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:
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.
