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Author: Prestone Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 36686  
Subject: Re: The Set-up... Date: 3/15/2008 4:37 AM
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"The Set-up". What is your favorite?

A 2 or 3 day pullback on declining volume from a 20 day high. Should have a minimum of $1MM per day in $volume. Prefer stocks over $7-$8 per share.

And does it change with the trend of the overall market?

Well, market and sector. If both are in an IT UT, then its a go. If Market is in a sideways channel and sector is in IT UT, then it is a go. If both are in a sideways channel then only the most absolutely perfect patterns are taken.

Market in DT, then the entry is reversed for shorts.

Trend is based on Sperandeo 1-2-3. If 3 is not there yet, then no purchase. (Except when I get greedy and take the position early, which more often than not results in a losing position ... and I have given myself another lesson repeated until it is learned situation)

ENTRY

Buy the first daily higher high. Volume will make the buy decision subjective. The close of the previous bar can also make it subjective. It is strongly preferred that the previous bar closed in the upper half.

EXIT

The exit is nearly all subjective. I will trail a stop up, but I have normally closed the postion before it is hit.

With this pattern I have traded it long enough and studied my results enough that I have a time stop for the first day or two of the trade. My expectation is that the stock will move within 24 hours of the purchase. If it does not it is usually sold for the small loss or gain wherever it happens to be. I have traded the set up hundreds of times and know the expectations.

There are a few reasons for that. I size my positions to 1/6 to 1/8 of my account size. If I am getting a lot of looks at good charts that are available, then it is not cost prohibitive to have my money sitting around in a stock that is not moving. It is opportunity cost. When I started out, I lost more money by not getting out of one stock and into another because it seemed like a waste of money on the commissions. When that next position nets me a nickel then it is all paid for.

When the stock does continue its expectation I then move along with the next expection of the pattern. An upswing will usually net three days. Based on how much conviction there is to the upswing I will sell the morning of day 3 or hold. Holding will be moving the stop up continually and giving it room for one more 2-3 day consolidation before the next upswing. The second and third upswing are much less reliable than the initial upswing.

Position Size

1/6 to 1/8 of account. I used to do the calculations based on risk and ISP, but over time I realized that I was not letting the stock drop to that ISP anyways. My stops are tight. Rule #1 is always repeated outloud when ever I start to question the position. Preservation of Capital

No indicators, just KISS.

Once you determine your set-up then it becomes the easiest part of the trade. Position sizing comes next as you have to come to the realization that different types of stops may be better for different types of set-ups. You have to find out what is right for you. Once you get that figured out then the Position sizing is easy. The selling part is the hard part, that is where you make your money and deal with emotions and bias. I dont know if that part ever gets easy. I like to think that I have eliminated a lot of emotion and bias from the sell, but I still have work to do. Which leads to another top rule repeated often. Dont look back in a wishful manner, it will skew current and future results

Prestone
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