Saturday, October 25, 2008

The 10k strategy

NOTICE: Keep in mind I no longer use this strategy! It is only here for educational purposes, and many of the links no longer work.

I’m finally done!

Ok, to begin with I got the strategy from http://www.10kthrownaway.com/blog/?page_id=117. I have added more than a few of my own rules to it so I will try my best to explain it to you.

My list of stocks that I trade can be found at http://stockhunter.blocks.com/ViewWatchList.aspx?id=111. I use 5 minute and daily charts, with a 20 period Simple Moving Average (SMA), and an 8 period Money Flow Index (MFI). I also have a 50-SMA on volume but that’s just for quick reference. I use the 5 minute chart for everything except picking a stop gain, which is what the daily chart is used for. If you have StockFinder I can send you my layout, just shoot me an e-mail at breckskibum0@yahoo.com.

When prospecting I pull up the 5 minute chart, then look for:

1.) A good trend
2.) Its pulling back
3.) MFI is less than 60 (for longs), or more than 40 (for shorts)
4.) Volume is trending down during the pullback
5.) Did not gap big this morning (gaps more than 10% are not traded)
6.) The 20-SMA is trending down (short) or up (long) for 5 bars or more

Example:


If all of the above line up I add then to a temporary watch list. Once I’m done making a temporary watch list I look through the stocks in it until I find an entry.

For a long I enter when the price comes very close to or is on the 20-SMA, volume is still falling during the pullback, and the MFI is less than or equal to 40. I only enter on stocks that haven’t touched the 20-SMA if the price has consolidated already (see DO_10-22-08 for example [yes it’s a short, but the same principle applies to longs]). If the stock hasn’t consolidated yet, I wait until it does consolidate on the 20-SMA (see WLP_10-9-08 for an example). If the price looks like it’s going to (or does) break the 20-SMA I do not trade it.

For a short I enter when the price comes very close to or is on the 20-SMA, volume is still falling during the pullback, and the MFI is greater than or equal to 60. I only enter on stocks that haven’t touched the 20-SMA if the price has consolidated already (see DO_10-22-08 for example). If the stock hasn’t consolidated yet, I wait until it does consolidate on the 20-SMA (see WLP_10-9-08 for an example [yes it’s a long, but the same principle applies to shorts]). If the price looks like it’s going to (or does) break the 20-SMA I do not trade it.

Here are my other rules I use with this strategy, all examples can be found by clicking on them:

1.) Try to avoid "dirty" charts (dirty chart=not a good trend) see FSLR_8-11-08 for a clean example and CME_8-13-08 for a “dirty” example
2.) Don't trade stocks that cause the moving average to change in the morning see LMT_8-13-08 for an example
3.) Avoid the "line breakers" see PCX_8-8-08 for line breaker unless they barely break and then flatten for a couple of bars see MON_8-7-08 for line breaker that flattened (focus on the entry point, the trade broke more then just this rule).
4.) Risk:reward has to be 1:1 or better
5.) Do not risk more than 1.50% (I will let it go up to 2% if I don’t get the price I want + I feel strongly about the pick)

Once I enter a trade I will pick a good daily level as my stop-gain (usually 4% or more but it varies), then run a trailing stop to it. Now the stoploss, and trialing stop is where it gets tricky, because their mostly based on experience. For my initial stop I put it above (short) or below (long) the 20-SMA far enough to where the price would be crossing it therefore heading the other way. For the trailing stop, most of the time once it hits a 1% gain I go off the previous bar’s high. I also exit if the stock goes flat for a long time (7 bars or more after entry). On rare occasions I will move the stop more slowly which is basically the same as the above but staying above the 20-SMA with it.

One last thing to note is if a lot of my picks are looking like they are going to (or are) crossing the 20-SMA, I will give the ones that haven't more time before entry. This is because most stocks tend to go with the rest of the market, therefore they will cross if most of the others have or are going to crossover the 20-SMA.

1 comment:

ainkurn said...

StockHunter,

I just found this page after scouring my Google Analytics. I am surprised to find that that you named a trading strategy after us. I appreciate the link back. I hope that this strategy has worked for you over the years and made you a lot of money.

Regards,

Ainkurn
10kthrownaway.com