Stage Analysis - Trading and Investing using Stan Weinstein's Four Stage Breakout method
Stage Analysis Beginners Questions - Printable Version

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RE: Beginners Questions - isatrader - 07-29-2016

(07-29-2016, 03:42 PM)kero Wrote: So, if you were on this stock on may 2013, would you have put your stoploss at 32 and wait the next low/high cycle, or put it directly at 35, maybee even 37 some weeks later ?

The investor stop would have gone below the swing low and the 30 week SMA. So roughly around 32, and then you wouldn't move this up until the next significant low and move back towards the highs, so that was in mid/late July and then it would have moved up below that swing low and 30 week MA. So roughly 37/38 area from your screen shot. And then up again in September as it again recovered from a pullback towards the highs.

I've marked up the investor stops on the attached for you how I see them in 2013 in red dots. Basically it never hit the investor stop, but moves into early Stage 3A in March 2014, so at that point you'd get more agressive with your stops or exit manually anyway for a strong 50%+ profit.

[attachment=25742]


RE: Beginners Questions - malaguti - 07-29-2016

(07-29-2016, 03:42 PM)kero Wrote: My question is: when you move the stoploss level, do you consider the level that the SMA30w/SMA10w had at the moment of the low or the level that it has when you move the stoploss ? And, to go further in this idea, do you eventually move the stoploss following the SMA, provided that the stoploss stays under the last low ?

I'm sure its covered on page 184/185. You should move your stop when its making its way back up to the last high, and you should move your stop loss at the point the MA is below the low, not the level of the MA at the point you move it.
You also only trail the stop loss after the next retracement and then next continuation. You don't trail the MA
hope this helps


RE: Beginners Questions - kero - 07-29-2016

Thank you both for your answers !

It looks that - as malaguti points out - I probably should have had a look in the book before asking the question. Weinstein doesn't explicitely states it, but the way he describes the process makes it quite clear that the time reference is when the low actually happens, and not the moment in which I rise the stoploss. Looking at its graphics confirms this, though they are not easely readable.

Isatrader, thanks for your graphic illustration. Very clear. I notice that my screenshot wasn't that clear as it could have been. I should better integrate the idea of initially protective/later agressive stop, because I always tend to tighten my stops to much in the first moves, because of fear of losses.


RE: Beginners Questions - kero - 07-31-2016

I go a little bit further into the problem of handling a "trader" position (which I call a "medium term" trade, as opposed to the investor's "long term" trade). While the investor's strategy appears quite clear to me, I have more difficulties about the former.

Recently reading again Stan Weinstein's pages 184-205, I understood that my first reading was unprecise. For a long time, I "interpreted" the Weinstein's strategy in my own way: I considered that the easier way to deal with a trader's trade, was to follow a shorter SMA in the same way we do it for the investor strategy. The SMA that I considered had to be followed was the SMA50daily. In some cases (trends with less potential), I decided to alternatively use the SMA20daily.

Now, both experience and observation of a few stocks proved that it was a bad strategy, resulting from a superficial reading of Weinstein. So, reading the book again, it appears now clear to me, that in "trader"'s trades, we shouldn't follow any SMA at all, but only take for reference "little" pullbacks (little as in = littler than the big pullbacks of the investor strategy). The stops have to be put right under these pullbacks. That clarification should strenghten my trades.

But.

Still, it looks quite hard to decide in which cases we move the stop or not. According to Stan, we should only consider corrections of at least 7%. Now, in some cases this works well, but in a lot of other cases, this doesn't work as intended. The problem comes, for example, when a stock does a first big move, in which it does a lot of little corrections (4%, 5%... always less than 7%). After this first big move, a big correction happens, but this corrections goes really low, eventually until the SMA30w. Finally, we're stuck in an investor trade, while the primary intention was to make a medium term trade.

Here a test case: Cap Gemini, a French tech company, which made a bull trend extending from 2012 to 2015.

Here the weekly graph of the 2012-2015 bull trend.
[attachment=25769]

And here the daily graph of the initial move, in which it was possible to enter a medium term (trader's) trade:
[attachment=25770]

Here, the trade would have been winning only if the stoplosses were moved to the points A (initial stoploss), B, C, D. Eventually, using a trendline can help to make better profits here. But in this case, all the corrections are littler than those considered by Weinstein. They all make about 3-5%. Never 7%. I know that we shouldn't stick to much to such numbers, but still. If I had used the strategy as described, I'd be facing a big correction move, and be stuck with the stock for a far longer time than intended.

Now, facing to this kind of problem, here is the strategy that I decided to use.
1/ Basically, I only move my stoplosses when I see a correction of at least 7% (or there about).
2/ If I see that a nice first move with littler corrections takes place, and that this corrections can be exploited to move the stoplosses in a decent winning position, I do it.
3/ If I don't, and finally it appears that the stock does a big correction (the investor type: a big move coming near to the SMA30w), I stay on the stock, and will go back again in a trader strategy when the stock starts the next big move.

