Stock Market Successful Trading Strategies

Image via Pixabay

Let’s go back two blogs to the one on Stock Trading Stops.  Towards the end of that blog, I talked about a stock – New Flyer Industries (NFI.TO) – and I pointed out that it was my best guess at the time that it was experiencing an Uptrend Continuation Pattern (UCP) – one of my all-time favourite patterns.  Take a look at the chart I posted back then below, after the Table of Contents and Intro and at the start of the Killer Pattern section.

Table of Contents:

Intro
Killer Pattern
(The Real Money Maker)
How I Nailed It
Shameless Brag Time
More UCP on Fire
Coke Loves UCP
Even Gold Loves UCP
Ditto for Detour Gold Corp
More UCP Proof
Strategist of the Year
The Straight Skinny
(How to Pick Stocks)
In the Works
The Great Escape
Some Golden Nuggets
News Junkie
Quotes

(Please click on any link above to go to that section.)

Intro

I have dedicated this blog post to traders of all persuasions – newbies, seasoned veterans, struggling traders, traders making it, etc.  I hope there is something in here for you and traders of all stripes.  Primarily, I have focussed on stock market successful trading strategies and how to choose stocks for beginners (or experienced traders), so that each trade you take represents a safe investment.  You can always contact me, if you have any comments or questions, or if I have you feel that I have left something out.

Killer Pattern
(The Real Money Maker)

Okay, here’s the NFI chart I mentioned at the outset of this blog:

Image via StockCharts.com

Well, I caught the move.  This isn’t BS, some magic potion, or smoke and mirrors.  This was a trade that I took, because I have seen this pattern many times before, and I took the trade with full confidence, and in the knowledge that it would turn out the way it did.  Have a look at my logic at the time of that blog towards the end.

How I Nailed It

Here is what I said in the blog:

1. The Accum/Dist indicator had been trending up – more of the trading volume going to buying than selling.
2. The ADX indicator (see chart below) had a low reading at the time of the trade. Translation:  “Low readings signify the beginning of a trend, a trading range, or a weak trend.”  I chose to interpret this as meaning we were at the beginning of an upward move in price.
3. MACD was neutralizing back to the waterline, which is indicative of an Uptrend Continuation Pattern (UCP, for short).
4. MACD had not yet issued a buy signal. I decided to wait.
5. The Parabolic indicator (see chart below) had not yet indicated a buy situation – wherein price should be above rising green dots.
6. Assuming we were looking at a UCP in the works, then Leg 1 was already in place, as was PEC – to be followed by Leg 2 up, which is usually the same length as Leg 1. MACD and the Parabolic indicator had not yet flashed buy signals.

Shameless Brag Time

As you can see in the chart below, the UCP unfolded just like poetry in motion.  For the record, I have since collapsed this trade, and taken my profit all the way to the bank.

I see this pattern all the time, not just with stocks, but also with currency pairs in the forex market.  Whenever I see one in the works, I just can’t wait to hear the sound of Ka-Ching.  It’s music to my ears.

Now you know why this is one of my favourite stock market successful trading strategies.

Image via StockCharts.com

More UCP on Fire

I couldn’t resist.  Just to show you that the above trade example isn’t a one-off, let’s have a look at the Toronto stock EIF.  An Uptrend Continuation Pattern (UCP) occurred from August to December last year.  See below:

Image via StockCharts.com

Coke Loves UCP

Still don’t believe me?  Even Coca Cola does it.  It doesn’t have to be pretty.  An Uptrend Continuation Pattern (UCP) comes in all different shapes and sizes, but the principles are the same – Leg 1, followed by the Price Equilibrium or Consolidation (PEC) phase, followed by Leg 2 – all the while MACD has neutralized back towards the waterline (or below), and then issued its buy signal by punching up through its trigger line.

Honestly friend, this pattern will make you money time and again.  Just be on the lookout for it, and be prepared to jump in, when MACD issues its buy signal at the end of the PEC phase.  Don’t take my word for it.  Keep your eyes peeled for the evolution of this pattern, no matter what you are trading.

Image via StockCharts.com

In this business, patience is a virtue.  You will be handsomely rewarded, if you can just learn to sit on your hands and wait.

Even Gold Loves UCP

And, even gold got in on the act.  Take Kinross Gold Corp. (K – Toronto), for example, as at April 20/16.  See chart below.  Leg 2 appeared to be still unfolding.  Worthy of mention here is the behaviour of MACD.  You will notice that, contrary to previous examples, MACD is this instance didn’t quite make it back to the waterline.  Not a problem. 

