares traded on that specific day. The "Smart Money" know stuff most of us small fish don't. So when they are showing huge interest in a stock/company you better pay attention!! 
These big fish investors or "whales" as Bud Fox called Gordon Gekko in the famous movie "WALL STREET", are usually the big Hedge Funds, Mutual funds, Pension Funds, Warren Buffet types etc. When these people decide to BUY a stock, the stock will MOVE and usually move in a big way and Volume will surely increase in a dramatic way as they gobble up large portions of a company's outstanding shares and that automatically drives up the stock price, while simultaneously showing a heavy increase in volume traded. 
When Institutional investors BUY a stock, often times, the stock will rise and in some cases rise sharply over a sustained period of time.... and this phenomenon is also true on the SELL SIDE(aka 'Distribution Volume'). 

Today, we'll only discuss "ACCUMULATION VOLUME".... 

So what are we looking for?
What we wanna see is a big increase(at least double or triple average daily volume) in VOLUME traded as the stock price ramps up.... this is especially powerful thing when we see "accumulation volume" take place over a sustained period of time, like say over a few days, weeks or even months! 

I'm gonna show you a few examples of stocks, many of them are actually from the #PowerEarningsGap watchlist since the idea behind "Power Earnings Gaps" and "institutional buying" go hand in hand pretty much ! 


Let's get started !! 


In the above chart, AAOI, a small stock that almost nobody heard of, gapped up in August 2016 on HUGE volume(well above the average volume, at least 4-5 times average daily volume) as earnings exploded higher causing it to make the "power earnings gap" watchlist. Then watch what happens over the next few weeks.... VOLUME, VOLUME and more VOLUME started pouring into AAOI ! Institutional investors are starting to "circle the wagons" as they are sniffing something big coming for this company! 
Notice how AAOI Volume began to increase MORE AND MORE as we move into Jan, Feb and March of 2017 as AAOI continues to make back to back big "Power Earnings Gaps" .... the big volume started to really pour on UP DAYS while down days' volume was very minuscule compared to the HUGE volume up days...This is classic INSTITUTIONAL ACCUMULATION VOLUME and this stock demands our attention asap and has winner written all over it ! This is why it has remained on my #PowerEarningsGap watchlist for so long. 

I'm going to repeat because it's VERY important point..... ACCUMULATION VOLUME must take place over a sustained of time(as you see in the above AAOI chart) and also it must not see too many high volume selling days, the red(selling) days must be on super low volume as opposed the higher than average up days...... 




Here's another example in AMD where "ACCUMULATION VOLUME" appeared well before the stock went on a multi month rampage! 



IN the above BZUN example, the chart action is way more aggressive than the previous two charts but notice how the overall VOLUME started to ramp up big time after April and May of 2017 and notice how the "ACCUMULATION VOLUME" started to ramp up big time indicating a sudden huge interest in institutional support ! 




Here's another good more recent example of "ACCUMULATION VOLUME" I posted on twitter.... LL 







​CHGG, in above example, you can see how "ACCUMULATION VOLUME" started to kick well before the really big stock price increase started to happen but as i said earlier, a sustained period of "ACCUMULATION VOLUME" is what we want to see, accumulation that takes place over a period of many weeks or months! That BIG "Power Earnings Gap" in May 2017 was the "game changer" for CHGG ... that's what really put the stock into MOTION! 


"ACCUMULATION VOLUME" doesn't only happen in small stocks like AAOI, BZUN or CHGG ..... it also happens in big daddy stocks like MCD !! 


...or BAC !! 




​Look at this beauty of chart, RACE(Ferarri) !! 
"ACCUMULATION VOLUME" all over Ferrari Stock(RACE) and when you couple that with 1 or 2 "Power Earnings Gaps" you now have a KILLER Knock Out PUNCH for finding the Best Stocks in the stock market ! 



