Stock Scanner Example #5

Before we get into the next example, let's again have an update on how the previous picks are doing. I'll start off by saying that I lost quite a bit of money with the stock screener example #2 pick. However, that does not surprise me considering how much the markets tanked last week.

The good news, and this is nothing short of a miracle, is that none of the stocks I have selected have decisively broken their 50 day moving averages so far. With example #2, I thought there were times that it certainly would, and that it was game over. The following image shows what I mean.


The main thing to notice about the above image is how the 50 dma was broken intraday, but the stock never closed beneath it. This means that the 50 dma, our last line of defense against the bears, held. Also notice the long lower shadows in the recent candles, which indicate that the bulls are still in contol. This sort of price action makes me more optimistic about this particular security, and I may have to consider doubling my position in it.

Anyway, for this week, I had a very difficult time finding a new stock to post. The market's precipitous decline caused so much distortion that my scan could not pick out another good opportunity.

So what I did was flip the scan's criteria, so that it would find stocks in massive, unstoppable downtrends. I also made it look for only American stocks, since the US Dollar is in a bear market, and since I am Canadian, this could potentially enhance my returns.

Here is a chart of the stock the scan isolated:


The rules are the same as before, just flipped around. You would go short this stock, and place a buy stop above the 50 day moving average. The 50 dma will act as resistance this time around. Your risk would be limited to the amount of distance between the price you short sell it at and the current level of the 50 dma.

For this stock, I would perhaps wait for a little counter trend rally to short sell it on. So, that is all for this week's post. I hope that made sense.

Trend Trading is Easier Than Day Trading

Before I show the next example, let's have an update on how we are doing. In the past week, Example #3 is basically unchanged, but the important thing is that it has not broken its 50 day moving average. I actually bought a few shares of this company, and I'm going to keep on holding it until the 50 day moving average is broken. That could happened in a few days, or it could happen in a few years.

The main thing I like about this strategy is that there is no emotion involved. If the stock I buy goes down, I don't start sweating, and start thinking if I should sell it or hold on. I keep it if stays above the 50dma, and sell it if it closes below.

What most traders do not realize is how much investment psychology plays apart in being successful at trading. This strategy will hopefully keep your emotions in check, since you have made out the rules ahead of time.

I am currently reading a book called, "Trading in the Zone." This book is about the psychological aspects of trading. In this book, the author, Mark Douglas, says that:

"Learning how to redefine your trading activities in a way that allows you to completely accept the risk is the key to thinking like a successful trader."

In terms of this strategy, this means looking at the stock, and saying to yourself, "Will I be able to accept the loss if the stock in question falls to below the 50dma." If you can accept the risk, then this strategy will become a lot less emotional, and much more systematic, which is what we want. We don't want fear or greed to apart of our trading.

Now, without further ado, here is example number 4:



This stock is obviously in a massive uptrend, but I would not buy at this level. The amount of distance between the current price and the 50dma is too great. In other words, I wouldn't be able to follow the rules, and be able to accept the risk. This means that I would wait patiently for this stock to come down to perhaps the 20dma, and then pick up some shares.

Hope that makes sense. Thanks for stopping by.

Stock Scanner Example 3

So, it's been about a week since I last made a post on this page. The last 2 stocks I posted are up an average of 2.44% for the week. Following the rules of this strategy, you would be moving up your stop loss order as the stock rises, which means, at this point, these 2 trades will almost certainly come out to be winners.

I had to go through about 20 stocks before I found this next one. Not all stocks the scanner brings up are good ones. The scanner is really only the first layer of the filtration process. I take the results and narrow them down until I only have the best ones.


What I like about this stock is that, of course, the overall trend is up, and that the stock has clearly bounced off its 50 day moving average many times. Presently, the stock is trading near its 50 day moving average, which should act as support.

Also, on the close on Friday, the stock made a tall white candle on higher than average volume. This is another bullish development, and was one of the reasons why this stock got posted, and not some other stock the scan picked out.

Remember, my rule is to get rid of the stock if it decisively breaks the 50 day moving average. This means that the potential loss here is quite small. Warren Buffett's first rule of investing is to not lose money. This is why I'd place a stop below the 50 day moving average. Anyway, I hope this makes sense. Best of luck.

Trend Trading Plus Risk Management Equals Profit

Here is another example of a stock that is in a powerful uptrend. Trying to pick a top in this stock would be like getting in the way of a speeding freight train. Like all my mega-trending stocks, I would recommend placing a stop just below the 50 day moving average. If the stock breaks this level of support, I would just sell it, and forget about it. A certain percentage of these picks will not work out, and the key is to just take your small loss, and pick another trending stock. In other words, we cut our losses short, and let our winners run.




Update - July 18:


I was looking at this stock more carefully, and when I did, I noticed some more bullish evidence for it. I examined it from a point and figure perspective, and noticed that it had just gone through a very bullish quintuple top formation. The image below show what I mean.


I realize that most people don't understand P&F charts, and I didn't myself for the longest time. If you are interested in learning more about this form of charting, please have a look at the book review I just wrote which can be found from a link which is on my home page.

In full disclosure, I bought shares of this stock yesterday.

An Introduction to the Stock Scanner

After realizing how much sense it made to just ride the trend rather than picking tops and bottoms, I immediately set out to find a way to find stocks that were in powerful, unstoppable trends. This was much harder than I had imagined. Most people know what a trend is, but to define a trend in mathematical terms was quite difficult. This site is supposed to be about simplicity, so I won't go into discussion about how the scan works. However, I will post a screenshot of the scanner for those who are curious.



Anyway, you need not worry about how complicated the scanner is, even though it's simpler than it appears, since I will be posting its results as they are generated, and once the results are posted, it is very simple to understand what is going on.

So, I ran this scan through, and I came up with some results which I will now post. The chart below is the stock of a company I know nothing about, but I do know that if I invest in its stock, there will be an extremely high probability of success.



As you can see in the above chart, this stock starts in the bottom left hand corner, and is now at the top right hand corner. This a sure sign of an uptrend. The reason why investing in this stock would likely bring about profits is because the odds of this massive trend turning around the moment you put your money on the table are very small .

The natural inclination is to think that this stock has already had its run, and it's due for a correction. I mean, it's been going up for almost a year, surly it's is due for a breather. Although this is entirely possible, this mentality is the top picking mentality, and the top picking mentality is not a profitable one.

Because it is, in theory, possible for this stock to start to decline the moment you buy it, we need an exit plan. I think the best course of action would be to place a stop right under the 50 day moving average, which is the dotted line in the chart. This means that as the stock continues to rise, you will have to adjust your stop order every couple of days, since the 50dma will also rise. This will have the effect of locking in profits.

Anyway, I will keep posting these stocks, and hopefully you will see that it pays to trade with the trend.