1. Is the Stock Market Bullish? Here are some measurements of the status of the market, using the S&P500 as the ultimate index.
The S&P500 index (SPX) is above the opening of the year.
SPX is above the opening of the month
SPX is above the 50dMA which is moving UP.
SPX 20dMA is above the 50dMA.
You can use these measurements and make a judgement. Keep a vigilant look at the SPX because the market may reverse unexpectedly. I keep an Elliott wave count of the SPX and although bullish currently, this can change. Keep in mind that the SPX is reaching levels not seen since October, 2008. This is why I have a very simple and stringent exit rule (see below).
2. Select stocks that exceeds previous day close by 10%. This does not include stocks that have received and accepted a takeover offer.
3. The stock price moves above the 20dMA and the 50dMA.
4. Volume more than doubles 90 day average.
5. The stock price is up compared to the opening of the month.
Here is an example, CRM:
If you are thinking that this stock has already moved significantly from the opening of the year, and it is about to correct, you might be right, but in my experience, more often than not, stocks like this will be higher soon. The goal here is to take advantage of the momentum, and be out of it at any sign of weakness. This is why I have a very stringent exit strategy:
Exit: close your position when two consecutive price bars close below the 20dMA. There are no exceptions to this rule.
Keep in mind that when the stock market reverses, you may be loaded with positions like this, and a quick reversal might hurt you. This is why is so important to limit your risk using options and good money management strategies. When the market conditions change, the index rules above should be reversed to correspond to a bear market. You will be looking for bearish positions, rather than bullish ones.
I follow very specific Options strategies and I would like to share them with you. I am creating a paper trading account to show the participants of my Tuesday Webinar how I would trade these. Keep in mind that you need to check these positions once a day after the market closes since the exit rules says "bars CLOSE below the 20dMA". If you want to participate of the Tuesday Webinar, please send me an e-mail at paperprofit1@mac.com
3 comments:
Nice, concisely stated set of rules. Have you run backtests on it?
Do you use married puts to protect yourself (in addition to the two bar stop loss?)
Thanks!
I have used this approach for years, but I am proposing to start a paper trading account so that we can all see prospectively how it works. In addition, the approach depends a lot on what options strategy you use. The participants to my Tuesday Webinar have been shown basic of Options and TA for about a year now.
I still believe that the PCCRC is the best approach because you can safely place significant amounts of capital in play.
WIth this strategy, it is important to understand that a sudden reversal in the markets may cause you to exit many trades to avoid losses, so it is more risky. I will explain my money management techniques in the next webinar, this Tuesday.
Hi Martha, or Susan. Thank you for visiting. All the information you need to trade the PCCRC is here in my blog, if you go back sufficiently. However, many of my followers have joined the e-mail group where they can view video tutorials about the PCCRC. In additions I am now running 3 webinars a week.
Juan
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