Here's one that hit my scans on Friday..... made a "Power Earnings Gap" and notice the steady eddy "ACCUMULATION VOLUME" over the last few months! 

This MX is a must watch from here..... 




I hope you found this post helpful ! 


As always, if you have any questions, please email me at:  TraderStewie@gmail.com  


Happy trading !




Join ART OF TRADING Today!!



Thursday, May 25, 2017

How To Trade The "Holy Grail" Setup

Hey folks,

Long time ART OF TRADING blog followers probably know this "Holy Grail" setup well as I made numerous posts on it thru out the 9 years I've been posting on this blog!!  Can't believe its been 9 years ALREADY !!

Anyway, let's get straight to it!

The "HOLY GRAIL" setup, is a setup first mentioned by Linda Raschke in her famous trading book, "STREET SMARTS"....


The basic premise of this trading technique is that strongly trending(in this case bullish) stocks that make a first pullback to their 20 Day Moving Average and hold, will often bounce back and resume their uptrend. It's that simple and straight forward, just the way I like it... SIMPLE!!

For my strategy, I use the basic idea of Linda's "Holy Grail" strategy which is I want to buy strongly uptrending stocks on their first(or second) pullbacks to their 20 Day MAs.

I use the 20 day EMA(20 day MA will work just fine as well).

I want to focus on stocks from my #PowerEarningsGap watchlist(I created this special hasthtag for AoT members as well as my twitter followers to follow along and learn more about my Power Earnings Gaps strategy) since these will be the leading stocks that already reported STRONG earnings and chances are they are already rallying or at least in overall uptrend.

So I track my "Power Earnings Gap" plays on a separate watchlist, this list has around 25 to 30 names and I update it(add or delete) every earnings season... Its a great way to discover NEW and HOT names that are reporting strong, powerful earnings and the stocks are moving strongly higher as a result. The cool thing about the "Power Earnings Gaps" strategy is I don't have to gamble and hold stocks into earnings.....
I simply wait until AFTER earnings are reported and so now my main job is to track and see which ones are the STRONGEST, LEADING names... I simply wait for these powerful stocks to SETUP properly in tradeable technical patterns, i.e. BULL FLAGS, wedges, pennants, or hammer reversals off key moving averages or support levels ...

In today's blog post, I'm discussing the "HOLY GRAIL" setup.

I track the 'Power Earnings Gappers'(PEG) closely and I wait to see a stock pullback, ideally I wanna see it in what I like to call a "SMART PULLBACK"... in other words, a slow and steady low volume, multi day pullback to test the 20 Day MA(has to be the first or second time it tests the 20 Day MA post the 'Power Earnings Gap' day). That's important because we don't want to buy the 3rd, 4th or 5th retest of the 20 DAY MA because the odds of it bouncing every single time off the 20 Day MA if very rare! So keep in mind, we wanna focus on buying the FIRST or SECOND test of the 20 day MA! I then wanna see the stock pullback, TEST and HOLD the 20 day MA. If they stock breaks briefly below the 20 Day MA and then recoups to form a reversal candle of some sort such as a HAMMER CANDLE(which is my personal favorite reversal candle: it looks something like this:






Look at the WYN chart below, it's a perfect example of the type of "SMART PULLBACK" to test the 20 Day MA I prefer to see in stocks I want to trade using the "Holy Grail" technique:





Take XLNX for example: This was a stock from the #PowerEarningsGap , XLNX was on FIRE and running strong as you can clearly see from the chart below.... On Tuesday morning, an Analyst downgraded XLNX based on "valuations", XLNX gapped down and sold off about 5% and pulled back to its 20 Day Moving Average.... once I started to see it reverse a bit off the intra day lows and form a "HAMMER CANDLE" on daily charts. I alerted ART OF TRADING members(All trade alerts are Emailed, Tweeted and SMSed to members in a timely manner) to go long XLNX.

Here's what the original Trade Alert looks like:  




Long XLNX at 63.70  stop loss at 62.80

Target: $67 to $68



And here's what it looked like and my rational while watching the intra day charts...