The main take-away here is to catch MACD, when it stops falling, turns around, and then punches up through its trigger line.  That is the buy signal that we’re looking for – regardless of when and where it happens – above the waterline, at the waterline, or below the waterline (the lower the better).  The important thing is the buy signal itself.

You will notice that the buy signal usually occurs just after the Parabolic SAR indicator starts painting its green dots to the upside.  It occurs at the end of the Price Equilibrium or Consolidation (PEC) phase and at the beginning of Leg 2.

Traders only want to know two things:  where price is going and how far.  The beauty of the Uptrend Continuation Pattern (UCP) is you know that Leg 2 is your profit potential.  It unfolds consistently and predictably, as illustrated in the above examples (and more to follow).  It usually is the same length as Leg 1, so there is no mystery as to what your ultimate goal is with price.

On that note, when you are looking to engineer a jumping off point during the formation of Leg 2, don’t wait for the absolute end of that price projection.  Get out three-quarters to two-thirds of the way up the ladder, just to be safe.  Price may not reach its ultimate destination.  And, besides which, leave some on the table for somebody else.

Two further thoughts… as you can see from the charts I have presented here (more to come), no two UCPs look exactly the same.  They are not all pretty.  They are not all Hollywood productions.  They don’t all unfold exactly the same way.  The main thing to keep in mind is to look for the neutralizing of MACD back to the waterline, as a tell-tale sign and the basic evolution of the pattern itself.

Secondly, you should make a habit of constantly looking for stocks (or any other tradable, for that matter) that contain the makings of a UCP.  You don’t need to end up with a big list – just enough to make it worth your while.  At any given moment in time, I am happy if I can count the number of stocks I am following on just one hand.  It’s not quantity… it’s quality.

I am convinced you can make a living just trading the UCP.  KISS.  Focus on just this one thing, and this could very well be your ticket to trading nirvana.  You will find enough stocks (or other tradables) displaying this particular pattern that you won’t have to trouble your head with others.  This will make your life as a trader that much easier.

Now, do you believe me that this is one of my all-time favourite stock market successful trading strategies?

Image via StockCharts.com

Image via StockCharts.com

Ditto for Detour Gold Corp

Image via StockCharts.com

More UCP Proof

Image via StockCharts.com

Image via StockCharts.com

Image via StockCharts.com

Image via StockCharts.com

Image via StockCharts.com

Image via StockCharts.com

Image via StockCharts.com

Strategist of the Year

I am pleased to announce that TradingSmarts has been awarded the ‘Stock Market Investment Strategist of the Year – Canada’ by WealthandFinance-Intl.com. 

And, TradingSmarts has also been confirmed as being shortlisted for Wealth & Finance International’s 2016 Wealth & Money Management Awards.

“The 2016 Fund Awards is looking to recognize and reward the forward-thinking and intuitive professionals from around the world who have worked tirelessly over the last twelve months to provide their investors with strong returns and reduced exposure to volatility.”

If you’re looking for the most successful trading strategies or stock trading strategies that work, you’ve come to the right place.  Or, if you are simply looking for stock trading strategies for beginners, you will find this blog post to be most useful, as well.  Even successful traders in stock market will get something out of this.

The Straight Skinny
(How to Pick Stocks)

Okay, now that you’ve seen one of my favourite stock market successful trading strategies, let’s get right down to how to pick stocks to buy.  Obviously, when you see a UCP unfolding, you want to pay attention.  But, there’s more to trading stocks than just pattern recognition.  And, not all stocks will display such a pattern.  So, what should you do, if that turns out to be the case?  More on that just a little bit later in this post.

I should point out at the outset that I am only interested in picking stocks that are good short-term trading candidates here.  If they turn out to be good long-term holds, so be it.  But, my modus operandi is trading – not investing – at least for purposes of this blog.  I do invest for the long haul, but that is food for another blog at another time.  

I am not going to lie to you.  As with most things in life, there is a certain amount of dog work that goes into picking stocks – or shall I say, homework or research.  I put a lot of time and effort into finding stocks that fit my wheelhouse.  This is not a lazy man’s (or lady’s) business.  After all, this is a business – not a game – and it’s all about preserving capital and making money, plain and simple.

I watch BNN, CNBC, etc., and I read a lot of newspapers.  Mostly, the stocks I come across don’t pass my smell test.  I am very picky when it comes to protecting my money, and I don’t like to take chances with it.

To that end, I have a filter that I use that consists of a number of indicators.  If they don’t line up with a particular stock, I take a pass.  I develop a list of stocks that pass muster, and add to it on a regular basis.  I cycle through that list on a weekly basis – usually at the end of the week, in time for the start of the next trading session on Monday, or the day after a long holiday weekend.

