Stock Picks | Swing/position Trading Techniques - Ideas Share

DamianB

19th Mar '21

So you want to find value stocks, showing momentum, then buy a pullback.

First of all, define your time frame.

Perhaps don't use Stockopedia M to find momentum stocks for swing trading. Make your own simpler definition of momentum, rank stocks using that definition. The Screener here provides a few simple alternatives for this.

Then consider "what does value mean in the context of the market I am operating in, and do large participants care about value right now or not?" Example, the context difference between value ranking of Nasdaq stocks v.s value rankings on Tokyo Stock Exchange. And then the temporal difference in that context between now and 6 months ago. The global equity market is a shape-shifting beast. That's different to dynamic or volatile. It is shape-shifting. You need to be acting in a context where value is both genuine, and in demand by market participants. Otherwise, your metrics of value wont add anything to your success. Value in Japan was ignored for all of 2020.

As for buying pullbacks: good on you! You will be buying from all the stop loss sellers who bought the highs on a breakout that failed. And those sellers will be thinking "why am I hitting my stop loss now, this is where I should be buying!". And they are right (and wrong). On the flip side, get ready to miss many good moves that don't pullback, and also to capturing nearly every bad move. That is the nature of buying pullbacks. And it can really hurt when the entire market falls for a few weeks. Always run a stop loss. And use Fixed Fractional Position Sizing. Buying a break out is a very good method, but you have to be very good at it. Buy pullbacks, it can give you so much breathing space around your entry, and you know pretty quickly if you are wrong, and that wrong-ness will be meaningful.

My honest practical opinion: who cares about anything other than pure momentum and pullbacks. For the time-being, forget value if you want to purely swing trade. Just trade price, who cares why it is moving.

Rather than Value, maybe consider Growth: earnings and/or sales growth to find in-demand stocks with strong bid depth waiting under the pullbacks. But growth is not so easy to screen for (IMO). Yet it sound great: swing trade high momo stocks that are clearly growing their business. But will all that extra work really produce better results? Or will you just miss out on great trading stocks because they don't have good growth fundamentals? With time these factors (Value or Growth) will improve your momentum, swing trading performance, so develop the skill, but don't count on it from day one. I still don't have the skill (of using Value or Growth productively to improve performance), but am pretty new to stocks. I'm an old FX and futures guy.

Maybe screen for stocks that are showing momentum from long periods of chronic relative price underperformance. This is different to being under-valued from a financial valuation perspective, but often related. Who cares why it moves: if it moves aggressively out of that dead neglect, it goes on your trading list for a pullback. I entered PACB from the 6's. Take a look at it. There was a very good reason why it moved, but no screening for value nor financials would have put it on your list, relative to other companies.

My alternate opinion: if you want to swing trade, do so on a basket of reasonably unrelated commodities and currencies (I trade a basket of 9, any more and it becomes less productive). I am buying pullbacks 24 hours a day. But I don't even watch the market, just leave orders at my levels and ignore. Or just select a small number of active stocks and look for swings from them. In which case filter for pure momentum, but not too much momentum. And just the right amount of volatility, the sweet spot. And if using daily or weekly bars... use a market which is not in your time zone so you make/lose your money while asleep, and do all your process and prep during your daylight when the mkt is shut. Trust me, remove your emotions, watching the market seldom helps, unless you have the right personality (most of us don't. I don't, and I have been exposed to a fair bit of live realtime floor trading when that existed). Use daylight to focus on process. Let the market take care of itself.

As for buying pullbacks to old resistance that becomes support: do it!!! :)

You can do it, and in swing trading it can greatly increase your expectancy as it allows you to trail your stop to break even really fast. 50%+ will be losers, but you will win overall if other parameters of position management are correct. In my (non-stock) swing trading I have a 50% win rate and 2:1 average win to average loss ratio. Entering on pullbacks is part of this success.

NOTE: I can show you 100's of charts where I got the pullback and then got steamrolled to my stop loss. What follows is some cherry picking from the last month: stocks only, weekly charts. These are not part of my swing trading operation, but entry positioning in stocks for 6-12 months.

Here is a weekly chart of a Japanese stock. I had a bid at the finger tip - see where R becomes S? +25% in 3 weeks. And this is literally the insignificant early phase of a new position. I could break even, or hold more a year and +400%. Right click and open chart in new tab for a bigger image.

Here is another, I missed the first one-bar PB, but look at where old R becomes S. Weekly chart - look at the high of the week in late June v.s low of the big red pullback week after the big break out. I bought the next pullback at the finger tip. Up 35% and the move hasn't even started. v.s the recent high. Sure looks like it will pop again the way it is coiling tighter like that.

Another, Resistance from Oct and Nov become Support in Feb 2021, where I bought at the finger tip. +23%. Really nice "shake out before the breakout" at the finger tip! Again, this hasn't even begun, just the opening move.

Australian stock, one stage up 80%, entry at finger tip. A matured position that is well underway. Bit lumpy for my liking though. Yet lots of R becomes S opportunities to pyramid. Every pullback has found support at old resistance.

US stock, held for 6 months. Was up 150% from the finger tip, didn't quite hit my target, but so close! I closed the position in that recent big red pull back for 120%. I was greedy, and paid the price.

You can do it.

Swing/position trading techniques - ideas share

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RobianoPhilipini

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