We've held XLNX for 3 days now(raising stops along the way) and it's already up +$2.00/share from where we got in on Tuesday..... as you can see once the hammer candle was printed off the 20 Day MA... XLNX started to turn back up and rally quite nicely.....


Now, while the pullback in XLNX was not the "SMART" pullback I want to see in my "Power Earnings Gappers" ... I made an exception for this XLNX trade because:

1: It pulled back due to an analyst's "valuation" downgrade(rarely take these seriously) and not any company related news event.
2: The SMH(Semis sector) has been and is still is ON FIRE, so that gave me extra comfort into taking this XLNX
3: Keep in mind, XLNX has made a big run up since its PEG day, so profit taking should be expected.
4: The overall market was in rally mode, so when a strong stock, in a strong sector like XLNX offers you a "gift", you must take it! Don't over-think it!



Like I mentioned earlier, all my trade alerts are very timely, clear and concise!

This gives ART OF TRADING members plenty of time to trade the alerts if they choose to and have confidence that they are trading some of the strongest stocks in the stock market universe.

Here's an email I got today from a NEW ART OF TRADING member who joined this week !!





Hope you found this post helpful !!!

Happy trading !









Tuesday, April 18, 2017

ART OF TRADING Member Email

I got this email from Dan, a long time 'ART OF TRADING' member.... and wanted to share it because I think it can be helpful to MANY traders out there!


"Hi Stewie,

Ok, so, i have to start by saying you are one of the few people i follow that makes me money. So thank you..

i will continue to be a subscriber because i am making money with you !! But i need help..  I am still making too many mistakes.

1) I am following too many people and I am overwhelmed and confused
2) i am paying some people and i don’t see what they are doing, i don’t see where they get their price points.  
3) i need to develop a trading plan that works for me…  something that i can use in all situations.
4) i feel like i am reacting rather than letting the trade take me to where it wants to go, i understand that what i want it to do means nothing to the market or the stock
5) I need to simplify and make smart decisions…
6) Why do i feel bad when i bought an option earlier this week in $AMZN and it tripled and i sold it….  how was i to know it would continue to go up and i could have had
an option that would have increased nearly 10 fold ?
7) If you had to choose 3 patterns to watch for what would they be ? i I would guess the PEG and the falling channel would be 2 of them ?
8) When setting up a trading plan what criteria should I use ?



Thank you !


Dan




My response back to Dan's email





Hi Dan,


1) "I am following too many people and I am overwhelmed and confused"

Following too many people is NOT a very good idea in my opinion, especially in trading. You are very likely going to suffer from "Information Overload" and also the "Noise".... no doubts about it! You will get too many conflicting signals and opinions and at the end, you'll up confused and when things get tough you'll surely suffer from "deer in headlights syndrome". I suggest you spend some time and look to narrow down your twitter followers and trim them down to the ones who you feel will match your style of trading and cut out the ones who you think will merely add "noise" to your stream! When it comes to trading, LESS IS MORE!

2) i am paying some people and i don’t see what they are doing, i don’t see where they get their price points —

I actually used to subscribe to MANY trading services earlier in my trading career and learned A LOT from many of them! I'm a big believer in using trading services BUT have to spend a little time and subscribe to the very good ones with good reputations. There are many good ones there. Look for trading services that give EXACT buy and SELL points and the ones that focus on EDUCATING the trader. 

3) i need to develop a trading plan that works for me…  something that i can use in all situations.

Working on a trading plan is a GREAT IDEA and a must for all traders: When you said, you want a trading plan for "All situations": that kinda makes it sound like you want a strategy that will work in ALL market conditions.... Frankly, i think that's not possible as all trading systems will have good and bad streaks. However, there are things that a trader can do when the trading environment is NOT good for your style or system,  like reducing activity or position size(which is something I do often here at AoT). I truly think THE HARDEST part about trading is a trader's ability and self-discipline to NOT do much when are no good signals/setups to trade and put money at risk. 

