Quote from foible:
Is that about right?
Rather than dive right in and focus on the specifics, let's try to focus on the bigger picture for a moment. We have a list of stocks (Final Universe) created from specific criteria. These criteria should provide future opportunity for profits. The single most important criteria for these equities stems from their ability to cycle. The more frequently a stock cycles, the more tradeable the stock becomes. In other words, repeatability provides the ability for profits.
In Journal One, we used very specific entry and exit rules to enter trades with the highest probability of success. In short, we entered when money velocity improved, and exited when money velocity declined. Adding trendlines and focusing on the Dry Up, FRV, Peak paradigm improved the opportunity for success.
By adding additional rule sets, such a The Bruno R Set Up, we attempt to increase the profits obtained from the middle of these 20% runs. During our Journey, we started by focusing on the middle moves where money velocity ranked highest. As we progress outward to the edges of these moves we often have slower money velocity, but improved gains. This phenomenon results from taking on increased risk. Ss we increase the risk, we see an increased rate of reward.
Ideally, entering on the right trendline during Dry Up when the Stochastics (5,2,3) begins to improve from the 25 area should provide an opportunity to capture the majority (if not all) of the 20% price move. However, the market doesn't always react in a fashion which mirrors our ideal scenario. As a result, we need to focus on the sequences of events which often precede price improvement.
Already, we can see how a change in price often shows by a preceding change in volume. As the pace of volume increases, we then see an increase in the pace of price change. We need to add additional tools (additional observations) in an effort to move beyond buying when price sits at the right side trend line, in Dry Up, with a score of zero (The perfect set up).
In order to achieve the goal of 4 streams of money operating at maximum rates of compounding, we need to learn to enter and exit trades when the signals fall outside the optimal set up. In other words, take a step back (push your chair away from the computer screen if need be) and try to 'see' at what point in the cycle price currently finds itself.
To begin to learn to do this review how the previous 20% (or more) price moves materialized (for each equity in the Final Universe). Notice how the sequences of indicators unfolds over time. Break the run down into its individual components and reassemble them in your mind. Then, begin to learn to anticipate what to expect next as we move one day at a time into the future (for each equity).
Although I missed the launch, COGO provides an excellent example of how this works. By correctly drawing in the channel trendlines, and marking the distance price already travelled since its last low, we have a template to anticipate future price movement. Now, we don't often get to see a 20% move within a single 24 hour period, but COGO did show improvement in price almost exactly as discussed in an earlier post (in terms of the distance we could expect movement to occur).
We didn't need to know COGO and MSFT had signed a deal to anticipate price improvement. The deal simply accelerated the money velocity. The same patterns which repeat over and over throughout the Final Universe began to appear with COGO before the rocket launch. By learning to 'see' these clues earlier, a trader improves his / her opportunity for profits.
Begin by doing what I call "sweeping for formations" as you review the charts each night. Look back in time and analyze what clues might have alerted you in the past to a rocket launch. After a while, you'll begin to notice in the now, that which always appears so clear in hindsight. This process trains your mind, so even if you anticipate incorrectly, you learn what flaws mark a failed breakout, and which signals best produce the winning trades.
Start with the chart posted by candletrader, and continue outward from there.
I hope you find the above information useful.
- Spydertrader
Congrats to anybody else that caught this train as well.