Textbook Example of Momentum:
In my very first “Rip or Explode” post, I cited Dr Pepper Snapple Group Inc. [[DPS]] as a stock that worked well, we just missed the entry.
Today DPS showed up on my scan again:
This is a textbook example of what I like to see out of the “Rip or Explode” scan that I post, and quite a few end up exhibiting similar momentum. Â The challenge is twofold: get the right stock, and manage the exit. Â Had I entered on the first entry (which is what I prefer), there’s no telling I would have held this long. Â This is why to capture to extra momentum, you would want to set a trailing stop. Â I sell automatically when I’m up 15-25% percent, but depending on the size of the position, I will trail with a stop, and you can see why.
Take [[HSNI]] , highlighted in the same post as DPS, except that this one did have a valid entry:
And look at it now, up 33% from entry in less than 2 weeks:
This is what you most ideally want to see from the list.
Now, compare this to some other picks from last week:
Greenlight Capital Re, Ltd. [[GLRE]] : Still above support so I’m giving it a chance, but the stop is tighter because based on pattern it should be popping here.
[[AHD]] : This stock had strong resistance at 7:30 which it could not break. Â The selling has been light on this pullback, but like GLRE, when a stock doesn’t fit to the pattern you have to be cautious.
Crosstex Energy, Inc. [[XTXI]] : This one looks better than AHD to me, but they are both in similar patters in the same sector, so they will probably trade the same.
All of these stocks are slightly weaker than I like them, but still in their uptrend. Â Since the market is overbought and these stocks have underperformed over this time, you would expect them show what they’re made of now, or they will sell-off.
XTXI and AHD are still up from entry, while [[LIWA]] and GLRE are down a couple percent from entry.
All told, the small gains and losses on these so-far “failed” trades is +/- 0-8%, compared with gains of +20% on the winners.
Good stuff.
thanks Fly
clear, well presented and helpful– thx Danny!
glad it was helpful Lindsay
Hey Danny,
You ever try to figure out if you could find an algo for some of these types of moves? Similar to Woodshedder’s system but for breakouts?
I do have an algo I made, that’s why the entry bar is green, and each day I could automatically generate the whole list (usually there are ~40), but as far as high quality candidates that would be impossible to fully automate, it needs human parsing. Each day there are only 0-5 stocks that work, and thats before assessing mkt conditions. What if a stock pops because of cramer? or barrons? Those infrequently go on to make the moves I am looking for, so I look at sector strength, and the chart. That’s why if you look at AHD, you wouldnt enter on the first green signal, the chart was parabolic from 3-7. But, the second signal, even though it’s been a dud so far, if good.
but the “mental algo” is easy.
Market conditions…conducive to breakouts?
if yes…
1. Obtain list
2. secondary sort for float and sector conditions and catalyst – find top few candidates
3. consider risk
4. enter
–>stop out/sell
—>watch stock explode, joy
nice blog too
Danny, can you code a ranking mechanism or algo? If you are getting 40 picks, you need an objective ranking criteria. Hell, it could be something as simple as volume (ranking highest those with most volume) or you could use something more specific such as % below a moving average (if you are trying to buy pullbacks, then the top ranked pullback would be farthest beneath moving average).
yeah, I have a ranking system, but it has to do with the chart pattern as well, which you cant rank. And this strategy buys the close of the breakout bar, so it is not buying a dip. I would add to a position though if it was strong for me and entered into another short consolidation phase.