Breakout Trading on Emerging and Strong Stocks

[deaddog]

Ah understood, Darvas said even less but at the time he didn't had the tools we have today.

Yet he made 2 million when a million was a lot of money.

My problem with having less stocks is that in case of failure the loss is bigger as the position size is higher. I don't want to buy and hold for years just get the momentum and compound when I can. I also want to trade more different setups from different screens and industries until "I feel" what works best...

You get to choose the size of your loss by sizing your position.
What I do is size my position somewhere between 0.5 and 1% risk to my portfolio.
That is 1% of my portfolio divided by the difference between my entry and my stop = number of shares I buy.
With 1% portfolio risk per position and a 7% stop I can hold a maximum of 7 positions without using margin. (I rarely do) I will add to winning positions. I see no reason to close a position that is moving in my direction.
As price moves away from my entry I tend to give it more room before I exit

 

[almx]

Yet he made 2 million when a million was a lot of money.

You get to choose the size of your loss by sizing your position.
What I do is size my position somewhere between 0.5 and 1% risk to my portfolio.
That is 1% of my portfolio divided by the difference between my entry and my stop = number of shares I buy.
With 1% portfolio risk per position and a 7% stop I can hold a maximum of 7 positions without using margin. (I rarely do) I will add to winning positions. I see no reason to close a position that is moving in my direction.
As price moves away from my entry I tend to give it more room before I exit

I do exactly the same, the only difference is that my initial risk is 8% instead of 7% then I will exit earlier, certainly on a close below the EMA 50, just to compound the gains if any.

I don't use leverage either.

 

[almx]

Right at this moment I'm holding COST, MSFT & NVO
...

When you have time, have a look at FTAI (FTAI Aviation)
It's a while I'm waiting to enter this one but it just don't want to consolidate, even a bit.

 

[deaddog]

When you have time, have a look at FTAI (FTAI Aviation)
It's a while I'm waiting to enter this one but it just don't want to consolidate, even a bit.

My process when someone gives me a symbol
Look at the 3 month daily chart. (10,20 & 50 ma's and Vol)
Then 1yr weekly (10 &30 ma's and Vol))
Then 5yr weekly (10 & 30 ma's and Vol)
I want to see the ma's stacked.
I prefer to see price close to the ma's not too extended.

If interested I look for potential entry.

For FTAI I like the look of the chart.
I note the gains for the last year and last 3 months.
My ideal enrty would be a pull back to a trend line drawn across the lows or the 20ma.
If I suffer from FOMO I could take a partial position and add if it dropped or on the next pull back.

 

[almx]

Rebuilding my portfolio and my system in a quest for better quality stocks.

After more reading, more studying and some programming, being not fully confident about my stock selection I finally got convinced that the CANSLIM system was the best tool for picking good stocks from the fundamental point of view.

But checking the CANSLIM numbers manually for each stock is quite exhausting so I finally ended building my own CANSLIM indicator for TradingView that I extended a bit by adding a few useful additional indicators like the ROE, the Piotroski score and a custom ATR calculation to know about the volatility of a stock.

The goal with this tool is to filter out the stocks in my watch list that not meet the criteria for the most recent year shown in the first line in the indicator. I still have to learn and see how I do with it but this is the basic principle. It's also not a hard rule so I could still accept stocks that not fully meet the criteria but have progressing numbers and show a good recent performance as we all know that the market is always forward looking.

That's for the fundamental side of things. Regarding the technical, I'm still looking for the same, wait for a consolidation period to enter (this time I hope on the best stocks I can find ;-)) and then enter at some break, being it the trend or Darvas box.

So what the indicator says about a well known stock like NVDA as of today ?

Here it is at the bottom left.

Numbers talk for themselves !

You guess that seeing that just opened my eyes a bit more so I quickly checked what the stocks in my portfolio were showing and had to admit that my selection was not that good, Except HG which was an IPO and GM that had green numbers but still not fully meeting the criteria, all the others were clearly missing it.

I din't think it twice and closed all my positions luckily for a loss less than 1% of the account.

 

[almx]

What the indicator tells, for those that don't know it and as a recall for myself.

C => Last quarterly EPS growth compared with prior year. Good if > 25%
A => Last Annual EPS growth compared with prior year. Good if > 25%
R => Last Annual ROE growth compared with prior year. Good if > 17%
N => New product/Management/52 week high, here a sun shows a new 52 High
S => Free Float Shares
L => Leader or Laggard, Here I compare 1 year performance vs the performance on the SP500 during the same period. The stock is marked Neutral if it's in the +/- 10% range, Leader if above, Laggard if below.

I => Institutional Ownership, Unfortunately there is no data available on TV for this.
M => Market direction, from 0% when SP500 is in a down trend to 100% when in a uptrend

P => Piotroski score. Determines the strength of a firm's financial position.
7-9 = Strong, 4-6 = Good, 1-3 = Bad

ATR% => Average true range over 1 year, 6 months and 3 months. This gives an appreciation of the volatility of the Stock. I look to invest in stocks having an ATR of 3 or more, in order to takes profits faster and compound.
Trend => Age of the trend in days, counting since EMA150 is above EMA200.

VOL => Today's volume percentage relative to the 50 day average.

Fuchsia indications are of my own and an extension to the original CANSLIM.

 

[almx]

The big picture and today's portfolio.

My SP500 market exposure indicator says that we are in a 100% bull market as the S&P prints new highs almost every week. So at the time of writing, I'm fully invested in a total of 4 stocks (GCT, ACMR, DDOG, SHAK) that will be discussed in following posts.
Not all of them are fully CANSLIM compliant, but again, this is not a hard rule as I also look at recent price action, like new highs, new trends, fundamental events, etc. At the other side, sometimes I also see stocks printing really bad numbers and still performing, certainly the market knowing things that I don't. Well...

Green light from S&P500 to be fully invested.

 

[almx]

1. GCT, Gigacloud Technology Inc - Technology, Software Infrastructure

This is my number one stock in terms of allocated capital and of course risk.
I initiated a 44K position at 29.08 on June 24

Fundamentally it's a green light as the stock is strong in all aspects showing impressive numbers. Technically, the stock had a first wave in September 23, with a 140% run. Early this year, it had a second push of some 350% at the peak at mid March. The stock has been consolidating since then and for 3 months now.

I anticipated my entry when I saw it near the 150 EMA at a time I didn't had the rules that I have now to enter a stock but it has improved a bit since.

 

[almx]

2. ACMR, ACM Research Inc - Technology, Semiconductor Equipment & Materials

Number 2 stock by allocation as I entered a 16K position at 23.52, this time following my entry rules. The stock traveled into EMA150 and also EMA200 before coming back up above my entry price. I'm now at BE and waiting for action.

The stock is well positioned in its industry and has nice fundamental numbers.

Same strategy applied again, Strong push in a good stock followed by a consolidation.

 

[almx]

3. DDOG, Datadog Inc - Technology, Software Application.

I entered a 10K position at 119.41 on June 21. The previous high was broken soon after, confirming my entry, and the stock seems now out of consolidation and showing some profits.

Interesting to see that it looks like a potential winner even if not all fundamental numbers align. It had a good EPS quarter and ROE, only Year was missing, maybe next time...