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Rules – Trade Plan – Technical indicators (Moving Averages)

QuestionsCategory: QuestionsRules – Trade Plan – Technical indicators (Moving Averages)
Eskandar Bakhtiar asked 2 years ago

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2 Answers
Pat Walker Staff answered 2 years ago

Good evening Alex!
Welcome to the team!  My goal is to help speed up the learning curve any way I can and help people make more money with less risk.
How? Rules, Systems, Tactics.  To answer your second question, you are correct. Those are the moving averages we use. I do NOT use the 100 SMA.
Yes, we use them on all time frames. I focus on daily, weekly, hourly, 30 minute. For entry I look at the daily. Then as the stock approaches the pivot I look at the 30 minute and our hourly to see volume confirmation. I really want volume coming in as it approaches the pivot price. If there is No volume confirmation, I probably won’t buy it.
Rankings are based on a number of factors, predominantly six-month price performance. If you watch the IBD’s industry group rankings closely enough, catch the move early, and identify the strongest stocks in the industry, you have a clear advantage in taking action near the onset of an industry rally.
The majority of leading stocks generally rise from leading industries. IBD research shows that 37% of a leading stock price movement is directly tied to the performance of the stock’s industry group. Another 12% owes to the strength of the overall sector. (A sector is a collection of related industry groups. IBD collects its 197 groups into 33 sectors, which it tracks and ranks in its Smart NYSE & Nasdaq Tables.)
Overall, this means nearly 50% of a leading stock price performance is linked to its industry and its sector. Learning to track those sources of strength is simple, but it requires a little practice.
The 90/40/45/10 list is a combination of 4 screens. These screens were developed through years of research and testing.

  • The 90 represents a list compiled from a screen that contains 90 EPS Rank or higher.
    90 Relative Strength Rank or higher. 90 Composite Rank or higher.  (Min and Max volume constraints are also components)
  • The 40 represents a list compiled from a screen that contains a Minimum of 40% Earnings last quarter. (Min and Max volume constraints are also components)
  • The 45 represents a list compiled from a screen that contains a Minimum Average Sales of 45% for the Recent TWO quarters. (Min and Max volume constraints are also components)
  • The 10 represents a list compiled from a screen that contains stocks in the Top 10 Groups. (Min and Max volume constraints are also components)
  • All Four screens are run and the results are combined into a Single Master List. That Master List is then sorted first by Group Rank and second by percentage off 52-week highs.

This “combination list” catches nearly EVERYTHING with the potential to make us money.
The 40/45 List is a compilation of two separate screens.  The criteria was determined through extensive research.  Research, as you may know, is the combination of experience and perspiration resulting in applicable Wisdom.

  • The 40 comes from a screen that keys on stocks over $12.
  • Trades over 200K average daily volume
  • Is above the 50 day simply moving average
  • Last quarter earnings up a minimum of 40%
  • Price is within 15% of 52 week highs
  • Accumulation/Distribution of A, B, C, D along with other proprietary criteria
  • The 45 represents a screen that possesses all the constraints of the 40 screen, but with 1 variable: Instead of 40% earnings last quarter, we filter for the last 2-quarter’s sales up a minimum of 45% Average.

Investment Strategies and Tactics
To achieve goals one must have stringent criteria, systems and tactics.  This investment method takes a “top-down” approach.  The method is a culmination of over three decades of research, testing, analysis along with conversations with some of the highest-skilled investors in the United States.
Specific Tactics:

  1. Analysis of the 3 major indexes. Above/Below 8/21/50 moving averages?
  2. Analysis of industry groups and specific sectors. 40% – 50% of a stock price movement is related to the industry group and sector in which it resides.  Focus on stocks in the Top 10-20 out of the 197 industry groups.
  3. Fundamental/Technical characteristics of stocks in these leading groups:
    • Over $8.00
    • Is above 8/21/50 day moving averages
    • Is currently with 15% of 52-week highs
    • Look for “franchise leaders” in their field(s). (e.g. Amazon, Facebook, Google, Netflix)
    • Prefer stocks with EITHER last quarter’s earnings or sales greater than 40%
    • Prefer stocks with positive annual earnings estimates
  4. Analyze charts for specific low-risk entry points. Volume should rise substantially when advancing through entry point. (30% or higher increase in average daily volume)
  5. A specific entry point will yield a low-risk exit point to sell to limit losses. Limit losses to 5% or LESS.
  6. Never invest more than 15% – 20% of capital in any issue.
  7. Take partial profits as stock advances. (10% – 20% of amounts invested)
  8. Raise stops as stocks advance in price. Use trailing stops.  Price should remain above 8/21 moving averages.
  9. Never allow a 20% profit to turn into a loss.
  10. NEVER take an initial position before an earnings release.
  11. Overall, avoid most biotechnology stocks due to “news event” risks.

I know this is a lot of information. But it is all relevant! We talk about these items in the VIP Twitter Feed constantly. I am also an IBD Meetup co-leader and bring up CANSLIM pointers all the time.
I hope this helps. Keep asking questions! BTW, I’ll sum all this up for you in a couple sentences…
We key on leading groups and the leading stocks in those groups. We key on SIMPLE chart patterns everyone can see. We look for volume surges when we buy. We ride trends. We take some profits on the way up. We limit losses. We don’t force trades. We stay disciplined and focused. We turn off the news.
Again, I know this is a lot. But you’ll get this down. I’m there to help!
Thank you for being part of the team!
Pat Walker

Eskandar Bakhtiar answered 2 years ago

Many thanks Pat.