Stop Loss Positioning Guide
#9
Yeah, I didn't really mean the ATR as you do, just the percentage as he talks about in the book. Either way, it is good to see his methods as you say.

Quote:The first thing that struck me when going though all the examples was the amount of pullback entries, as it's not an area I had focused much on, as they weren't talked about much in book. There's a lot of picks from this GTA report that say something like "additional buying should be done on a pullback to..." which is probably due to the Stage the market was in i.e. late in Stage 2 in this case. But it is interesting as I'd been solely focused on breakouts and had not been considering pullbacks, except to the B entry point following the initial Stage 2A breakout. So buying pullbacks to support in strong Stage 2 uptrend is something I'll need to explore further on the site as it looks to be more prevalent when the market has been in Stage 2 for a while.

As for these pullback entry points, I think he has a couple of reasons for recommending them over the initial breakout. First is that he might be worried about potential 'dangerous' picks and backlash from his investors. I bet some unhappy big clients would do terrible things for his reputation overall. Therefore, I think he recommends the "safest" entry points possible.
A quote from pg 93-95 in the quiz section of chapter 3. Answer # 6 "The pullback toward the initial breakout point is the safest possible entry point."

The second reason that crossed my mind is that as he is writing up this report to send to his clients, these breakouts are already happening. Therefore, a few days after, when the clients are finally reading the recommendations, the stock may have already passed the breakout point and he sees it as tough to enter late into the stock when chances are it will pull back.
Otherwise, he would have to give recommendations that have not actually broken out yet, which would further risk his credibility if they never actually reached that point.

EX: I recommend buying Boston Scientific when it breaks resistance at 8 dollars.
   
If it never gets to 8, I don't really care. However, if I had people paying me as much as his clients do, I would want to see actual picks pan out (and ones that I can get into now), instead of waiting with a good till cancel order that would tie up capital for who knows how long.

I know the pullback entry point is the safest but there is no guarantee that it will pull back at all. Therefore, I prefer the initial breakout point myself.
In practice however, it is much easier to find stocks that 'just broke out' rather than 'might break out soon', so I often find myself chasing or waiting for that pullback. Mainly because I find it difficult to have a lot of GTC orders on my books.

Just some thoughts-
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#10
American International Group (AIG) was said to be displaying fine relative strength, and that pullbacks should have been bought towards the support in the 27.50-28.50 zone. The Trader Stop Loss was given as 25.39 and the Investor Stop Loss was given as 23.99

Trader stop - on the daily chart the last pivot low was 26.24, and the high of the previous consolidation before that one was 25.90. So the suggested stop loss was well below the pivot low, and had been placed right underneath the 200 day MA which was at 25.42 at the time. Again, it's unclear if this was a factor in the decision as going by the previous examples you'd have expected it to be placed under the pivot low and whole point as it was close by - so 25.99 and hence there logically must have been an additional factor considered in this one, which could have been the proximity of the 200 day MA, but also could have been something else which is unknown to us.

Investor stop - 23.99 was the recommended level, which was below the last notable swing low close to the 30 week MA on the weekly chart of 24.66. The 30 week MA was at 24.21 and so the 23.99 placement put it below the swing low, 30 week MA and the close by whole point.

ATR distance to stops - For AIG the ATR(200) was 1.193 at the time of the recommendation and so:
  • 1.77% to 2.61% ATR - Trader stop range
  • 2.94% to 3.78% ATR - Investor stop range
Other observations - AIG volume was around average; relative performance versus the S&P 500 was improving though and had just broken above the Mansfield zero line (RS 52 week MA); the 30 week MA was just starting to flatten after a steep decline, so this was an early breakout.


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isatrader

Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill – Reminiscences of a Stock Operator.
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#11
Airgas (ARG) was said to show no sign of reversing its strong Stage 2 uptrend, and it was recommended as for additional buying on a pullback towards the 80-80.50 zone. The Trader Stop Loss was given as 78.99 and the Investor Stop Loss was given as 73.99

Trader stop - on the daily chart the last pivot low was 79.05 and so the 78.99 suggested stop loss position was just below the pivot low and was placed just under the whole point. The pivot low was a minor one which is not visible on the weekly chart, so it was a very close stop loss in this case with only minor support.

Investor stop - 73.99 was the recommended level, which was below the last major swing low of 75.78, and also the previous notable swing low before that also. The 30 week MA was at 72.49 and so I would have expected it to go under that as well, but Weinstein clearly decided it needed pressing closer above the 30 week MA on this occasion, but I don't have a specific reason as to why. A possible reason could be the distance between the 10 week and 30 week MAs being extended, and also the stop also would have been below the swing high following the November 2011 breakout which would have offered further support.

ATR distance to stops - For ARG the ATR(200) was 1.389 at the time of the recommendation and so:
  • 0.73% to 1.09% ATR - Trader stop range
  • 4.33% to 4.69% ATR - Investor stop range
Other observations - ARG had made a Stage 2 continuation move from a two year Stage 3 range, and this recommendation was for additional buying on a pullback. Volume had been declining over the previous year and so didn't meet the requirements of the method. Relative performance versus the S&P 500 had outperformed since the Stage 2 continuation and was still well above it's zero line. There was quite a big gap between the 10 week and 30 week MA, which may have explained the higher than usual investor stop loss position. Below are the weekly and daily charts


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isatrader

Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill – Reminiscences of a Stock Operator.
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#12
A note to myself to investigate: When a stock gaps higher and continues higher in the coming days. Does the low on the gap up day have the same significance as a pivot low. i.e. should it be considered as the nearest pivot low for placing the trader stop loss? Or do pullbacks go into the gap and so still need to go on the previous pivot low?
isatrader

Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill – Reminiscences of a Stock Operator.
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#13
You're doing some great work here Isa, well done. I have to say though I was surprised at the quality of Weinstein's recommendations. I always imagined his service would be a one of quality rather than quantity.

