Making of a method
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I don't know what works and what does not. I would like to observe. I have been using the following structure for my analysis:
Take the stock idea generated and organize the analysis along the following headings:
Business Model - rank by overall sense of how strong the business model is. Using commonsense. Build out PIE to get a sense of how cash moves in the business. Red flags such as quality of earnings and compensation also fall in here.
Valuation - Use the business model analysis to calculate valuation metrics. Compare it to others in industry as well as across competing ideas in pipeline.
Catalyst - rank how many days out is the nearest significant catalyst. Use other evidence to rank by most likely expectations revisions.
Price action - rank by lack of diversity in price action. Is there diversity in the price action or is it more indicative of herd behavior. Use of simple horizontal patterns as timing signals.
Sentiment - insider behavior, institutional behavior. Short interest. Option behavior.
Expected value - The interplay of above factors will influence the p attached to different scenarios of each idea as well as the time horizon of the trade (weak business model without an imminent catalyst may require LEAPS while strong imminent expectations revision may use next month options) After laying out the potential trade, rank by EV.
Trade Execution: Monitor high EV ideas and execute on technical confirmation signal.
Take the stock idea generated and organize the analysis along the following headings:
Business Model - rank by overall sense of how strong the business model is. Using commonsense. Build out PIE to get a sense of how cash moves in the business. Red flags such as quality of earnings and compensation also fall in here.
Valuation - Use the business model analysis to calculate valuation metrics. Compare it to others in industry as well as across competing ideas in pipeline.
Catalyst - rank how many days out is the nearest significant catalyst. Use other evidence to rank by most likely expectations revisions.
Price action - rank by lack of diversity in price action. Is there diversity in the price action or is it more indicative of herd behavior. Use of simple horizontal patterns as timing signals.
Sentiment - insider behavior, institutional behavior. Short interest. Option behavior.
Expected value - The interplay of above factors will influence the p attached to different scenarios of each idea as well as the time horizon of the trade (weak business model without an imminent catalyst may require LEAPS while strong imminent expectations revision may use next month options) After laying out the potential trade, rank by EV.
Trade Execution: Monitor high EV ideas and execute on technical confirmation signal.
By all means you should observe. Amateur traders don't do nearly enough of that before they start putting the money at (unnecessary) risk.
However, unless you are or want to be a long-term buy-and-hold investor, what you have is unnecessarily complicated.
You say you have no patience for daytrading, there may not be enough movement for you in swing trading, and you want big moves for position trading, though you ought to forget about being contrarian just for the sake of being contrarian and you ought also to forget about value (the value of the stock is whatever buyers are willing to pay for it and sellers are willing to sell it for) as well as any concerns about "why" (the why will only put a stick in your spokes at the time you need to make a decision).
Since you appear to be interested primarily or only in stocks, why not provide a few examples of what you're looking at? The reasons why you're looking at them are unimportant. This can then become more specific and practical instead of a lot of theoretical fog.
Okay, let's look at LNKD. Draw a straight line under the swing low on 2/26 ($155) and the swing low on 4/3 ($165). This is your trendline for this purpose. A buyer doesn't want to see price drop below this line.
Now the high made last week was just a touch higher than the one made in March, for all practical purposes a double top. Price is already showing weakness by breaking a "support" line that you can draw from the last swing low mentioned above along the daily lows extending to yesterday.
The trendline you drew crosses price's path at 170. If you're confident in your ability to exit a trade immediately if it doesn't go your way, you could short any rally attempt above 170. But if it doesn't go, then exit and wait for it to drop below 170 and short there in whatever way you usually short, remembering that by then, if further weakness does occur, it will be obvious to more people and you are far more likely to be manipulated.
If you like MAs, plot a 200d simple and note that price is 150% of this MA. This is unsustainable. 125% would be high (155). 115% would be more like it, which would take you down to the gap.
Now the high made last week was just a touch higher than the one made in March, for all practical purposes a double top. Price is already showing weakness by breaking a "support" line that you can draw from the last swing low mentioned above along the daily lows extending to yesterday.
The trendline you drew crosses price's path at 170. If you're confident in your ability to exit a trade immediately if it doesn't go your way, you could short any rally attempt above 170. But if it doesn't go, then exit and wait for it to drop below 170 and short there in whatever way you usually short, remembering that by then, if further weakness does occur, it will be obvious to more people and you are far more likely to be manipulated.
If you like MAs, plot a 200d simple and note that price is 150% of this MA. This is unsustainable. 125% would be high (155). 115% would be more like it, which would take you down to the gap.
Does this look better? I am drawing the lines under at the Feb 26th and April 3 lows. Is this cradling price?
Current price of $174.68 is above $170 - so when you said short if it rally's over $170 what did you mean?
So the long term target would be a price of about $140 based on the 200d MA reference you gave earlier. Is using % off the MA a representation of using the return to the mean principle? I know you suggested to lay off the theory a bit.....am I indulging in theory here?
Current price of $174.68 is above $170 - so when you said short if it rally's over $170 what did you mean?
So the long term target would be a price of about $140 based on the 200d MA reference you gave earlier. Is using % off the MA a representation of using the return to the mean principle? I know you suggested to lay off the theory a bit.....am I indulging in theory here?
I see where the misunderstanding is. The diagonal line you have under the last 11 trading days is correct, however, you also need another diagonal line running from the 2/26 low to the 4/3 low, not two horizontal lines. This is a "longer-term" trendline. A diagonal one.
As for a rally, if you'd posted this yesterday, I'd've suggested placing a sell stop just below $177, but it's too late for that. If price rallies from here, place your sell stop just below the low. Make the market come to you. If it continues to rise instead, then just stand aside and wait for your opportunity. Price will eventually reverse and fall. In the meantime, you're not hanging onto a losing trade.
As for the target, who knows? You'll just have to see how it goes. It may inch its way down, it may plummet, it may not decline at all. Price is in charge. You have no control over it. All you have control over is what you do about it, if anything.
And, yes, this is in the realm of mean reversion. It's not always clear where the mean is, but price will tell you by its action. Price may after all fill the gap. Who knows?
As for a rally, if you'd posted this yesterday, I'd've suggested placing a sell stop just below $177, but it's too late for that. If price rallies from here, place your sell stop just below the low. Make the market come to you. If it continues to rise instead, then just stand aside and wait for your opportunity. Price will eventually reverse and fall. In the meantime, you're not hanging onto a losing trade.
As for the target, who knows? You'll just have to see how it goes. It may inch its way down, it may plummet, it may not decline at all. Price is in charge. You have no control over it. All you have control over is what you do about it, if anything.
And, yes, this is in the realm of mean reversion. It's not always clear where the mean is, but price will tell you by its action. Price may after all fill the gap. Who knows?
OP:
This stock is Flat for all purposes.
Trading stocks to make money is better done with "quality".
Precision is not required.
20% moves can be entered late and exited early to just make 10% in 4 to 6 days.
db will explain it to you.
This stock is Flat for all purposes.
Trading stocks to make money is better done with "quality".
Precision is not required.
20% moves can be entered late and exited early to just make 10% in 4 to 6 days.
db will explain it to you.