Another Trend Trading Example

This week, the markets were much less volatile relative to recent weeks prior. This is beneficial to this strategy, since no stocks were blown out of the water this week. Here is an update on how we are doing so far:



In comparison, the TSX has been down about 3.5%, the Dow Jones has been down about 1.5%, and the TSX Venture exchange has been down about 17% since the commencement of this strategy.


Here is this weeks stock that is currently in an unstoppable trend:


(please click here to see a larger image)


There are a lot of things that are interesting about this stock. One of them is how is reliably it breaks out of trading ranges and then explodes higher. Another is how volume tends to accelerate before price does. However, in terms of this strategy, the main thing we care about is that this stock is in a major trend.

Before I go, I'll leave you with some excellent Jesse Livermore quotes. Enjoy the long weekend!

"After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!"

"Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations. In a bull market your game is to buy and hold until you believe that the bull market is near its end."

Using Stock Scanners to Find Trending Stocks

Here is an update on this strategy's performance to date:


Here is this week's mega-trending stock that my stock scanner pulled up:



Before I go, I'd like to leave you with a quote from a book I just read called, "Trading in the Zone":

"Any expectation about the markets behaviour that is specific, well-defined, or rigid - instead of being neutral and open ended - is unrealistic and potentially damaging."

I think that this quote applies to this strategy since we are not assuming that the stocks that are selected will rise. We, of course, know that they have a high probability of rising, since trends usually continue trending, but we remain open to the fact that they can fall. This is why we always protect ourselves with stops below the 50 day moving average.

Trading with the Trend is More Profitable Than Picking Tops and Bottoms

It was another unbearably volatile week for the markets last week. The TSX in Toronto was down almost 600 points intra-day on Thursday, and the Venture Exchange in Vancouver is down about 25% from recent highs. This volatility has obliterated most of my stock selections, but I will continue to monitor this strategy for at least a year before I draw any conclusions.

Here is an update on the positions:



Not surprisingly, the only positions that are still alive are the short positions. Even my favourite position, POT.to, which had held up amazingly well for so long, has finally thrown in the towel. The loss that I had to take on POT.to was quite small at least, since this strategy has very strict risk management rules. (Dumping stocks when the 50 day moving is broken.)

Here is this week's stock pick:

Finding Trending Stocks Through Scans

So, it was another wild week for the markets. The amount of volatility in the markets was immense, and that has taken a toll on this strategy. Nonetheless, I feel that things will average out over time.


Here is what my stock scanner pulled up this week. Notice how the stock finds support at the 50 day moving average. Also notice on the last day of trading, the chart formed a tall open candle stick pattern. That is normally considered to be a bullish sign. Best of luck.


If you click on the table at the beginning of the article, you will see that many stocks have been stopped out. At first, this may seem like a bad thing, however it does have some benefits. For example, I have held 2 stocks from this strategy, WES.to and POT.to. The former was weak, and had to be eliminated, since it broke the 50dma. However, the latter was strong, and withstood the harsh storm of volatility we experienced in the last 2 weeks.

The end result is that there is a sort of natural selection process, whereby the stocks I select compete for my money, and only the strongest and most vigorous stocks succeed, while the weak are discarded. This is the process that I feel will lead to above average returns in the long run.

Stock Scanner Example 6

In this week's update I'm going to give you another mega-trending stock, but first I'm going to go over the performance of this strategy in a more scientific method. Below is an image of a spreadsheet that I have created that will be used from now on to give us a better of idea of the status of my picks.



The average gain, which is 1.01%, is a simple average, and not a time-weighted average. But no matter how you calculate it, it is not particularly impressive. However, keep in mind that 80% of the stocks were long positions, and the markets in North America have performed very badly. For example, the Dow Jones Industrial Average had its worst week in 5 years two weeks ago, and the TSX in Canada has lost over 7% in just the last 2 weeks.

In addition, this spreadsheet does not take into account statements, like the one I made for RCI/B, saying that I would wait for a pullback before buying this stock, as the risk was too great at the time of posting.

I'll keep posting this spreadsheet every weekend when I update this blog, and I'll let you be the judge.



Anyway, here is this week's stock:



I had to go through about 30 stocks before I found this one, and when I saw it, I knew it was perfect. This is a textbook example of a stock that I am looking for. Notice how it bounces off its dashed 50 day moving average line every time there is a counter trend rally. That's a sign that the bears are totally in control, which is what we want when we short sell.

However, since anything could happen, we must protect ourselves from losses. Therefore, we would place a buy stop above the 50dma, so that if the stock breaks through this line, we would no longer be in the position.

Since this stock is below $5.00, you may not be able to short sell it, however, you could set up a position using equity options.

So, thanks again for looking at my blog. I'll make another post in 7 days.