Trading The Trend - Two Under The Radar Breakout Plays

17th Apr '20 by Michael Taylor

35 comments 5623 reads

Lockdown continues – and hopefully the volatility too. For the last few weeks, I have seen only my screens, my gym, and my bed. Last week’s highlight of AA. carried on rising nicely, and other stocks have been moving quickly too.

I also made some progress on finding stocks that may be worth going long on even in a falling market. Mainly because one of them showed themselves to me in the form of an RNS.

The hour between 07:00 and 08:00 is the most important hour of a trader’s day. This is when the RNS feed begins running, and the trading day properly begins. Results, trading updates, contract wins, bookbuilds and placings, and directorate changes all begin to appear. Many of these contain tradeable information.

I make it my goal to eyeball every company name and title of the announcement, in order to quickly make a judgement whether it is worth opening. If it is – and the information contains something that may move the price – I write it down and continue my search.

Once I have various RNSs, I then plan my trades. For example, Learning Technologies (LTG) announced a good RNS yesterday stating that the “Current financial year has started well and is in line with management expectations; we have not yet seen a material impact from the ongoing COVID-19 outbreak on our performance”.

Looking at the chart, there was plenty of supply in the market the previous day. It was possible that the market had priced in a downturn and so this news could mean a potential rebound was on the cards.

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Unfortunately, in the early minutes of trading selling pressure pushed the initial rise back, and there were plenty of AT trades selling – so I hit the bid and took the loss.

The price continued to slide, and this is a good example of why cutting losses quickly is a good trading skill to have. The first cut is always the cheapest. I don’t have a problem selling, because I can always get back in. Holding a loser because you want to get back to breakeven is ego trading.

Another reason why getting into the habit of keeping up to date with RNS announcements is because you build your own mental database of stocks. You get to know…

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Kpc26

18th Apr '20

it stands for regulatory news service

jmallin1972

19th Apr '20

What's the best place to read or service to subscribe to receive the daily RNS?

bryans1311

London Stock Exchange’s own site

https://www.londonstockexchange.com/exchange/news/market-news/market-news-home.html

Investegate used to have a good site that categorises into RNS type, but has become unreliable in the past year.

HumourMe

Mark mainly copied and adapted his from Weinstein or O'Neill - whoever came first.

Both published in 1988. O'Neills CANSLIM has fundies as well as a lot more similarities, so I assume O'Neil was the bigger influence. However, in his first book Minervini mentions meeting Weinstein and gaining his understanding of 'Stage 2' from him (p64). Weinstein is much more dismissive of fundamentals. Both CANSLIM and Minervini think that these can weight the probabilities. So who knows? Dead heat?

andyd

20th Apr '20

http://thepatternsite.com/Stag...

mcfly46

I think it’s re mark minnervini’s work

Oh didn’t see earlier reply , clearly he adopted it!

Michael Taylor

21st Apr '20

Thank you Sharesurfer!

Thanks Nursemaid - yes, none of the stocks I talk about are tips but my ideas only.

It's curious that both books came out in 1988 when both books use the four stages and are very similar. Perhaps we'll never know for sure!

Andy - AT trades are Automatic Trades. You can see them on a Level 2 screen. It's when a buyer or seller is matched on the electronic order book.

Anyone can place an order on the orderbook using a broker that offers DMA or Direct Market Access. I use IG Index for this. My initial buy point on IGP was on the trading update by the bell, and I added some more when the gap had closed. It's not a large position for me as liquidity is an issue (you don't want to holding too much of a stock that trades infrequently). Re my stop, I tend to watch how market makers act on L2 and so I don't have a stop actually in the market. They might decide to shake the tree and flush me out. Rather, I want to see the trades printed and how the stock is acting. I realise this isn't an exact step-by-step method but sadly one doesn't exist. My stop would typically be around 15% on a stock like this because of the spread needing to be taken into account. On SETS stocks where getting in and out isn't an issue it's much lower.

If a stock is acting right and advancing, I will average up into a position. Averaging down isn't something I do unless I am staggering in an entry on purpose. The 55p area was the price of the last support as you say!

Thanks for your comment, and yes I agree money management and keeping risk in check matters way more than what stock to buy. Whilst you're only as good as the stocks you trade (the best trader in the world won't make any money on a stock that doesn't move), managing your money means you can stay in the game.

Good evening Tony - thank you. I think there are a lot of traders who base their decisions on technical analysis, but our community tends to be one of investors which is a different skill set and one which I lack depth in.

As I mentioned below, I'd recommend reading these books:

Mark Minervini: Trade Like a Stock Market Wizard
Mark Minervini: Think & Trade Like a Champion
Stan Weinstein: Secrets For Profiting in Bull and Bear Markets
William O'Neill: How To Make Money in Stocks

Great to hear Scarlet! You might find my breakout guide useful from my website, as I've outlined how I trade breakouts on the LSE market (I don't trade US stocks yet).

22nd Apr '20

Hi GN - yes, shares like this are illiquid and to trade you can't deal in huge size.

I mostly trade SETSqx stocks with my phone brokers because at least then you're guaranteed to get NMS plus the MM will deal several times over NMS because they want to keep favour with the broker.

I take my holdings above NMS as I can always chunk the order if I have to.

These shares move more but you have to position size less. Ideally, I'm looking for a larger move with IGP as you can't scalp a stock like this as you'll get impaled by the spread!

Simon Rowan

24th Apr '20

Whats wrong with right here? If you use the folio facility with your stock in it. its tailor made.

So it hit your £2.75 target yesterday Michael. Very nearly bought, but held off as it raced to £2.90. Good little trick that of mm's and then the placing news this morning at £2.40. Why they didn't do the placing overnight like everybody else I can't imagine. £2.5 million doesn't strike me as a huge war chest if that is their intention. They have said it is the directors intention to take part in the placing up to £250,000. All very specific. Gone are the days when company solicitors advised 'saying as little as possible and preferably nothing.' Think I'll hang on now to see how close to the placing price the sp gets.

Rusty2

Thanks for that info. I don't hold any at the moment but I'm considering. I notice there was a director sale today at Learning Technologies (LON:LTG), also an option was sold, are you comfortable about these?

Shearwater (LON:SWG) placement at 240p, could have been better priced? Will watch the share price movement next week.

pobby

I guess the positive with Shearwater (LON:SWG) fundraise is they were looking to raise a minimum gross proceeds of approximately £2.5m and have ended up with £3.75 million (before expenses).

The Phoenix

27th Apr '20

Thanks for the reply re AT trades Michael makes sense now when you see an R is that indicating a retail investor trade going through a market maker ?

Also I have noticed when commenting on some of your set up you mention the price moved up and I noticed AT trades coming in just wondered if there was any relevance to that comment that you use to read into the stock movement ie do you place more value on AT trades going through over R trades assuming my thoughts on R trades are correct ?

Thanks again for taking the time to share your knowledge here

john652

28th Apr '20

Hello Micheal,

Very interesting thread and I'll be reading your website and articles there, which may answer my questions, however if you wouldn't mind answering here:

Do IG provide the level two for you & do you have to pay for it?

Do you use trephine broker to buy & sell your position, or online when selling, or always phone?

I think, you are buying physical stock, so no leverage, why do you not use spreadbetting or CFD's, or do you ?

If you don't use set steps, are you watching the screen the whole time you have the trade on?

Thankyou Micheal

Trading the Trend - two under the radar breakout plays

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Michael Taylor

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