Sunday, March 20, 2011


I've re-worked the Watchlist postings in order to highlight stocks and exchange-traded funds that are top candidates for my own trading. As with almost everything I do, the charts govern my separation of the sheep from the goats and the wheat from the chaff.

After analyzing charts to select issues that are in bull or bear phase, I do triage on that universe of possible trades, trying to identify those that have the greatest momentum for pushing beyond the price channel. I sort the potentials into three bins:

Top Prospects are issues upon which I would consider opening a new position because they have met these criteria: 1) The average directional index is 20 or above and rising. 2) The price has touched the boundary of the 55-day price channel, in the direction of the trade, at least once within the two most recent trading days (including the current one if the market is open). 3) The price-channel boundary in the direction of the trade has moved in that direction within the past 10 days. 4) The position is no longer subject to the two-day rule (Exit 2).

Not So Interesting plays are issues that are tradeable under my rules but fail to meet the criteria for Top Picks. It's not against my rules to trade these stocks, but their condition on the chart leaves me unenthusiastic about opening a new position.

Out of Play issues aren’t prospects for new positions under my rules because the parabolic sar phase doesn’t match the price-channel phase.

To accommodate the analytical change, the way the Watchlist is posted must also change.

Previously, the Watchlist was pasted as Bull Watchlist and Bear Watchlist.

Under the new system, there are three files: Top Prospects (which covers both bull and bear phase issues), Bull Worksheet and Bear Worksheet.

Read the full Trading Guide to see how the entire system fits together.

I'll post the three files immediately after this note, with additions and deletions based on my weekend scans.

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