The Motley Fool Discussion Boards

Previous Page

International Investing / Australia (All-Ordinaries)


Subject:  Nukejohn Date:  3/2/2002  9:48 PM
Author:  harmy Number:  3713 of 6186

Chris and Others
This explains Nukejohns strategy a little clearer from the DrAlex post.
The DrAlex post should have come after this one because the DrAlex post backtests Nukejohns strategy.
It certainly works for me and has made money for me - for that I'm grateful !!

My TA System is relatively simple. I look first for stocks that I think are good solid companies (I stayed away from the dot coms with no earnings and little prospects for earnings) with some type of unique competitive advantage with product(s) or in their market that has the potential to grow at least 20-25% in the future (not necessarily Gorilla's or Kings, but at least the potential to become them). This leads me primarily to technology stocks, but my system works for stocks in any industry.

I diversify, by limiting any initial purchase to a maximum of 10% of my portfolio. I also use strict stop loss orders on longs and shorts.

After I have my watch lists, I follow the charts. I wait until a stock which has been below it's 50 day EMA, breaks out at least 3% above the 50 day EMA. Then it must also have a positive MACD, and a rising RSI over the past 30 days. It also must have volume at least 40% above the average daily volume for the stock. If all these criteria are met (on the same day), then I will buy the stock when it meets all these criteria. I'll buy intraday as long as the volume appears it will be over the 140% of the ADV based on prorata time the market has been open. For example if a stock has an ADV of 1,000,000 shares, to have a breakout, my system requires 1,400,000 shares of volume for that day. If 2 hours into the day 550,000 shares have traded (that would correspond to 1.79 million shares for the day), I would go ahead and buy (if the other three tests are met.

For example, the TA system I developed spotted a buy signal for RedHat (RHAT) on October 11th at $3.85. My system requires that a stock rise 3% above it's 50 day EMA, has a positive MACD, a rising RSI over the past month, and a volume at least 40% above the average daily volume. As you can see from this link, that occurred on Oct. 11th, where I should have bought at $3.85 (I was not following RHAT at that time).,r14,v&p=e50&t=3m&l=on&z=m&q=l

Once you purchase, you must immediately enter a stop loss order. For stocks with a beta of 1.00 or less, I use 8% for my S/L order. For stocks with a beta between 1.01 and 1.4, I use a 10% stop loss order and for stocks above 1.4 I use 12% for the stop loss. As the stock increases, I adjust my stop loss order.

Once a stock has a 15% gain from where I purchased it, I start adjusting my stop losses upward, based on each new closing high. For example, when RHAT hit $4.37 (15% above 3.85) on Oct. 25th I raise the stop loss to $3.85 (12% below 4.37). On Oct 26th when it closed at 4.88, I raised the stop loss to 4.29.

See how it works. You will probably get stopped out about 30% - 40% of the time for a loss, but the losses will be small losses (no more than .8% - 1.2% of your portfolio). But you let your winners ride, at least until they start falling back... then you sell them, when they hit your stop loss.

When a stock that is above it's 50 day EMA falls back to it's stop loss, and I sell, I will still watch the stock and if it turns around and heads back up, and still has a positive MACD, a rising RSI and 40% above ADV, then I will buy it back, and use the same stop loss %'s.

Try this on CREE (my buy signal on CREE was 11/8 at 20.75).,r14,v&p=e50&t=3m&l=on&z=m&q=l

Look at others such as AVNX, JDSU, AMCC, etc.

Try my system out on few stocks. What is so great about it is that it keeps you in when the stocks are above the 50 day EMA and rising and out when they are below the 50 day EMA. It will also let you avoid some dips even when you are above the 50 day EMA.

One more example is MCDT.,r14,v&p=e50&t=3m&l=on&z=m&q=l

With my system, the buy signal came on Oct. 25th, where I bought at 14.25. That was the first day that all 4 of my prerequisites were met.

Here's a table of MCDT prices

I bought on Oct. 25th at 14.25. I set a 12% stop loss order at 12.54 when I placed the order. The stock closed the day at 16.40 (slightly more than 15% above where I bought it, so I adjusted my S/L to 14.43 on Oct 26th. When the stock closed at 17.06 on Nov 1, I moved my S/L up to 15.01, and on Nov. 7 it closed at 19.00 so on Nov. 8 I raised my S/L to 16.72. When the stock closed at 23.60 on Nov 19th, I raised my S/L to 20.77. I got stopped out at the opening on Nov 21st at 20.68. On Nov 27th I bought it back at $24.00 (all four indicators were again positive) and entered a S/L of 21.12. I raised my S/L 's again on Nov 29, Nov 30 and Dec4 as a result of new high closes. Today, MCDT closed at 29.90, so tomorrow I will adjust my S/L to 26.31 (12% below the highest close. Okay, now do you see how it works.

One more thing. The beauty of a system like this is that it will keep you in stocks when they are rising. For example, my system would have had you in QCOM starting in Jan 1999 and you would have stayed in for almost all of 1999, taking you from $7 or so a share to about $150. But it would have had you out of the stock when it was falling.

Let me know what you think.


Copyright 1996-2022 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us