Principles  of  SCALIN (pyramiding)  in  Leading  Stock

"When they came on the scene, Kmart was one of them, when in 1962 it only averaged about 2,000 shares traded each day. Jack Eckerd was another, which in April 1967 also averaged just 2,000 shares of trading each day. Both of these stocks went on to become huge winners. Even though the institutions at first would not pick up Pic'N Save, O'Neil did for his own personal account. He actually kept purchasing this stock on the way up, buying more shares every one or two points when the stock would rise. He did this for several years. In fact, he made 285 different buys on this stock in a span of 7 n 1/2 years. This is probably one of the most masterful examples ever of how to pyramid a winning position. At one point he actually owned 4.99% of the total stock outstanding (if you own more than 5%, you must register with the SEC). This stock would turn out to be one of his biggest winners ever, with some of his initial positions up 20 fold when he finally sold out and his profits were a main source for starting the newspaper Investors's Business Daily a few years later".

Mr. John Boik, the author of his book:

"How Legendary Traders made Millions"

tweeted this passage from page 148 of his book a week ago.  I shared this excellent content on my tweeter account for the benefit of retail traders and investors.  I would highly recommend that you pick up a copy of this book for your library.  He highlights some of the principles that some of the greatest and most profitable traders utilize to accumulate a 7 figure portfolio.

$AMZN  Scaling  In

$AMZN stock is an ideal one to study if you are a student and a follower of IBD(Investor's Business Daily)  CANSLIM methodolgy.    

• Don't buy  CHEAP  stocks.
• Buy  HIGH  and  Sell  HIGHER.
• CONCENTRATE  your portfolio to a few stocks.
• Always buy several  LEADING STOCKS  in  LEADING INDUSTRY  group on a  "FOLLOW THRU"  day.
• SCALE IN (Pyramiding)  when the stock begins to quickly advance to  +5%  from your initial purchase.
• Have a  PLAN  in place to  SCALE OUT  to mitigate the risk of earnings nasty surprise.
• Follow the rules of exiting a position when losses mount to  -7%  to  -8%  from your initial purchase.
• HARVEST  profits when the stock gains  +20%  to  +25%.

$AMZN  became a $1,000 stock on Oct 27th 2017.  16 million shares (4.5 times the daily average trading volume) traded that day.  This was a very clear signal that institutions were on their way to accumulating this stock.  This year on Jan 31st (just 2 years n 3 months after becoming a $1,000 stock), it became a 2,000 stock.  Once again it traded 16 million shares (4 times the daily average trading volume) that day.  Following is classic way one would scale in with the winning stock such as  $AMZN.  

1. Friday April 3rd, initial small starter test position at  $1911.15 when the  $SPY  had a  "FOLLOW THRU"  day.  Stock had been trading tightly and orderly for 3 weeks.
2. Tuesday April 7th, a second starter test position at  $2017.11  when  $QQQ  had a   "FOLLOW THRU"  day.  Initial purchase was already  +5.5%  within 2 days. 
3. April 13th, within one week of trading, stock is  +10.91%  on average of the 2 positions initiated.  Faster moving 10 day simple moving average (sma) and the 21 day exponential moving average is surging up and away from the slower moving 50 day sma.  $QQQ  is still below the 50 day sma.  Stock is clearly the out performer of the growth index.
4. April 24th, scale in at  $2185.95.  Stock cleared the  $2150 resistance just the day before.
5. April 29th, just a day before earnings report is due, harvested the profits from 2 original starter positions for average gains of  +18.72%.
6. May 1st, renter at  $2336.80.  Earnings reported the day before bounced the stock up  +4.5%.  There was some profit taking the day after earnings were reported with a surge in selling volume.  The stock barely budged 90 points.
7. May 5th, scaled in at  $2340.  Technically the faster moving 10 day sma as well as the 21 day ema are smoothing out and running parallel to each other and rising slowly and methodically.
8. May 19th, stock has been consolidating for the last 5 weeks.  Institutions are fully supporting the stock at  2400  level.  Institutions tend to look at the round numbers from which to propel higher.  Scale in at  $2429.83.
9. May 27th, the stock bounces off the 21 day ema.  Slower moving 50 day sma is catching up to the rising 10 day sma and 21 day ema.
10. May 28th, scale in at  $2384.33.
11. Stock is hovering tightly around the  2500  mark for the last 2.5 weeks.  Initial trailing stop for the stock is monitored around the  2300  level which is closer to the  34 day ema.
12. June 15th thru June 19th week, the stock is trading tightly like it hasn't done in the last 4 months.
13. June 22nd, scaled in once again at  $2684.50.  
14. June 26th (last Friday) we had a major reversal and a  "distribution day"  on both the  $SPY  as well as  $QQQ.  Stock barely budged 18 points.  It is held up at the 10 day sma while the leading growth stock index  $QQQ  plummeted down to the 21 day ema (that's really not bad for the index that is  +12.79%  year to date.  $AMZN  on the other hand is  +45.55%  year to date.  It clearly is out performing the market.

