Sunday, January 28, 2007

Volume Tells A Story

And the story is usually one with a happy ending if you are willing to listen closely and pay attention. Here are 4 stocks that have enjoyed high levels of institutional buying in the past month. Who can see what common factor is shared by all of these stocks?







That's right, Mary Jane - a huge increase in volume precedes their ascent. Did everyone pick up the Return to 8 set-up on CCF (in case you missed the volume memo)? While it isn't as visually appealing on the other three they each had a pause after their initial run up, a little sideways step, and then a continuation of the climb. For those of you who are really sharp I bet you picked up on that blow-off bottom on CALM between 12/29 - 01/04. You might have wondered what was going on there? We also have a 3-average crossing on CCF and ICAD. That generally says to me - buy me - especially if I see it with this kind of volume. I don't normally scan for stocks in this price range but I can see now that that might be a mistake. I certainly will be looking for volume jumps in this area from here on out.

I obtained these stocks and a bunch more of the same type by using a pre-defined scan over on MSN "Institutional ownership up last month." So if you just want to jump on the 'toot bandwagon you are perfectly welcome to do so.

But instead of using that scan what you might want to do is find a scanner that allows you to look for stocks that are showing a major increase in volume right now and then wait for the pause. As you can see from each of these there will be a pause and a sideways step to the EMA 4 or the 8.

8 comments:

Red Hue said...

Hey Marlyn,

I noticed something else on these charts...something I have tried unsuccessfully to write a scan for...where the market goes sideways into a rising Moving Average...and then takes off as it hits that MA. (usually either a 20 MA or a 50 MA. These seem better because they are usually when the market has briefly dipped...and I think show relative strength as opposed to a real pullback.

Anyone have ideas on this...?

(I use Stockcharts scan engine...somewhat limited...I will take a look at stockfetcher)

Marlyn Trades said...

I use 3 moving averages - the 4, 8 and 21 Exponential. I find them to be the most sensitive of all the MA. Some people use a 5 EMA rather than the 4. I have been working with the gap up method for years where the stock gaps up and then falls back into the 4 or 8 EMA and then rebounds to continue up. That's what I was talking about when I spoke about the "return to 8" set-up that I saw on the CCF.

I use this set-up in day trading quite frequently and write about it frequently as well. It is as applicable on the 4 minute charts as it is on the weekly.

It's good to have another tester on the site - go and have a look at Dogwoods site too - he does some pretty sophisticated scanning using Wealth-Lab.

Red Hue said...

I have started testing a scan where there is a gap up over a hammer bar...close back within the range of the hammer...then subsequent breakout again of the hammer bar...

...I'll check out Dogwoods site...thanks...

...good trading this week!

Dogwood said...

Marlyn,

First, thanks for the plug!

Secondly, in your daytrading, do you use trailing stops or do you just eyeball the trade and sell when/if the stock begins to turn south? Or are you using the Pivot Point methodology only?

I've been looking at your charts, Trader X charts, and at my 20-stock watchlist during the day using the 4, 8 and 21 EMA. I'm seriously considering daytrading using moving averages, which is simply trend following with a short time horizon, but am trying to come up with an effective risk management strategy.

At this point, I am considering using a trailing stop in the 10 to 15 cent range. Given the stocks on my watchlist, this range would seem to provide stocks with enough room, lock in profits during reversals, while not requiring constant supervision.

Do you have any thoughts regarding daytrade stoploss strategies you would care to share?

Thanks.

Marlyn Trades said...

I use a very simple system which is similar to the one you'll read about in John Carter's book - for stocks between 10 and 20 - 20 cents, 20 and 30 - 30 cents and 30 - 40 - 40 cents. I also use mental stops unless I have to go away from my trading station.

My entry and exit points are based on candlestick analysis - when it looks like a top I wait for a confirmation and exit.

TradingGoddess said...

Marlyn,

Get your fingers outta my CALM! I am working that one! Yup! A 2 year cup (or mebbe it's a soup bowl)! Shoo! Be off with ya!

LOL!

Dogwood said...

Thanks! The books should be here Tuesday or Wednesday.

QUALITY STOCKS UNDER 5 DOLLARS said...

The stories on this blog are interesting.