For what it's worth, Weinstein found that half cents only acted psychologically like a round number on stocks below twenty dollars and then he advised that the stop should be placed at 1/8 below that so I guess that's 12 to 13 cents below. P195

Cheers
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#14
The thing I've noticed in the GTA reports and the interviews is that he complains a lot about his clients wanting short term recommendations, whereas he wants them to focus on the longer term as he believes that's the most important. He often says the short term is a 2 on the Richter scale whereas the long term is a 10 on the Richter scale. So the GTA seems to recommend a fairly broad amount of stocks each month to satisfy all the short term traders that use the service. But I noticed a lot of them are saying do "additional buying" or "buy a pullback to.." or "additional selling" etc. So it's not just highlighting the A+ candidates, but instead seems to highlight all of the reasonable stocks in favourable technical patterns. I think we have to put the March 2012 picks in context though, as as I said at the start of this thread, a lot will have failed short term due to the point in market's Stage 2 phase and I think highlights the importance of overall market timing i.e. doing most of your investor Stage 2 buying early in the markets Stage 2 run and then focusing more on trader continuation buying later in the Stage 2B phase or doing no new buying at all and just managing your portfolio with the trailing stops method.

(04-02-2013, 04:56 PM)goodtyneguy Wrote: For what it's worth, Weinstein found that half cents only acted psychologically like a round number on stocks below twenty dollars and then he advised that the stop should be placed at 1/8 below that so I guess that's 12 to 13 cents below. P195

I do remember that from the book, but it was pre decimalization, and any stops I've done in the examples so far from the 2012 GTA, that have gone below the half or full point, have been right below at 24.99 or 35.49 etc. So not sure if the page 195 is relevant anymore, but will see once I've done more examples.
isatrader

Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill – Reminiscences of a Stock Operator.
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#15
(04-02-2013, 05:32 PM)isatrader Wrote: The thing I've noticed in the GTA reports and the interviews is that he complains a lot about his clients wanting short term recommendations, whereas he wants them to focus on the longer term as he believes that's the most important. He often says the short term is a 2 on the Richter scale whereas the long term is a 10 on the Richter scale. So the GTA seems to recommend a fairly broad amount of stocks each month to satisfy all the short term traders that use the service. But I noticed a lot of them are saying do "additional buying" or "buy a pullback to.." or "additional selling" etc. So it's not just highlighting the A+ candidates, but instead seems to highlight all of the reasonable stocks in favourable technical patterns. I think we have to put the March 2012 picks in context though, as as I said at the start of this thread, a lot will have failed short term due to the point in market's Stage 2 phase and I think highlights the importance of overall market timing i.e. doing most of your investor Stage 2 buying early in the markets Stage 2 run and then focusing more on trader continuation buying later in the Stage 2B phase.

Yes, commercial considerations or the customer is always right - even when they are not - always wins out in business. I'm sure you can relate to that. Locked in, in his post above elaborated well on the vagaries involved in keeping customers happy in Weinstein's business. Mike Swanson over at Wall Street Window who (as you know) uses his own version of stage analysis has the same complaints from the subscribers to his investment club. He reckons he regularly loses customers because he waits for the best investor type trades rather than just constantly feed his subscribers with stock picks because they want something to do.

I appreciate the importance of your second point too, patience is a big element in successful investing/trading.
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#16
The next stop loss examples from the March 2012 GTA is BAC, which was recommended to do buying on a close above 8.35, which it was said would complete the Stage 1 base pattern and hence the signal to do buying. The Trader Stop Loss was given as 7.59 and the Investor Stop Loss was given as 6.39

Trader stop - on the daily chart the last pivot low was 7.67 and 7.66, and so the 7.59 suggested stop loss position was just below the pivot low. But wasn't placed below the half point on this occasion, even though it was close.

Investor stop - 6.39 was the recommended level, which was right below a minor swing low of 6.41. The 30 week MA was at 6.67 and so it was also under this, which was just beginning to flatten after a steep decline.

ATR distance to stops - For BAC the ATR(200) was 0.395 at the time of the recommendation and so:
  • 1.92% ATR - Trader stop distance
  • 4.96% ATR - Investor stop distance
Other observations - BAC had seen an increase in volume during the Stage 1 basing phase, which had been consistently above average for around 6 months or so. Relative performance versus the S&P 500 was recovering and close to the zero line. The 30 week MA was only just beginning to flatten after a fairly steep downtrend, and six month base. So a break above the 8.35 level would have been an early breakout from a smallish base. It had fairly strong resistance at the 11 zone, where it had bottomed in 2010. Good risk reward on the trader stop though, especially for a breakout entry.

BAC made it's Stage 2A breakout two weeks later (see latest weekly chart attached) with a 20% move higher (4.43% ATR), but then quickly stalled and fell through April and May 2012 to a low of 6.72, and formed a double bottom over the next few months and broke out again in September 2012 and has been in a steady uptrend since then. So the investor stop loss held well and currently would be at just under 10 imo, after being raised three times since last March. With BAC in Stage 2B- currently. I've marked up on the latest chart where the investor stop would have been raised to during it's Stage 2 run in my judgement.


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isatrader

Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill – Reminiscences of a Stock Operator.
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