This is a pretty aggressive way to scale into a stock when the market remains in a confirmed uptrend.  Stock has been trending up for the last 14 weeks out of the last 15 weeks when you examine the weekly chart of the stock.  This is a stock that was a $1,000 stock just 2 yrs 8 months ago.  It's hovering around  $2700  mark now.  It's become a  $Trillion  company too.  What one needs to see now is for the stock to consolidate its gains for a couple of weeks.  Allow the 200 day sma to catch up to the 50 day sma and let the stock digest the massive gains it has made this year so far.  Leading Growth Stocks often test the 50 day sma when the market corrects.  That will be a  -7%  to  -8% loss from the current levels of  $2700  down to the  $2500 mark.

We head into this week with a lot of caution.  We have accumulated a total of 6   "distribution days"  in the last 12 trading sessions between the  $SPY  and  $QQQ.  A few more distribution days like the one we witnessed on  June 11th  could possibly change the market pulse down a notch to  "Market Under Pressure".  That will definately put a damper on the upcoming July 4th holidays.

Stay safe and stay healthy.  Please do what ever it takes to prevent catching the virus or spreading it unknowingly.  It's been a very disturbing sign for the last 2 weeks to see a surge of virus cases in my state of Florida.  We have a large segment of our population that are retired and elderly.

God Bless.

Amin

$DOCU ... How to Trade Growth Stock 

"My basic principle of stock market investment is that the only valid reason for buying a stock is that it is rising in price.  If the price is rising, no other reason is needed.  If the price is not rising, no other reasons are worth considering"

"So while I continue to trade on Wall Street, I keep the market and it's emotional atmosphere at arm's length.  I do not want to know what people on Wall Street are thinking or saying.  I am not interested in the latest business forecasts, analysts' opinions, brokers' views or tipsters' gossip.  The stock tables tell me everything I need to know.  It is  what stocks are doing and not what people are saying  that determine my actions.  This has been a corner stone of my market approach and remains so today". 

By Nicolas Darvas (professional dancer and  self taught stock investor in the 50's)

Mr. Nicolas Darvas - a professional dancer and a self taught stock trader on Wall street, recognized 70 years ago that the institutions - hedge funds, pension funds, mutual funds and professional money managers that handled wealthy peoples monies were primarily responsible how the stock would perform.  That still holds true today.  Mr. Bill O'Neal (Founder of IBD Investors Business Daily) recognized this and developed some very basic rules of Investing in Growth Stocks.  As a retail investor that is looking for ways to Out Perform the Stock Market (using performance of  $SPY  as a barometer for general market performance), here are some very basic concepts that one needs to get their head wrapped around.  They may seem counter intuitive but it works.

• Buy  HIGH  and sell  HIGHER.
• Follow the lead of the  INSTITUTIONS.
• Learn to read the stock and index charts emphasizing  PRICE  and  VOLUME.
• Mitigate  RISK  and decrease the holdings during earnings report.
• Always buy something on a  FOLLOW THRU  day.
• Learn to  SCALE IN  as the stock trends with higher highs and higher lows.
• Learn to  SCALE OUT  when the stock approaches the 50 day sma (Simple moving average).
• Learn to harvest  PROFITS  when the stock attains a gain of  +20%  to  25%  from initial purchase.
• CONCENTRATE  your portfolio to just a few  LEADING STOCKS   in the   LEADING GROUPS.

$DOCU  has been one of the leading stock since the market had a  'Follow Thru'  day on April 2nd with the  $SPY  and April 6th on the  $QQQ.  Following are the details and my reasonings:

