Tuesday, April 5, 2011


Beginning today I'll be transitioning my analysis to a greater focus on new breakouts and immediate trading decisions, rather than tracking existing bull and bear phases from past days, weeks and months.

Long-time readers will know that Private Trader has always been a workbench, a place to try out new things, and to change them based on how they work out. Private Trader is a conversation, not a product.

I discussed two methods of selecting trades out of all the possibilities in a posting over the weekend. In terms of that discussion, I've settled on Method 2.

Here's the short version:

a) I choose trades that are new breakouts. That means I'll have a chance to ride more of the trend than would otherwise be the case.

b) From among the new breakouts, I throw out any that will be announcing earnings in the next 30 days.

c) I score the remaining breakouts, favoring higher volume, a stronger trend as measured by the average directional index, and higher volatility as measured by the average true range as a percentage of price.

I have several reasons for making the change.

One is that the present bull trend in the broad markets has produced more bull-phase stocks than I can comfortably track. I think it's better to spend my time scanning for new possibilities rather than keeping track of older ones.

Also, I'm not seeing any great advantage in a strong trend, as measured by the average directional index (adx), compared to a weaker one. All potential trades tend to start out with a lower adx, which picks up steam as the trend ages. That's not to say that the strength of the adx is meaningless -- the stronger the better in my book -- but it's not significant enough to justify the effort needed to track potential trades over an extended period.

To support the change in trading practice, I'll be making these changes to my postings.

1) The morning Indicators will continue in the same form. I find it to be a useful device for focusing on the broad state of the markets. It will be posted about 15 to 30 minutes after the opening bell.

2) New breakouts on the current day or the day before will be covered in a posting called Top Prospects. When a stock breaks out, it will be covered once in Top Prospects, but I won't track it thereafter (unless I add it to my portfolio, of course, in which case I'll track it in my private records).

3) I'll expand currency coverage to 29 pairs (from the present 11), but the morning Forex posting will disappear. Instead, I'll cover new breakouts in forex in Top Prospects, along with stocks and exchange-traded funds.

4) My stock scans will focus on highly liquid issues whose options are priced in 1¢ increments. Each day I'll scan through as many liquid possibilities as I can manage seeking new breakouts.

That's it. I've not completely designed the posts yet, so expect a bit of instability today and maybe the rest of this week.

Read a detailed explanation of my channel analysis method, including trading rules. It's available anytime as "How I Trade" from the navbar at the top of any Private Trader page.

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