My Current Trading Strategy
How I find and choose my Swing Trade picks 📈🔍
I have had a great deal of success with my swing trades lately and, given that we’re in a bear market, this is quite wonderful. But I chalk it up more to my increase in patience and improved control over my emotions more than an advancement of skills. In fact, most everything in this post is something I’ve already written about before so it’s not the method that has changed, but rather the man.
Since that is the improvement that has led to higher success rate, let’s have a little brush up on the basics shall we?
NOTE: If this is your first time aboard the S.S. Enterprise, please START HERE! If you don’t, some of the terms and ideas behind this trading strategy might be a bit confusing.
Trading like Spock
The core principle of my strategy is what gives this blog its very namesake:
Trade without emotions.
Gut feelings, hunches, FOMO, envy… these have no place in trading. These are emotions and when you trade emotionally you make clouded decisions and more often then not those decisions are poor at best. (I call this, trading like Kirk).
Trading is about practicality and logic. You set up a system of rules/conditions and follow them to the letter. When a trade presents itself, you won’t need to rely on hunches or feelings but knowledge and data. For like Spock and the Vulcans, traders too have no need for emotions.
Patience
Another virtue is patience. As the saying goes:
“Overnight Success Takes About Ten Years"
Take working out as an example. The first day you go to the gym, you may do a short run, lift a few weights, etc… but when you get home are as ripped as Arnold? No, of course not.
Do you see results on the second day? Or the third, or the fourth? No, but eventually if you continue to train you’ll see the results over time. It takes patience!
The same goes for learning to trade. Most of the finance bros you see posting about their copious gains are either just playing with daddy’s money or built it slowly over time and are now flaunting it to get likes and views. Some, like those promising $100/day gains if you buy their courses, probably make more money from their subscribers than from the market.
Real traders know the power of compounding your capital and how wealth accrues over time. Imagine if on day one at the gym you trying to dead lift 250lbs. You would definitely injury yourself and probably never be able to workout for a long time. The same goes for trading. By going too big too soon in order to rush to the finish line you risk losing everything before you’ve even started.
Finding Good Stock Setups
I’ve written about Scans and Alerts before but here’s the one I’ve been using lately to find setups before the Stage 1 Breakouts. This helps me get in earlier i.e. at a better price but also comes with more risk as the stock has yet to fully take off as it does with a Stage 1 Breakout. The trade could always continue to consolidate longer than anticipated or breakout to the downside, but the added Risk is the cost for the potential added reward i.e. bigger gains.
It’s worth noting that just because you’re getting in earlier doesn’t mean you should a) put every dime into the trade and b) not add more (aka DCA in) when the Stage 1 or Stage 2 Breakouts occur. You should slowly add to the position, this helps cover you in case the trade moves to the downside and never breaks out. And if the trade does breakout to the upside, don’t fret about the better price or leaving money on the table. That is an emotional response. That is one of my major growths as a trader I mentioned earlier. I was always pissed about missing “the best price” and this often led me to not getting in on the trade at all at times. Once I let this worry go, the money flowed a lot more freely.
Anyways, here’s what you’ve really been looking for:
The Secret Sauce
This is the formula I’ve been using lately to find Stage 1 setups that have the most breakout potential:
Easy copy / paster version below:
[today’s EMA(5) < today’s SMA(20)]
and [today’s MACD Hist(12,26,9) > yesterday’s MACD Hist(12,26,9)]
and [today’s Elder Bar Red is false]
and [yesterday’s Elder Bar Red is false]
and [today’s close > yesterday’s close]
and [today’s close < today’s EMA(10)]
I filter out the noise of the ENTIRE market by making a Watchlist of my favorite and reputable stocks, you can add the following line to have this Scan/Alert ONLY search that Watchlist.
and [favorites list is ##] // * MASTER WATCH LIST *
NOTE: Your Watchlist will have a different number depending on when you made it, so instead of typing it or copy/pasting it use the ADD button to select YOUR Master Watch List:
*If you want, you can download my current Watchlist (as of Sept 10, 2022) HERE — yes, for free — and import it into your Stockcharts.
***NOTE — When the Market gets particularly volatile (like after the FED announces interest rate hikes) the safer play is to find breakouts using the Stage 1 scan which you can find HERE.