I love this quote from my friend: Assad Tannous‏:

"Great traders understand difference between looking for a trade and seeing the trade. Remain patient, they always come. When they do, it's obvious."

This is great because we ALL know what those "awesome" trade setups look like, we've traded these setups or signals many many times before and they have been very good to us BUT the question is, what are you doing when these signals/setups are not present? Are you forcing trades? Are you looking too hard for something that isn't there? Trading out of boredom and always feeling like you "must" be trading all the time is where MOST traders get it all wrong and get frustrated as "paper cut" losses start to accumulate and that's when negative emotions start to take over. Traders are always mindful to avoid a "big loss" on any single trade but traders have to also be mindful of "death by a 1000 cuts" as well ! This generally happens when over-trading, reacting to every little tick on the charts etc. Work on sitting patiently when your system is not generating any good setups or signals. 


4) i feel like i am reacting rather than letting the trade take me to where it wants to go, i understand that what i want it to do means nothing to the market or the stock

Micro-managing trades, watching every little wiggle and turn will that to traders. Unless intra-day scalping or day trading is your goal, it's better to not watch the market or stock tick by tick, it'll drive you crazy. 
I suggest zooming out your time frames and use more 60 minute, daily, weekly and even monthly charts. This is especially true in strongly trending markets.


 5) I need to simplify and make smart decisions…


It's my # 1  rule : Keep the routine SIMPLE. Don't over-think it. Trading is simple but so many traders want to complicate it. "LESS IS MORE" when it comes to trading.  
Consider journaling your trades for a little while and i bet you'll start to see things that you didn't see before. Such as which stocks or ETFs hurt you or help you, what time of day is most profitable for you and not profitable. What setup worked works well and not for you. You get the idea. journal all your trades, reason for entries, exits, stops, time, date, stock, length of time holding the trade etc etc. 
I bet you start to uncover some very interesting things about your trading.  


6) Why do i feel bad when i bought an option earlier this week in $AMZN and it tripled and i sold it….  how was i to know it would continue to go up and i could have had an option that would have increased nearly 10 fold ????

Sometimes stocks will surprise you and run much further than you expected. I think most people would be VERY happy to triple their money on a trade. It's totally normal to feel "bad" that you sold it too soon. Selling too soon is something that you'll hear MOST traders get frustrated by. I think it's MORE important to focus on following the trade plan and whether you sold your position because it hit your targets. It's impossible to SELL a stock that's running at the EXACT top, don't even try thinking it's possible. Better to focus on setting targets and exiting your trades at targets or by TRAILING stops and TRIMMING size as the trade reaches targets. 


7) If you had to choose 3 patterns to watch for what would they be ?

My favorite patterns for trading are FALLING WEDGE patterns, BULL FLAGS patterns and HAMMER reversal candles. 
PEG(Power Earnings Gaps) is how I generate my watchlists and I've discussed those in previous blog posts.  

8) When setting up a trading plan what criteria should I use ?

There are many things to consider when making a trading plan. You are gonna have to tinker with it and make adjustments as you move along but i think start with making sure you KEEP THE ROUTINE SIMPLE, know how much you want to risk on each trade and what will you do if you hit a rough spot: For example, in my system, if you take 3 losses in a row, I will shut it down for 1 full day to make adjustments and see what went wrong. What are patterns will you be trading? Will you be day or swing trading? Will you short? Are you going to trade triple leverage ETFs? Are you going to trade sub-$3 stocks? Will you be focusing on Momentum trading or pullback trading or both? How quickly will you raise stops to B/E once a trade is profitable? Will you be selling ALL shares at a single price or will you be trimming to leave runners? Are you going to use physical stops or mental stops? 
These some things to consider..... 



I really hope this helps, Dan !! Thank you again for being a loyal ART OF TRADING member !!










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