Mike
07-14-2015, 04:42 PM
Earlier today one of the High Growth Stocks members asked me a question pertaining to how to use the service. I replied in private but provide here the gist of what I wrote.
There are two different sets of watch lists on the site. The arrows in the image below points to the two places on the EV site. Shown is the High Growth List.
31158
The Long Watchlist is produced each weekend and represents my best attempt to identify stocks with great fundamentals that are near a possible buy point. This list is exactly what I use in my trading. The search for great fundamentals is done in order to find candidates that may have the “gas in the tank” for a medium to long term advance. I am a longer term trader than Pascal and longer advances fit my preferences. The list shows the identified possible buy price and the basis for the buy price such as “Cup with Handle, sloping pivot line”. The first item on the list looks like this on a daily chart.
31159
Note that AGN shows a cup with handle pattern and the orange sloping line is the sloping pivot line identified in the comment section of the watch list. Note that yesterday AGN broke out of the pattern meaning it offered a place to buy the stock because it moved up above the pivot line. Normally with CANSLIM type of investing that we usually want the breakout to be accompanied by a significantly above average volume. AGN only had 4% above average volume so possibly AGN would have been passed up. It appears to be working anyway. The listed buy points identify lower risk entry points of a type that historically have shown an advantage based on the price and volume patterns of the prior consolidation. The book “How to Make Money in Stocks” by William J O’Neil is a good reference for understanding these patterns and High Growth (CANSLIM) investing.
The intention of the watch list is for members to look at each set up and undertake their own due diligence to see if the opportunity meets their own criteria for purchasing the stock. If so the stock should be monitored for meeting the buy point and volume conditions. You can monitor the price via the High Growth List but I usually use a real-time stock monitoring service such as the type probably provided by your broker. In the chart above the orange line is actually a smart line and I will get an automatic alert if the price moves above the line. You should never chase the buy far above an identified low risk entry point as your probability of getting stopped out increases. In no case do I allow a stock to go 7% below my purchase price without out selling it (stopping out). So I keep this 7% in mind before placing a purchase. Prices often pull back below your buy point before they move on to a successful trade.
Now to the Volume Trigger Alert section…
31160
In the table you will see every stock from the Watch List and in addition some other stocks that meet my fundamental requirements but are not quite at a proper CANSLIM buy point but are however within a zone that it could issue a proper Volume Trigger Alert. Note that the table can be sorted by any column by clicking on the arrows at the top of the column. I normally sort mine to show the highest VolTrig Mrgn% at the top.
This table updates automatically and is intended that you monitor this table during the day. If a stock meets a possible Volume Trigger Alert condition the line will be highlighted in green such as AGN in the image above. Note that the automatic email will not be sent out until additional criteria are met. I monitor this table during the day and will often buy a stock that is setting up but before the email is sent based on my own judgement and experience and how much I want to own the stock. The criteria for meeting a Volume Trigger Alert are the following: Price is near the 50-day or 10-day moving average (0-5% above), extrapolated real time volume to end of day is greater than any volume bar during the prior ten days that occurred on a down day. So, AGN shows a possible alert. However as you look at the table note that price is above the 5% limit of the 50-day (extended), is 4.16% above the 10-day (moderately extended) and the volume trigger margin is only 3.06%. Volume Trigger margin means that the extrapolated volume to end of day conditions is only 3.06% above the highest down day volume over the prior ten days. This is a small margin. Note the Quality column shows Quality of 8.75%. The system will not send out an email alert unless Quality rises to 60%. Quality compares the magnitude of the Volume Trigger margin with the number of hours remaining in the trading day. A small volume margin early in the trading day will have low Quality and may be a false alarm. A huge margin early in the day will have high Quality and will likely lead to a successful buy opportunity.
Pascal did some research over about one year’s of alerts and reached a conclusion that the 5-day moving average extension should be included in the buy decision. So the Price% above 5MA column was recently added. Pascal’s conclusion is that the price above the 5MA should be no more than +2.3% for a high probability of success, AGN is above this (extended). He also concluded from his study that if there are a number of prior volume alert triggers in a trailing window that the success probabilities improve. So the last column shows this. Note that RH shows 9, a very high number. A large number of times that price advances on high volume is indicating that institutions are involved in buying the stock. Institutions are the primary movers of stock prices. This is also the reason Pascal pays attention to Large Effective Volume to highlight what the institutions are doing. It is suggested that you use the EV tools on the site as part of your due diligence.
The Watch List section also has a section for possible shorting stocks. I don’t pay much attention to this section during bull market conditions. I do go through the process of identifying possible shorts just to see if they are working which could be a sign of a weakening market.
