-
Website
http://blog.afraidtotrade.com/ -
Original page
http://blog.afraidtotrade.com/how-to-find-strong-stocks-using-prophetnet-scans/ -
Subscribe
All Comments -
Community
-
-
Top Commenters
-
Popular Threads
All Comments
Thank so much for sharing your ideas with us. I am currently reading Peter Navarro's When the market moves, will you be ready? --- and I can see how it ties in with the sector analysis you presented here with prophet.net. This is certainly helpful. Do you use this set up for swing trading or for longer term position trading?
Thanks, Joe
I highly recommend Peter Navarro's book (mentioned above AND "If It's Raining in Brazil, Buy Starbucks) as I have mentioned it a few times on my site. "Raining in Brazil" is absolutely the best reference I have found that does not bog you down in immense detail - what I'm saying is that it's readable and understandable and applicable. "Market Moves... Be Ready" is a condensed version of the "Brazil" book with distilled, actionable information.
I do monthly analyses to try to determine where we are in the Sector Rotation Model and try to place our location the general market environment (in terms of interest rates, inflation, and business cycle analysis), but I also use it to anticipate developing trends and avoid certain areas.
If I see a technical breakout from a base in a stock in a sector I expect should be coming into favor, I'm much more confident in my decision to enter and play for a larger target (or even a small swing target) than if I see a random technical breakout. Having a reason for a potential breakout adds to my confidence level and have served me well in my trading.
I do generate swing trade candidates from the model that have been successful (high win % creating a 'knowledge edge') but I also use the knowledge for the accounts I don't touch much - like my retirement account. When I feel like we're peaking, I move a larger percent into bonds and when I feel like we're bottoming, I tend to move back into the market. Such cycles tend to last 3 - 5 years. I've not been the best timer, but for long-term returns, I've done well. I personally don't keep long term positions in my active trading accounts.
Navarro's work is actually designed for active investors with timeframes of many months to years for their positions and work very well in a tax-free account like a Roth-IRA in my opinion.
Thank you for your comment.
Thanks for your comments. I currently have simple sector rotation models that are designed for position trading. I am still struggling with developing a short-term trading system that actually is outperforming my longer term systems consistently and worth the increased amount of work. I still have some homework to do. For my longer term systems, I only need to watch moving averages and relative performances once a week. They consistently outperform the index and I can do it in two hours per week. When I look at swing trading systems, I am confronted with a myriad of technical indicators and it's all horribly discretionary. This makes me truly "afraid to trade".
Would you currently consider Prophet.nets industry group "grocery stores" as one of your candidates with money inflow or are they already ranked too high (#24)?
Thanks, Joe
I'm with you. I don't do a lot of long term trading to be honest, but what's simple tends to work in terms of simple indicators and looking back on a chart. I don't have the guts to 'trade' long term but it absolutely can reduce risk and stress by making fewer decisions and reaping better results. I like to mitigate risk through active trading - but maybe it's not a numbers thing but something more that fits my preference, personality, and risk profile.
Believe me, if I could jump to a longer time frame and be more successful, I would. But trading and learning and teaching are my passion and I wouldn't be able to have as much fun (so to speak) if I wasn't as active in my trading decisions. That's just me though.
Regarding the Grocery Store Industry, I almost used that as my graphic example in the post above but decided against it because it wasn't a smooth enough money flow. It was erratic in that it started at 1 on the far right, moved very rapidly to 50 to 70 back to 50 and now sits at 87. This type of erratic movement (in terms of percentiles) is common for industries with few stocks (the 24 you mention actually refers to how many stocks are in the industry group, not their ranking).
Their rank is currently 84, meaning they are in the 84th percentile of stocks in terms of relative strength/money flow.
That certainly means there's room to grow, and stocks that are strong tend to get stronger in the short term and there appears to be upside potential if the trend continues so I would not rule out this industry group, but it comprises such a small number of stocks and the money flow situation is more erratic than I would like. Erratic is ok, it just means potentially more risk.
As a bonus, stocks that are in uptrends from the Grocery Store industry that warrant further attention include Kroger (KR) and Supervalue (SVU). Wynn Dixie (WNN) is making new highs and has broken out (it was earnings driven). Whole Foods Inc (WFMI) - which I have been watching/following for about two years - is making new lows and is being pummeled (it's a higher-end store).
Thanks Joe!
One can see the results themselves just as you mentioned. Stocks that are in the 90th or better percentile tend to remain there a bit longer than pure chance. There's various reasons for this phenomenon and various strategies to profit from them no matter what the reasons.
Thank you for the comment and compliment!