Let’s face it… not all stocks will line up at the same time as trade-ready candidates – based on my indicator profile.  But, that weekly process flushes out two or three stocks that are sure to grab my attention.

When the next trading session opens up the next trading day, I then follow a very precise process.  I don’t look to jump on board right away with any one particular stock.  I check price action on an intraday chart, and I also look at a daily chart to see how each stock is behaving in relation to my indicator screen profile.

Here is the precise process I follow (best trading strategy in stock market):

First of all, I want to make sure I am dealing with the right stocks from a fundamental perspective.  I check Nasdaq.com and MarketWatch.com for earnings beat and analyst ratings (buy or overweight) respectably.  The earnings in the earnings calendar at Nasdaq.com must beat consensus, and MarketWatch must reflect a buy or overweight situation.

Let’s get on with what to look for when picking stocks.

The Steps:

1. On a regular basis, I have my antenna up – adding stocks to my running list of trading candidates. As I said before, these can come from a myriad of sources – newspapers, recommendations (not hot tips), TV (BNN, CNN), tips from reliable sources, etc.  I only include stocks that have been trending up for at least three years, and I only deal with stocks that have a buy or overweight rating according to http://www.marketwatch.com/investing/stock/jblu.  Just substitute your stock pick for jblu in that link, or enter it in the stock symbol box top right at that site, when you get there, and click the green GO button to the right. 
2. I then Google ‘jblu earnings calendar’ (again, you can substitute your stock symbol for jblu), because I want to see what the last or latest earnings were. The first Google result is usually from Nasdaq.com, and that’s where you will find the earnings info.  Here is what the link looks like: http://www.nasdaq.com/earnings/report/jblu.  Just substitute your stock for jblu, and you’re good to go.  The latest earnings better beat the consensus EPS forecast, or that stock is history in my books.  If the next earnings report is just around the corner, you may wish to hold off on your trade, until the new number comes out, just to be safe.  I only want to deal with stocks that beat consensus.  BTW, everything you ever wanted to know about your stock you will find in the top 10 results, as a result of your Google search. 
3. I usually end up with a fairly comprehensive list that serves as my working file requiring further scrutiny (technical analysis) at the end of the week, or thereabouts. The more stocks you end up with on your list, the more likely you will filter out good trading stocks.
4. Now comes the fun. We’re ready to get down, get dirty, and do battle.  Sunday night, when everybody else is watching TV, that’s when I do my homework – getting ready for the next trading day.  Using the StockCharts.com platform, I go through my list of stocks, inputting each symbol into the symbol box, and hitting enter.  This is after I have set up this charting service with the following indicators:  50 EMA, 200 EMA, Parabolic SAR, Slow STO (Stochastics), MACD, and Accum/Distribution Line (Accum stands for accumulation).  Don’t get involved in indicator fascination.  The indicators I just listed are sufficient, and will do the job quite nicely.
5. I only accept stocks from that process that line up as follows: 50 EMA, 200 EMA and price are still trending up after three years (or, at least the bias is still to the upside); Parabolic SAR shows buying pressure; Slow STO is below the waterline (the 50 mark on the scale); MACD is oversold, but trending up (may have already punched up through its trigger line; and, Accum/Dist indicator shows buying pressure.  Or, the situation may be that we are in an Uptrend Continuation Pattern (UCP), and are at the beginning of Leg 2 (see NFI.TO example at the beginning of this blog post) – in which case, we are looking for an entry point, after MACD has neutralized back towards the waterline or further down, and has punched up through its trigger line.  We would also want to see Parabolic SAR and Accum/Dist indicators show buying pressure.
6. Now we are ready for the next trading session on Monday with the stocks that came out of the above process. It’s not necessary to start monitoring each stock right at the market open.  I usually like to take a trade towards the end of the trading session.  That way, you can see how each stock behaved throughout the day, and how it is going to close.
7. I monitor each stock on two platforms – StockCharts.com (ex.:  byd/un.to) and BigCharts.com (ex.:  ca:byd.un).  Notice the different ways of inputting a Canadian stock symbol in those two charting services.  Otherwise, just input the stock symbol for U.S. stocks.  And, lower case or upper lower case will do the job.  I set up StockCharts with the indicators outlined above, and I use BigCharts to monitor intraday activity.  Simply go to BigCharts, type in your symbol, select Interactive Chart, Timeframe, Chart Range (one day), and you’re good to go.  To monitor ongoing intraday activity for any one stock throughout the day, you will have to repeat that process at BigCharts – a slight inconvenience, but it works.  Essentially, what I am looking for at BigCharts is how a stock behaves throughout the trading day.  In other words, does it show strength into the close, or does it fall off.  The main thing I am looking for is a stock that shows strength, even if it falls off but recovers, and even if it falls off going into the close.  Just because a stock closes strong at the close doesn’t mean that strength will follow through the next day.  There could actually be some selling pressure (profit taking) the next day.  But, the stock will recover, because the overall trend is up.  You don’t necessarily have to monitor intraday activity at BigCharts, because the main thing is what StockCharts is telling you about the stock.  You may not get the entry point exactly right (without looking at BigCharts throughout the day), but you will be getting into the stock, based on the parameters I laid out above for StockCharts.  In other words, you are working with a stock that follows my rules above (indicator-wise), and you are now simply waiting for MACD to punch up through its trigger line at StockCharts.  The other indicators must line up too.   
8. When the time comes to pull the trigger on a trade, I do so on my bank’s trading platform. You can trade on the platform of your choice, using their charting service.  Just make sure it allows you to plot the indicators I specified above.  Not all do.  That’s why I use BigCharts and StockCharts together.  My bank’s charts are pretty dismal.  All you want to be able to do is plot my array of indicators, so that you can pick the best entry point, wherever you trade.

