Volume Trigger Alerts

[kimmd]

Hi Mike,

It has been a few months since I have visited your site, but upon returning to your High Growth Stocks- I notice some changes in your volume triggers screen. You now have added a column labelled "5 day EMA"- can you explain how you use this to help decide when to pull the trigger?

As a returning newbie-2 other questions:

1. I know you like stocks that bounce off the 50 day ma- is there a percentage below this average that set your stops?

2. You have the high growth stock list and the volume trigger screen -can you explain how you suggest using them especially with today's market and are you favoring one method over the other?

Thx
-kim mcmorries

[Mike]

Hi Mike,

It has been a few months since I have visited your site, but upon returning to your High Growth Stocks- I notice some changes in your volume triggers screen. You now have added a column labelled "5 day EMA"- can you explain how you use this to help decide when to pull the trigger?

As a returning newbie-2 other questions:

1. I know you like stocks that bounce off the 50 day ma- is there a percentage below this average that set your stops?

2. You have the high growth stock list and the volume trigger screen -can you explain how you suggest using them especially with today's market and are you favoring one method over the other?

Thx
-kim mcmorries


Kim, Last July Pascal conducted some research on the success of Volume Alert Triggers. First let us review what a volume alert trigger is and then discuss the extension above a 5 day ma. In this discussion I will be talking about a primary volume alert trigger showing proximity to the 50-day ma and a follow-on type of alert with a stock in proximity to the 10-day moving average.

A stock with quality fundamentals is first selected to watch; these stocks are updated each weekend and found on the Volume Alert Trigger Watch list. This page as you know is updated in real-time during market hours giving real time buy alerts. I am not looking for a day trade; fundamentals largely control what happens over the longer term, thus waiting for the stock with the right fundamental pedigree. What we are looking for are stocks with good earnings per share growth (most recent quarter showing >25% increase, for example, than the like quarter in the prior year), ROE > 17%, Pre-tax margin > 16%, Relative Strength > 80, Price > $15, Average Volume > 400K shares per day, and many more parameters. When a stock is placed on the watch list proximity to the 50-day and 10-day moving averages are considered. Stock prices too extended are passed over. The primary alert comes when a stock's price rises through the 50-day moving average from below, or bounces off this average from above with a volume push. A volume push are the footprints of institutional buying activity. Price at the 50-day ma is often where institutional activity shows up. An alert condition exists if price is above the 50-day ma and not too extended, and volume extrapolated to end of day is greater than any volume during the prior ten days that occurred on a down price day. Follow-on alerts are also generated in the same way when price is in proximity to the 10-day ma.

My primary concern with a stock exhibiting an alert is to answer the question whether the price is too extended. The first extension question is how far is the price above the 50-day or 10-day moving averages (the line of action that you are using). My answer to this question comes from answering my own question, if the price falls to a logical support area, can I still keep it without getting stopped out. So if a stock is showing an alert and it is sitting 3% above the 50-day and the stock pulls back to the 50-day, am I willing to sit? If the answer is yes, the stock is not too extended. Change the situation to a stock 5-7% above the 50-day and the answer could be (probably) is no. If I am waiting to buy a major market leader and it just isn't giving me an opportunity I could stretch, but this would be rare. The same discussion applies to secondary alerts at the 10-day ma. Staying above the 50-day or 10-day action line is your indication that the trade is proceeding normally.

Last July Pascal used about one year’s of actual alerts and reached an additional 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.

Perhaps this sounds confusing, spend some time with the page. Look carefully in the early trading hours and focus on the stocks showing a projected positive Vol Trig Mrgn%. I sort my page by this column (click on the up/down arrows), this will bring the stocks nearing an alert to the top of the page. The rest of the fields will be green or red depending on how much concern the quantity is displaying. For example Price% above 50MA and Price% above 10MA both in red would represent extended stocks. You are looking for a small green number in one of these columns (not necessarily both). If green and the Vol Trig Mrgn% is > 0 you will have an alert situation. We generally wait until the Quality column gets into the 60% range before sending an email alert. Quality just pays attention to how much Vol Trig Mrgn% is there compared to how early in the day is it.

Now to your last question about me having two watch lists. The High Growth list will have a lot of overlap with the Volume Alert Trigger watch list. Essentially, if I can determine a fixed buy place based on a known chart pattern then I can buy the stock as it passes through the defined price. Early in a bull market the number of patterns I use is larger than I allow now. For example the standard chart basing patterns are named: Cup with Handle, Double Bottom, Flat Base, Ascending Base, High-Tight Flag, and alternate buy patterns at moving averages. These patterns are discussed at length in the book How to Make Money in Stocks by William J. O'Neil. Every investor I know who invests in growth stocks for the medium to long term has read this book. Some of the buy points identifiable from standard base patterns are in my opinion too far extended above the 50-day, so I have restricted my choices in the current market to reject all buy points from bases that I could not sit through a pullback to the 50-day. In a new bull market my thinking will be adjusted. Think of the two watch lists as two ways to enter a position, depending on what the stock is doing relative to multiple the criteria explained throughout this email.

[kimmd]

Mike- thanks for your explanation as it makes a lot of sense.

I noticed "TWTO" triggered Friday at the close when an email alert was sent.

-Are emails usually sent like this EOD --or will you send them intraday when projected EOD volume requirements are met (ie 10 day pocket pivot) ?
-Will another email be sent Monday or any subsequent day as long as it is on the watch list and meets all the requirements for that day?

Thanks again for sharing
-kim

[Mike]

Mike- thanks for your explanation as it makes a lot of sense.

I noticed "TWTO" triggered Friday at the close when an email alert was sent.

-Are emails usually sent like this EOD --or will you send them intraday when projected EOD volume requirements are met (ie 10 day pocket pivot) ?
-Will another email be sent Monday or any subsequent day as long as it is on the watch list and meets all the requirements for that day?

Thanks again for sharing
-kim

Kim, the volume trigger alerts are sent intra-day. Stocks showing very strong volume alert early. TTWO alerted at the end of day because the price did not rise above the 50-day moving average until the close. There are no alerts for the regular watch list. Any stock meeting the volume trigger conditions on the list will be alerted, sometimes in successive days. In general, a stock that has met multiple volume trigger conditions in the past are more likely to succeed.