1. 9/6/2019 ... Stock breaks out at $54.78 resistance with 7 times the daily average trading volume.  Stock rises +18% within 14 days (Sign of institutional buying).
2. 1/30/20 ... Stock breaks out at $77.01 resistance with 3 times the daily average trading volume.  Stock rises  +19% within 3 weeks and peaks when the market peaks on Feb 19th.  RS  line reaches an all time high on IBD charts.  Stock had gapped up  +9%  on 12/6/19  in volume 3 times the daily average trading volume (confirmation of institutional interest in stock).
3. 3/12/20 ... Stock attained it's all time lows while the  $QQQ  (Growth Stock Index) continued to head lower for another 10 days.  Institutions were holding onto this stock and they kept supporting this stock.  RS  line was almost vertical at this time while the market was still correcting.
4. 4/3/20 ... Initial small starter position at $84.26 at the market open on  'Follow Thru'  day with the  $SPY.
5. 4/7/20 ... Second position at  $90.91  at the market open on  'Follow Thru'  day with the  $QQQ.  Initial starter position is already  +8%.  RS  line is at all time high on the IBD charts.  Stock is out performing the growth stock index.  10 day sma (simple moving average)is above the 21 day ema (exponential moving average) which is above the 50 day sma.  Stock never traded below the 200 day sma during  market correction.  Stock corrected  -25%  from its all time highs of Feb 19th while the  $QQQ  corrected  -28%  and the  $SPY  corrected a whopping  -34%.
6. 6/3/20 ...  Exit initial starting position at market open the day before earnings report for a gain of  +74.29%  (8.5 weeks in trade).  Follow the rules of harvesting profits and mitigating the risks of a nasty surprise with the earnings report.
7. 6/3/20 ... Left the second position of  4/7/20  at  $90.91(+62.19% gain)  to ride thru the earnings report on 6/4/20.  
8. 6/5/20 ... Reenter the position the day after earnings report at  $139.82.  Stock never violated the faster moving 10 day sma during earnings day.
9. 6/12/20 ... Additional position was initiated at  $163.  Stock has been trading tightly and very orderly for the past week around 163.  It will be a component of the NASDAQ - 100 when the market opens on Monday 6/22/20.

Institutions usually commit billions of  $$$   when they target a certain group of stocks.  It's quite normal for them to invest in a whole bunch of stocks that are in the same group of stocks.  Currently  $DOCU  is in the same group of stocks as:

$AUDC

$BAND

$COUP

$DDOG

$DT

$NOW

$PAYC

$PCTY

$SHOP

$WDAY

$WIX

$ZM

If some of these names look familiar to you that is because they have been mentioned in my blog posts or they were discussed at the monthly local IBD Meetup group meetings in the Tampa Bay area.  Some of these stocks need to consolidate and allow the 50 day sma to catch up to the 21 day ema.  It could provide another opportunity to get into these stocks with initial small position or an add on second position if you already have a position in them. 

Happy Trading!

Amin

  

Simple    Moving    Average    Lines

"We've all heard the saying, 'timing is everything'. This is just as true in the stock market as it is in life. Knowing the optimal time to buy or sell a stock is a valuable skill anyone can and should learn" 

By Willian J O'Neil (Founder of Investors Business Daily)

Simple moving average (sma) lines are very simple tools to use for taking a position in a stock but also to exit a position for profit as well as exiting the position to mitigate loss.  Institutions account for more than 70% of the trading volume in the stock market.  Ultimately it is them that determine what the stock price is going to be.  If they  decide to enter a stock position, it may take them several weeks to accumulate the entire position.  Stocks will show that by having the price of the stock staying close to the faster moving 10 day and 21 day sma.  Conversely, if they decide to exit the position, it will show up as high volume of stock trading and the price will begin to get depressed lower.  It will show up as the  faster 10 day and the 20 day sma heading lower towards the  slower moving 50 day sma.


50 day moving average line is one of the most closely watched lines by the institutional investors.  Once the stock approaches this line after trading above the 20 day sma, retail investors ought to pay attention to see if the stock gets supported by the institutions at this level.  Institutional buyers will come in with huge volume buying to pick up these shares when they are committed to the stock.  One of the clues to look for during  'distribution days'  is to determine if your stock is being supported or disposed of by the institutions.  If your stock is supported and it bounces off the 50 day sma in volume considerably higher than the average daily trading volume, one might want to consider initiating a new position or adding on a second position in the stock.


On Thursday June 11th, we had a   'distribution day'   on the  $SPY  as well as the  $NASDAQ,   Both these indexes had breached the 21 day sma.  The following day, the institutions came in late in the day and held up and supported these indexes above the 21 day sma.

  Would we have a follow thru action in the coming week from the institutions to support these indexes above the 21 day sma or are we going to experience the sharp drop off with the indexes like the one we had in mid February?  

It's a good idea always to plan for the worst and hope for the best.  Weekend is a good time to look over the stock charts and scrutinize all your positions.  Check the performance of your stocks to see if they are being supported by the institutions.  Get rid of the ones that are dropping off below the 21 day sma in higher volume than an average trading volume.  Compare the performance of your stocks against the  $SPY   and  the  $QQQ.  As a growth stock investor, you want your stock to outperform these 2 indexes.

How  Did  My  Stocks  Perform?