Selecting Picks
With the stock market in the shitter which ate away at my gains, my main focus is not to move everything to cash and sit this one out (even though cash IS a position) but rather to build my account back up over time with calculated moves. Just because we’re in a recession, doesn’t mean there aren’t good swing trades to be had. (*It’s also a great time to add to your long-term B&H investing accounts because everything is on sale!).
When I run the Scan or get an Alert I tend to look only at the stocks that are:
- Under $45 — the lower the better ($1–$20 is a sweet spot)
- Beaten down (which means lots of room to the upside)
- Currently below their 200 SMA
The reason I like the lower priced stocks isn’t because I’m cheap, it’s because I’m looking at the potential moves in terms of it’s percentage not it’s dollar amount.
For example, if you saw these two stocks as setups:
Setup 1: $100/share with a Target of $105
Setup 2: $1/share with a Target of $1.25
Most people go would go with the first one because they would rather make $5 than 25 cents. And yes, $5 is in fact more than 25 cents in pure currency form, but there’s a difference of finding a fin on the ground versus a two bits but we’re talking gains so you need to look at them in terms of percentages!
Setup 1 is a 5% gain
Setup 2 is a 25% gain
Let’s say we had a hypothetical $10k on the trade. Setup one would yield $500! Not bad, not bad at all. Buuuuut Setup 1 would yield $2,500. Do you see now why you want to look at your potential targets in terms of percentages not in terms of dollars?
So that’s why I look for. I check each chart on the results list and find their Targets. I then whittle that down to the ones with the best percentage gains. I also check to see what both TipRanks and Morningstar have to say about them — if they say they’re undervalued, then we’ve got a solid pick! (Even better if their Targets are the same or higher than mine).
Let’s take a look at the list I Tweeted out on Monday (which was a holiday so the market was closed):
Here’s where those picks ended the shortened holiday trading week at:
Stocks with over 7.5% gains are highlighted with a bigger font
Stocks that made a Stage 1 Breakout are underlined
Stocks that made a Stage 2 Breakout are italicized
Note that any that didn’t break out (even the ones in red) are still consolidating
That was a mere 4 days of trading and look at those percentages!! Plus, a lot of these picks haven’t even reached their Target yet!
I ran the scan again just now and grabbed a random low priced stock as an example. This one is $TRUE — True Car Inc.
As you can see in the chart above…
- The stock is waaay under our $45 limit trading at $2.01
- The stock is really beaten down (just look at where price is and the RSI)
- The stock is also well under it’s 200 SMA of $3.19
The 1st Target here would be around $2.50-$2.60 which is about a 25% gain. Let’s see what TipRanks and Morningstar think…
They both show a much higher value than the stock is currently trading at, with TipRanks giving it a HOLD status and a $3 value (50% gains) and MS rating it at a 61% discount right now with a $5.10 valuation. Seems like a solid pick to me!
Example
To see what a trade like this trade would look in real time, check out my previous three part series of posts on paper trading $APRN:
Scaling In
Next I would enter the position, since it’s still earlier in it’s consolidation phase, I would just get in with say 25% or so of what I want my total position to be. I’ll add to it as the days go on — If it dips I’ll add more to lower my DCA (dollar cost average). When it hit the Stage 1 Breakout I’ll add more and then let it do it’s thing.
Scaling Out
I’ve talked about scaling out in other posts. It’s as simple as dividing your position into quarters or thirds or whatever you prefer and selling as the price hits your Targets or if the RSI goes extreme (above 70 RSI) or if there is a Breakdown and the prices closes below the 20 SMA (and DEFINITELY if the 5 EMA crosses below the 20 SMA).
Setting the Targets and watching the Indicators is the easy part. The hardest part is not getting emotional, not to get greedy. When you get greedy, you break your rules. You decide not to sell because “it could go higher!” and in my experience that’s almost always led to a loss of gains. Remember, that very reason is why we scale in quarters or thirds, so you retain some part of your position in case it goes higher. But the number one rule to remember when you’re riding the gain train is:
Don’t worry about leaving money on the table!
I can’t stress that enough! A win is a win is a win. You don’t have to squeeze every last drop. Chasing tops and bottoms is a fools game. Be better than that!
Rinse and Repeat
After I fully close out a position, I move that money into a new trade and guess what, more gains means I can take a larger position on the next one.
Remember how I said after you keep going tot he gym over and over you eventually start seeing your muscles get bigger over time? Your account will bulk up in much the same way as long as you stick to your plan and don’t slack off —oh and lay off the junk food trades!
Trade long and proser!
🖖
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