2 Attachment(s)
Notes, Lessons, Tools, and Setups
Market Notes + Tools + Setups:
I have been a participant in VIT since 2009, but my contributions are always open for vetting and correction by more experienced individuals. Most importantly, I believe that what I share is of particular use for newer members, as they can see how EV can help them in their own trading and investment analysis in the realm of a supportive community. I myself was once new here and am still most definitely a student.
With that said, I would like to share a few ideas for combining basic tools with EV to find trading opportunities. Additionally, I highlight some ways to put a trade plan together based on my experience in Pascal’s EV training group, which took place toward the end of 2009. There are also some tidbits of various lessons I have learned throughout my participation.
First and foremost, EV provides a set of tools that reveal underlying market conditions and large player activity. This awareness helps determine what type of a setup might be useful at a given time.
Very high probability trades occur just after the 20-day MF issues a buy signal and the OB/OS oscillator begins moving up from oversold territory. In this “window of opportunity,” we have a chance to participate in the rapid short covering that often precedes a new rally with clearly defined stop-exits.
Once the initial bout of short covering takes place, the next window occurs if and when fresh breakouts of leading stocks starts happening. Any profits from initial short-covering rallies can then be used to cycle into stocks exhibiting strong leadership characteristics. [U]IBD[/U], [U]Virtue of Selfish Investing[/U], [U]Alphascanner[/U], and Mark Minnvervini’s blog are good places to find such leaders. A primary benefit of EV is the ability to employ a diversity of setups based on the market landscape at the present moment.
One of the best practices I learned from Pascal is to simply follow stocks. By this, I mean that following particular companies within various sectors over many months and years can engender a “sense of familiarity” with the trading patterns a certain stock exhibits. For example, I have followed DNR for some time now, which is a shale oil stock. This is a great “go-to” when oil prices are rising since DNR depends on higher oil prices for their method of extraction to be cost-effective. Moreover, I recently learned that DNR is a great stock when Mideast unrest is occurring because they are a domestic energy producer. Another stock I watch, which tends to provide rather reliable signals based on EV, is SWN in the natural gas sector. Just paying attention to several stocks in all of the sectors over time develops a type of procedural memory, where you just “keep an eye” on them on a regular basis.
During the training group, we all submitted picks based on the following template:
• Stock Type and Entry: (ETF/Stock Details)
• Trade Conditions: (20 Day MF/Sector-Industry condition/Stock Analysis/Entry + Exit criteria)
• Trade Justification: (Summary of what makes this trade worthwhile)
This is a good and basic template for preparing a trade analysis.
Over time, new tools were shared and introduced, which could be incorporated into our analysis. For example, Billy introduced us to the Alphascanner stage analysis tool. The Trade Planner tool is free and available here:
[url]http://alphascanner.com/Resources/TradePlanner[/url]
The introduction of the Robots also emerged . . .
Nonetheless, the basic analysis taught by Pascal, in conjunction with some stage analysis, remains my cornerstone tool for finding opportunities. Here, I would like to present a couple examples of how I perform my analysis, which is based on the way Pascal taught us in the training group. The following are examples and not suggestions. They merely highlight a process that Pascal taught us, which can be repeated over and over again until it becomes second nature.
Example 1: ANR
[ATTACH]9073[/ATTACH]
I have followed ANR for over a year, and also did a brief study on the coal sector last summer, which can be found here:
[url]http://www.effectivevolume.com/showthread.php?2353-coal-sector&highlight=coal[/url]
Studying sectors over time is a good idea because you become familiar with the names and players of that sector. This familiarity can give one more confidence in a trade since you have a broader understanding of what moves certain stocks.
The coal sector has plunged down to 186 on the SIGR rankings, meaning any bounce would likely lift those stocks with even the worst RS ratings. Additionally, Pascal had mentioned ANR in his June 24 Comment of the Day.
An important feature of commodity stocks is that they often get accumulated in the depths of weakness. I believe this is due to the fact that most large players operating on long-term timeframes are still loyal to the theme of “resource constrained world.” Consequently, such stocks can be position traded near LB for longer-term investors, bounce traded by short-term traders, and monitored for base development by trend followers. A close above the short-term 5 or 10 day MA can be helpful in determining a change in short-term trend. Learning about these companies is a good idea.
Example 2: RRGB
[ATTACH]9074[/ATTACH]
As discussed above, the initial short covering rally can provide quick profits, which can be banked and cycled into emerging leadership. In this template, I highlight one such example of combining EV with some basic relative strength concepts and stage analysis tools. After everything that was oversold is now rebounding into resistance, such setups will often offer little reward in the event a new trend emerges; therefore, we need to look for stocks in strong sectors that are under accumulation and leading the market higher.
Conclusion:
Market conditions can change rapidly and EV allows us to exploit windows of opportunity. There are great benefits to familiarizing yourself with various sectors, especially those that have a secular theme or trend behind them like commodity investing. Pascal has taught some very basic yet extremely effective ways of putting together a trade plan that I have shared above based on my past experience. I hope some have benefitted from these examples and this discussion.
Best to everyone!
