ATH- Forest for the Trees

Since October I've been collecting all time highs from BarCharts and placing them into a database and watch list. Originally my intent was to keep tabs on stocks that continued to make new highs over a rolling month period and then on the weekend scan this watch list for stocks that showed a pullback over a 10 day period and met my set-up requirements. Suffice to say this started to become cumbersome as this watch list increased to 770 stocks which is nearly 14% of the Worden universe. Essentially the data I was collecting became meaningless to me so I stopped using it but still tracked these numbers daily figuring eventually something would click. While it's interesting to note that stock XYZ has had 15 new highs over X period of time, it's of little help if not in it.

Eventually I think I'll come to an understanding with these numbers and making better use of them but for now I've begun to look for simpler strategies. Recently I've been increasingly focused upon vehicle selection and of narrowing down my stock universe and thinking of means in which to accomplish this. A watch list with 770 stocks clearly could use some pruning. Through happenstance I was perusing blogs on my RSS feed and came across one from wishingwealthblog that got me thinking about his method of using ATH stocks. In his post he states the following:  

I introduced the concept of green line charts a while ago. I draw a green line when a stock on a monthly chart hits an all-time high which is not closed above for three months. I then wait for the stock to break through the green line top to a new all-time high. Rocket stocks form a set of green line tops. They rise to a peak, consolidate for a few months and then burst through to a new high. The idea is to buy a little at the break-out and to add more as long as the stock does not retreat back below the most recent green line.

Now before I begin to tinker with my process I ask myself some questions: How does this relate to my trading philosophy? How does this relate to my method? How can I integrate this into my process? How can I filter this information so that it becomes meaningful to me? How can I manage this information? How can I prevent this information from leading me astray and looking for certainty and taking me off the path I'm on? Am I looking at this information because my system is not working currently or I no longer believe in it?

I've come to the conclusion that it is important to ask these questions before proceeding too much in depth and putting effort and time into a concept that may not pan out or may not be right for me. When thinking through this, clearly stocks at ATH fit within my philosophy of trading momentum and there is a discernible and defined edge in doing so. One of the benefits of stocks at all time highs is that there is no overhead supply to be concerned about as the cast of characters are happy longs and unhappy shorts. Another benefit in being long ATH is that it places one on the path of least resistance and the correct side of the order flow. This was a simple one for me to answer, but the other questions took more thought..

Since collecting this information is part of my process as is, it would not be much more effort to incorporate. The next step I took was replicating the logic of his method and then filtering his method through mine to see if it gels and leaves me with a manageable list of stocks to focus on. I made a few adjustments to the criteria and created a simple TC2000 scan to filter the 770 stocks in my watch list which reduced them down to 24 -easily manageable. There are some caveats and shortcomings to how TC scans return results, so a scan that is too strict in its implementation will not return all candidates, and a scan that approximates will return false hits as well, so it will still be necessary to eyeball the results for accuracy, but with 24 it's simple enough to do and won't add much time. Lastly I only have data of ATH going back to November so I have to take this into consideration as well.

A second filter that I've started to use is to screen for stocks that are up 25% in a month, were up 25% in the previous month, or are up 100% over the past year and near their high. Using this last criteria there is a watch list of 65 stocks to go through which again is manageable. Screening for stocks that have made ATH and were up 25% last month allows for focusing on pullbacks and stocks setting up for a second leg, and screening for stocks up 25% this month allows for focusing on potential pullbacks that might set up for another leg. Looking for stocks up 100% is in keeping with the Darvas tradition. Any stock that goes up 200% will have to move 100% first and any stock that moves up 100% will have to move 25%.

So now that I have a manageable watch list I can begin to screen and pruner further through FINVIZ and highlight criteria such as float, earnings, and short ratio as a means of probability stacking better looking candidates further pruning the watch list.

The following screen is the result of the scan I modified from Dr. Wish. I've taken the lazy way out and have yet to double check this 24 to make sure they meet the strict requirements as this is still a bit of a work in progress.  FinVIz Screen ATH

The following screen is from stocks up 100% over the past year form the ATH watch list:

FinViz Screen ATH 2

As I increasingly focus more on vehicle selection and refinement I'm sure I'll come to some conclusions over time as to how to best use this concept and simplify it even further, but for now it is something I can seamless use without adversely effecting my process and method and trading philosophy.