I hope this has been instructive in helping you know how to choose good stocks.

In the Works

Here’s an example hot-off-the-press of a stock on my radar screen – a prime candidate for a buy decision:

Image via StockCharts.com

Observe:

1. You should be able to spot the UCP in progress by now. Leg 1 is in place, the PEC phase is underway, and MACD is neutralizing back to the waterline.
2. Slow STO (Stochastics) is way oversold.
3. The two EMAs (50 EMA and 200 EMA) have been trending up steadily for the past four-plus years, and price is currently above both.
4. On balance, the stock is being accumulated (Accum/Dist indicator), and picking up.
5. What we are waiting for now is for MACD (the black line) to issue its buy signal by turning around and punching up through its trigger line (the red line) to signal the commencement of Leg 2 up, which will be approximately the same length as Leg 1. We are also waiting for the Parabolic SAR indicator to start showing buying strength coming in.  This will be in the form of green dots trailing up underneath price.  Right now, they are trailing down above price.

Pretty cool, eh?  Works most of the time.  Ka-Ching!  This just complements what I have been saying all along about how to choose a stock.

Okay, I’m in the mood for just one more example, so bear with me:

Image via StockCharts.com

A picture is worth a thousand words.  I am sure you can see what’s happening in the chart above.  Ta-dah!  Get ready to pull the trigger.

By now, you should have a good feel for how to pick stocks for day trading, how to pick stocks for long term, and how to pick stocks for short term trading.

The Great Escape

Here, I want to discuss getting out of a trade – either to collapse a bad trade, or bank some money.   Please note that I only deal with stocks that are trending up.  I only look to go long – never short.

But first, be sure to check out my previous post on Stock Trading Stops.

Once in a trade, hold your stock as long as MACD is above its trigger line.  When it turns down through its trigger line, that may be a good exit point.  That said, if the 50 EMA is still trending up, you may wish to hold the trade longer, until the 50 EMA flattens out.

Another consideration is to be aware of what the Slow STO (Stochastics) indicator is telling you.  If it is overbought, that too might be a good jumping off point, although an up-trending 50 EMA may again give you pause.

In both situations above, I am assuming you bought the stock when it was weak in an uptrend.  That’s the Golden Rule in trading, and the only way to buy stocks – ‘Buy the Dips in an Uptrend.’  In both cases, you should have bought the stock when both MACD and Slow STO were oversold to some degree.

As just mentioned, I never short a stock, because there are just too many good opportunities to go long with stocks that follow my set-up rules.  Trading is tricky enough, without looking to go long or short.  Enough is enough already.

If we’re talking about a trade you took that didn’t work out for whatever reason, just be done with it, and get out of it.  The same applies where you stock falls off, say by 12%.  Don’t hold it, hoping it will come back.  Again, refer back to my post on Stock Trading Stops.

If you were smart enough to jump on board a stock that is just beginning Leg 2 of a UCP pattern, I would consider taking profit, when price has raised two-thirds-to-three-quarters of the way up Leg 2 – as previously stated.  Don’t be greedy.  Leave some money on the table for somebody else.  Besides which, price may not reach the end of Leg 2, so play it safe.

