Quote:
Originally Posted by lewdog
My man here's been posting about using VCP and trading strategies that I use from Mark Minervini. Figured I'd post some here as examples.
Here's a rough example, although with the few days of large sell offs this week, I would hesitate to force any trades right now as the number 1 rule is capital preservation.
Hopefully you can open this up enough to see it.
SAVE. Consolidating nicely for about a month. The outlier of this is 7/28 where the price jumped to 25.67 so excluding that for this example. Over 200k volume allows this to be a liquid trade and I do not trade anything with lower than 200k volume.
Using this strategy, you want to catch a stock moving up, not guessing it's reached a bottom. So I would set a buy point for the high point of this consolidation so I catch the "breakout" of this stock moving up. The price of this buy point is 25.01 as this stock reached a high of 25 on 8/15 and 8/16. The technical stop of this would be the lowest price of this stock at the end of this consolidation, which would be 23.92 on 8/19. Instead of setting this stop right at that point I take 23.92 x .999 so we are right below that = 23.89 is my stop.
Buy at 25.01 and stop at 23.89 makes the risk:
25.01-23.89 = 1.09/25.01 = 4.4%. This is a fairly low risk trade.
Now in really choppy markets, the stop of a trade may simply just be the low of the day before or the intraday low of that current trading day. The stop depends on market conditions. In a really good bull market, I may have a risk of 10% as I want to allow the stock to fluctuate without getting stopped out.
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Wouldn't this be known as a cup and handle formation ? I know when I follow a ticker and see this it's normally a good set up as they normally break to the upside. The handle is the consolidation phase.
Also, wondering about your use of a stop loss. How often do you find yourself getting stopped out just to see it rise immediately afterwards ? That seemed to happen to me quite often so I basically quit using it and doing like Johnny said and making a mental stop and selling at that point.
On a side note , one thing I've learned to do is that if I want to get into a stock at the open I'll set my buy order 3-5% below the open and that wick will drop down and grab it 75% of the time so I'm wondering if it's grabbing someones stop loss ??