95% of the QQQ component stocks rose on Wednesday as the QQQ (Nasdaq 100 index ETF) reached the 27th day of its short term up-trend. The weekly chart below shows that the QQQ has again broken out, violating the possible head and shoulders top pattern I have been describing. After a severe market decline like we had in 2008, people get very scared of the market. They tiptoe back into the market focusing on the “safer” more conservative large cap, blue chip stocks. After the market rises for a long period they take their profits, grow more confident, and buy the more speculative growth stocks. I would therefore not be surprised to see the tech stocks take over the leadership of the market in coming months. On Wednesday, 95% of the Nasdaq 100 stocks rose, compared with 71% of the 5,800 stocks in my database. IBD has now changed its market outlook to reflect the resumed up-trend. In the meantime, the media pundits keep trying to scare people out of the market, enabling it to climb a “wall of worry.” I would become more cautious when they eventually feel confident enough to proclaim that the market rally is here to stay.
Dr Wish,
I would like your ideas on given 2 stocks with identical mechanical triggers to buy ( for rocket ships ) , how might once decide how to approach which to trade .. I often get multiple tiggers and I am trying to formulate ideas on how to better capture that rocket out of the bunch. On average I catch a rocket every 4th trade.
a) 1 in 4 trades is a defined rocket ( +50% profit ) ..
b) 1/4 I am initial stopped out ( @ -20% ) ,
c) 1/4 I am stopped on moving stop loss ( 0 to -20% )
d) the last 1/4 is profit less than rocket ship proportions ( 0 to +50% ).
So essentially d) mostly pays for losses in b) and c) and a) makes the money…
I am trying to increase my rocket ship odds ..
Any ideas would be wonderful ..
20% losses? look at your past trades, if you had cut those losses to 5% or 6% would your outcomes have been better?
This approach has been thouroughly tested by myself and it does not help in my system.
Yes I can create tighter stops but by placing a tighter STOP you also are whipsawed out of the large gains. The loss % is irrelevant as use pos sizing to stop any loss being over1% of my account. You can do the math to calculate what that equates to.
If whatever techniques you are testing do not improve your trading results, then abandon them. The key is to adopt only that which works better for you. By the way, I have found that if I buy a stock and get stopped out with a small loss, I can often make a good profit by buying it back if it has given me a subsequent buy signal.
Thanks Dr Wish ,
Do you use pyramiding ? I think Mr Darvis seemed to .. My recent examination has been that it may help avoid a full allocated “pos size” loss entering at the incorrect moment. However there is the amount of FEES that are paid to pyramid in 4x as opposed to just the one time.
On reading Darvises book it seemed his position size placed him at great risk as he invested almost completely in a few stocks yet he would not have earned the returns if he did not take such risks. Have you dissected this aspect of his trading ?