Some Golden Nuggets

Here are some pointers to keep in mind before pressing enter on a trade:

1.  If you are looking to buy an ETF like XLP, check the underlying stocks that make up the ETF for analyst ratings.  Just do a Google search.  For example, the last time I checked the make-up of XLP most, if not all, underlying stocks were not highly rated by the analysts polled.  So, I took a pass.
2.  In terms of worrying about when the market is going to correct, just remember that it doesn’t usually correct until we have had three rate hikes.  We have only had one.  Two more to go – at least as at May 29/16.
3.  The market itself performs rather poorly during an election year in the U.S. and during the following year.
4.  In advance of an upcoming Fed meeting to decide the next move on rates, keep an eye on VIX at: https://finviz.com/futures_charts.ashx?t=VX&p=d1. 
While you’re at it, you may wish to track the S&P 500 here: https://finviz.com/futures_charts.ashx?t=ES&p=d1. 
VIX usually rises extremely so, when traders anticipate a rate increase.  A rate increase usually unsettles the markets.  If you are buying a stock with a view to holding it for a period of time, you may wish to hold off, if a Fed meeting is just around the corner.  If you are just looking for a quick round trip on a stock (in and out in short order), before the next Fed meeting, that’s a different matter.
5.  In terms of reading MACD’s behaviour, the more oversold it is (preferably below the waterline) the better, before you take a trade.  The main thing is, you would wait for MACD to turn up, and then punch through its trigger line, before taking the trade.  I got caught recently by reacting to MACD’s buy signal above the waterline, which turned out to be a false signal.  It’s not just MACD that you monitor.  There are the other indicators I previously mentioned that also tell their own story, but I thought it important to draw your attention to where MACD’s buy signal takes place.  At, or below the waterline is okay, just as long there is supporting evidence from the other indicators, before you take your trade.

There you have it – one of my favourite stock market successful trading strategies and a roadmap to picking nothing but the best stocks to trade.  You are now primed to take action, so go for it.

If you would like one-on-one coaching with me, that can be arranged here.  Or, if you would just like to contact me, you can do so at the same link.

News Junkie

Hey, before I forget… I publish news pieces most days that you don’t want to miss because, before you know it, I might just announce a stock pick, or comment on where the market is or isn’t going.  You wouldn’t want to be left in the dark, now would you?

Just come back to TradingSmarts on a regular basis with a cup of coffee, and catch the latest at the News link in the row of links towards the bottom of the site.

If you want to contribute a newsworthy piece or two, by all means contact me, and I’ll see if I can fit them in.  Thanks in advance.  I would love to hear from you either way.

Quotes

Jack Welch, the former Chairman of GE recently said:  “If there is more change happening outside your business, than inside your business, the end is near.”  “Keep your eyes and ears open, and embrace change.”  Peter R. Bain

“The greatest losses of all are those from missed opportunities.”  Robert Kiyosaki

“The trend is your friend till the end.”  Carl Icahn

“A rising tide (market) lifts all boats (stocks).”  Warren Buffett

“Consistency… don’t get bored with it.  One night, I looked at all the Fortune 500 companies, and it really dawned on me that NO major creation happens in a short period of time.  To truly accomplish major things, it takes a long time, and consistency is the answer to make that a reality.”
Noah Kagan

“Hang in there, and make it happen.”  Peter R. Bain

“You cannot use yesterday’s ideas for today’s business, and expect to be in business tomorrow.  Be ready to accept and implement change immediately and constantly, as ‘change’ is the only factor that’s constant in the world – everything else keeps changing, and its meaning is all the more true in these highly volatile and ever-changing market scenarios.”  MoneyLine.co.in

In the meantime… if you want to learn about me, check me out here.  And, if you haven’t yet read my previous blogs, you can do so here:  VIX, After Hours Trading, Trading Volume, Stock Trading Stops, and Currency Trading Strategy.

If you would like to help me start a forum and be a moderator, I would love to hear from you.  Just drop me a line using the Contact provision at the bottom of my site.

If you would like to be featured in my blog, I would love to share your success story – or even your trading experience.  Please send me a message using my Contact form at the bottom of this page.

I won’t live long enough to know it all, and I won’t live long enough to make all the mistakes myself.  So, hearing your story will be most helpful not only to me, but also for my other beloved readers.

Please share this post.  Sharing is caring.  Thank you!

I look forward to your articles, feedback, ideas, stories, and suggestions for my blog.  Please post these on my blog at the Contact link below.  

HAVE FUN and ENJOY LIFE!  Remember – FAMILY comes first!

Here’s To Your Success and Quality of Life,

Peter R. Bain
PS:  Don’t let them steal your dreams!
PPS:  I will help you achieve your dreams!

About Peter R. Bain

Peter R. Bain

I am a speaker, trader, writer, aviator, car nut, Harley enthusiast but, above all else, I am here for you at TradingSmarts, which I founded some 15 years ago.

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