I had mentioned 11 stocks in my blog post of June 7th.  These are the leading big cap stocks that the institutions have been accumulating for the last 11 weeks.  They have been consolidating and I had indicated in parenthesis, areas that I considered to be the support areas.  There were 2 positions each on  $AMZN  and  $NVDA.  An additional position for each of those stocks was initiated at market open on Monday June 8th.  Rest of the 9 stocks were posted as  'virtual trades'   to test out my system of stock selection and trade management.  Following are the results for the week of June 8th thru June 12th.  

Stocks:

1. $AAPL   ... +3.13%
2. $ADBE   ... +3.97%
3. $AMZN  ... -1.79%  (added 3rd position at $2500.20)
4. $FB        ... -0.26%
5. $GOOGL ... -.0.94%
6. $MSFT   ... +0.97%
7. $PYPL   ... +0.64%
8. $NOW    ... -0.38%
9. $REGN   ... +1.14%
10. $NVDA   ... +0.94%  (added 3rd position at $350.51)
11. $UNH     ... -7.61% (Close out Monday morning at market open to cut losses)

Average performance of 11 stocks for the week ... +0.70%.

$QQQ Leading Growth Stock Performance for the week ... - 1.59%.

$SPY General Market Performance for the week ... -4.79%.

I am hoping my analysis and the exercise with these leading 11 big cap stocks helps you fine tune:

• Your selection of stocks to put on your watch list.
• Monitoring the performance of the indexes and the stocks utilizing simple moving average lines.
• Looking for clues of institutional support and resistance lines with the aid of simple moving average lines on the chart.
• Respecting losses in a stock of -7% to -8% and immediately cutting your losses.
• Monitoring the 50 day sma and the performance of the indexes and your stock in relation to this line.

I encourage comments and suggestions from my readers about the nuances of the moving averages that I may not have fully covered.  This post is to help guide you to maintain the profitability utilizing a very simple indicator of simple moving average lines plotted on your stock charts.

Happy Trading!

Amin

  

Charlie Munger: How To Achieve A 20% Return Per Year

Follow  the  Institution

"Recurring patterns occur over and over because stocks are driven by humans and human nature never changes."

By Jesse Livermore (Greatest stock trader of our times)

If you are new to investing, it's best to concentrate on a few critical rules to follow and acquire the expertise over time.  You can start building on your knowledge by observing some basic principles and applying them to your trading and investing.  Easiest ones to understand is to follow the lead of the institutions.  They account for over 70% to 75% of the daily trading volume in the market.  They can't really hide their intentions because it shows up on the stock charts as  "Sky Scrappers"  on the volume bars.  Stocks often gap up and will advance very rapidly within a few days to couple of weeks.  They will tend to rest after making a rapid advance and consolidate for a while.  They will build a base before propelling higher.  

Institutions will invest billions of $$$ when they decide to take a position in a stock of their choice.  It takes them several weeks to accumulate the stock.  Stocks will often gap up during its journey.  Gap ups indicate that the institutions are willing to bid up the price of the stock just so they can accumulate a desired position in it.  It's not unusual for a small cap, midcap or an IPO stock to gain  20%  or more within 3 weeks when the institutions make a commitment to acquiring that stock.  Big cap stocks however will tend to propel higher over a longer period of time and not gap up just because of the sheer high volume of shares outstanding.  They also tend to be less volatile as a result.


Following is a list of 11 stocks that are the leading big cap stocks currently in the market.  Institutions have been investing heavily into these stocks ever since coming off the lows we experienced on March 23rd.  Some of them are extended now but could offer another opportunity to take a secondary smaller position in the current market.  They have been consolidating the gains made since the  'Follow Thru'  days of April 2nd on the  $SPY  and April 6th on the  $NASDAQ.  I have indicated in parenthesis, areas of support and consolidation for the stock.  9  of these 11  stocks are currently listed on the  'Leaderboard'  (Premier Subscription Stock list of Investors Business Daily).

Stocks:

1. $AAPL   ... (327.85)
2. $ADBE   ... (386.75)
3. $AMZN   ... (2461.0) 
4. $FB      ... (224.20) 
5. $GOOGL  ... (1440.02)
6. $MSFT   ... (184.20)
7. $NOW    ... (386.57)
8. $NVDA   ... (350.51)
9. $PYPL    ... (149.18)
10. $REGN   ... (581.78)
11. $UNH    ... (306.71) 

Currently have 2 positions on each of the following:

• $AMZN ... $1911.15 on Apr 3rd.
• $AMZN ... $2429.83 on May 9th.
• $NVDA ... $253.96  on Apr 3rd.
• $NVDA ... $353.01  on May 22nd.

Good luck trading this week.  June is traditionally one of our weakest months for trading.  We have only  1  'Distribution Day'  each for the  $SPY  and  $NASDAQ.  That is a very healthy sign for the market to continue to propel higher.

Happy Trading !

Amin