So now my question: how do you deal with that kind of problem ? Do you have other ways to follow a medium term trend ? Do you use some SMA to handle the situation ?

I know that this is a such large question that it is hard to be handled in this topic. Maybee would it, actually, deserve a topic in itself.


RE: Beginners Questions - isatrader - 07-31-2016

(07-31-2016, 01:18 PM)kero Wrote: So now my question: how do you deal with that kind of problem ? Do you have other ways to follow a medium term trend ? Do you use some SMA to handle the situation ?

One problem you are always going to have with smaller European and UK stocks is that they simply don't have the liquidity for them to behave in the way that US stocks do, where trading volumes are much larger, and hence make stop loss positioning incrediably difficult, as they will experience far greater volatility because of this.

The 50 day SMA is a good rough guide for shorter term trades, as when a stock starts to close below it for more than a few days, and can't get back above it, then it's normally sign that the momentum has been lost, and so you can manually exit, and then you can always set a buy-stop order to get back in if it closes back above it again.

The trader method isn't very well covered in the book, as Weinstein doesn't consider short term moves to be very important, as he was mostly concerned with the investor method. So I'd recommend reading about other shorter term methods that compliment Weinstein's trader method to get more detailed info on best practices, such as O'Neil's CANSLIM method, and especially Mark Minervini's excellent book, in which he expands on Weinstein's trader method. These two differ in that they also look at fundamental data, but you should absorb the additional technical information especially, and great advice on risk management and stop losses from these. And the excellent info on the Volatility Contraction Pattern, Cup and Handles etc.


RE: Beginners Questions - Smellypunks - 07-31-2016

So I have a question about what should be done with investor stops if the stock is heading parabolic and no clear pull backs can be seen, or not on the weekly chart. Do we then move to the daily chart looking for pull backs of more than 10%? Example SOU weekly and daily chart. It just seems like the 30 MA is a long way off the price action.


RE: Beginners Questions - isatrader - 07-31-2016

(07-31-2016, 05:58 PM)Smellypunks Wrote: So I have a question about what should be done with investor stops if the stock is heading parabolic and no clear pull backs can be seen, or not on the weekly chart. Do we then move to the daily chart looking for pull backs of more than 10%? Example SOU weekly and daily chart. It just seems like the 30 MA is a long way off the price action.

It's funny that you've used this example, as this is one of my current positions. See my journal thread for how I'm dealing with it here: http://stageanalysis.net/forum/showthread.php?tid=32&pid=10419#pid10419


RE: Beginners Questions - kero - 08-02-2016

(07-31-2016, 03:09 PM)isatrader Wrote:
(07-31-2016, 01:18 PM)kero Wrote: So now my question: how do you deal with that kind of problem ? Do you have other ways to follow a medium term trend ? Do you use some SMA to handle the situation ?

One problem you are always going to have with smaller European and UK stocks is that they simply don't have the liquidity for them to behave in the way that US stocks do, where trading volumes are much larger, and hence make stop loss positioning incrediably difficult, as they will experience far greater volatility because of this.

The 50 day SMA is a good rough guide for shorter term trades, as when a stock starts to close below it for more than a few days, and can't get back above it, then it's normally sign that the momentum has been lost, and so you can manually exit, and then you can always set a buy-stop order to get back in if it closes back above it again.

The trader method isn't very well covered in the book, as Weinstein doesn't consider short term moves to be very important, as he was mostly concerned with the investor method. So I'd recommend reading about other shorter term methods that compliment Weinstein's trader method to get more detailed info on best practices, such as O'Neil's CANSLIM method, and especially Mark Minervini's excellent book, in which he expands on Weinstein's trader method. These two differ in that they also look at fundamental data, but you should absorb the additional technical information especially, and great advice on risk management and stop losses from these. And the excellent info on the Volatility Contraction Pattern, Cup and Handles etc.

Thank you for your answer, and specially for the bibliographic references. I'll include them on my basic trading readings.

It is true that European stocks are often less liquid and experience sharp moves. It's something I'll have to better consider in my positions.

Though, I'm not sure this volatility point is the main point in the problem I was asking about. The test case I posted is about one of the major French big caps. Also, when I have a look to US stocks, the same difficulty arises.

The feeling that I have, is that the problem comes from the fact that there are a lot of different trend structures (which is true on any market: UK, US, French...). When popping out, some stocks make sharp big moves and then lateralize. Other move up regularly. Some make frequent corrections to the SMA30w, other prefers to consolidate on the SMA50w, and other barely touch any major SMA for months. Still more important: this difference in the trends depends from the structure of the stock itself, but also on conjunctural condition. A stock can make an uptrend consolidating on the SMA30w, and 5 years later, consolidating on the SMA20w.

I have the feeling that this difference between stock-trends is not so much a problem when acting with the Investor strategy. But it becomes more problematic when acting with the "trader" strategy. That's why I've thought to the solution which I expose over here, which is thought as a strategy to deal with this problem.

That's why I'll read with great interest the books you indicated. Anyway, I'd still be interested if you or others have other indications about the best way to follow a medium term trend.