There are two different sets of watch lists on the site. The arrows in the image below points to the two places on the EV site. Shown is the High Growth List.
31158
The Long Watchlist is produced each weekend and represents my best attempt to identify stocks with great fundamentals that are near a possible buy point. This list is exactly what I use in my trading. The search for great fundamentals is done in order to find candidates that may have the “gas in the tank” for a medium to long term advance. I am a longer term trader than Pascal and longer advances fit my preferences. The list shows the identified possible buy price and the basis for the buy price such as “Cup with Handle, sloping pivot line”. The first item on the list looks like this on a daily chart.
31159
Note that AGN shows a cup with handle pattern and the orange sloping line is the sloping pivot line identified in the comment section of the watch list. Note that yesterday AGN broke out of the pattern meaning it offered a place to buy the stock because it moved up above the pivot line. Normally with CANSLIM type of investing that we usually want the breakout to be accompanied by a significantly above average volume. AGN only had 4% above average volume so possibly AGN would have been passed up. It appears to be working anyway. The listed buy points identify lower risk entry points of a type that historically have shown an advantage based on the price and volume patterns of the prior consolidation. The book “How to Make Money in Stocks” by William J O’Neil is a good reference for understanding these patterns and High Growth (CANSLIM) investing.
The intention of the watch list is for members to look at each set up and undertake their own due diligence to see if the opportunity meets their own criteria for purchasing the stock. If so the stock should be monitored for meeting the buy point and volume conditions. You can monitor the price via the High Growth List but I usually use a real-time stock monitoring service such as the type probably provided by your broker. In the chart above the orange line is actually a smart line and I will get an automatic alert if the price moves above the line. You should never chase the buy far above an identified low risk entry point as your probability of getting stopped out increases. In no case do I allow a stock to go 7% below my purchase price without out selling it (stopping out). So I keep this 7% in mind before placing a purchase. Prices often pull back below your buy point before they move on to a successful trade.
Now to the Volume Trigger Alert section…
31160
In the table you will see every stock from the Watch List and in addition some other stocks that meet my fundamental requirements but are not quite at a proper CANSLIM buy point but are however within a zone that it could issue a proper Volume Trigger Alert. Note that the table can be sorted by any column by clicking on the arrows at the top of the column. I normally sort mine to show the highest VolTrig Mrgn% at the top.
This table updates automatically and is intended that you monitor this table during the day. If a stock meets a possible Volume Trigger Alert condition the line will be highlighted in green such as AGN in the image above. Note that the automatic email will not be sent out until additional criteria are met. I monitor this table during the day and will often buy a stock that is setting up but before the email is sent based on my own judgement and experience and how much I want to own the stock. The criteria for meeting a Volume Trigger Alert are the following: Price is near the 50-day or 10-day moving average (0-5% above), extrapolated real time volume to end of day is greater than any volume bar during the prior ten days that occurred on a down day. So, AGN shows a possible alert. However as you look at the table note that price is above the 5% limit of the 50-day (extended), is 4.16% above the 10-day (moderately extended) and the volume trigger margin is only 3.06%. Volume Trigger margin means that the extrapolated volume to end of day conditions is only 3.06% above the highest down day volume over the prior ten days. This is a small margin. Note the Quality column shows Quality of 8.75%. The system will not send out an email alert unless Quality rises to 60%. Quality compares the magnitude of the Volume Trigger margin with the number of hours remaining in the trading day. A small volume margin early in the trading day will have low Quality and may be a false alarm. A huge margin early in the day will have high Quality and will likely lead to a successful buy opportunity.
Pascal did some research over about one year’s of alerts and reached a conclusion that the 5-day moving average extension should be included in the buy decision. So the Price% above 5MA column was recently added. Pascal’s conclusion is that the price above the 5MA should be no more than +2.3% for a high probability of success, AGN is above this (extended). He also concluded from his study that if there are a number of prior volume alert triggers in a trailing window that the success probabilities improve. So the last column shows this. Note that RH shows 9, a very high number. A large number of times that price advances on high volume is indicating that institutions are involved in buying the stock. Institutions are the primary movers of stock prices. This is also the reason Pascal pays attention to Large Effective Volume to highlight what the institutions are doing. It is suggested that you use the EV tools on the site as part of your due diligence.
The Watch List section also has a section for possible shorting stocks. I don’t pay much attention to this section during bull market conditions. I do go through the process of identifying possible shorts just to see if they are working which could be a sign of a weakening market.