You don’t need a special gift or a secret to become a successful trader. You need hard work, passion and intelligence to come up with the right ideas and a plan to learn trading.

Trading is not magic, it’s only about following rules. I personally think that it’s not difficult to come up with a trading system which makes money over time. But it’s very hard to not destroy the inherent edge by yourself. If you cannot execute the trading system well, you will not be able to make money.

I personally differentiate 3 levels of edges in trading:

1. Basic edge like trend following with risk management: You buy a stock, apply position sizing and risk management and follow the trend until it turns around. That’s an edge because over a long series of trades, your winners will be much bigger than your losers and you make money. The edge is very small, but still ok.

2. Stock selection edge: You can add another edge on the basic edge like selecting the best growth and momentum stocks. You can see that growth stocks can outperform other stocks strongly in a bull market. With tested stock selection criteria, you can increase your basic edge.

3. Timing edge: If you have rules to select the best market environment and improve your entries and exits, you can increase your edge further.

Maybe there are other levels of edges. Now you ask yourself about: What’s about personal edges like discipline? I don’t think that this is an edge. If you are not disciplined you cannot realize all other edges. It’s maybe an advantage in comparison to other traders, but it’s not an mathematically edge.

Der Beitrag 3 levels of edges in trading erschien zuerst auf Trading Blog - Julian Komar.

I always try to combine 2 dimensions:

1. Technical strength and chart pattern.
2. Potential to surprise and create high demand.

Baozun – High potential China eCommerce stock

I never analyze fundamentals or try to interpret them. The reason: I believe that the fundamentals are always late and the price will move before. But I want to make sure that a stock has potential to surprise and attract money.

Baozun belongs to the China eCommerce sector. It’s a young company and the stock has only 2,5 years trading history. That’s good because the best price moves happens in the first few years of the stock. The reason is simple: The company is unknown and if it’s an attractive company, a lot of potential buyers are willing to buy. In addition a company will make an IPO if the fundamentals and growth are extraordinary good. So young stocks are always better than old stocks, where every detail is known and the company cannot surprise the market.

China is a huge growth market. It doesn’t matter how fast China growths. It’s only important that investors are interested in China stocks and see a bright future. That leads to increasing prices for stocks of that sector.

In addition Baozun is in the eCommerce sector. That is an additionally plus because this sector is growing fast and will revolutionize the traditional old retail sector. A company like Baozun can profit from that and maybe can grow faster than any other company. There is a huge potential for surprises.

You can see that Baozun has high potential: Growth from China, growth from internet sector. In addition the EPS growth is very high, also sales are increasing. The IBD rating for that stock is good.

Technical strength and potential

Now we come to the more important part in my opinion. A young stock with a high potential should trade on new all-time highs. Of course Baozun is doing that. Every new high is a new all-time high and there is no overhead resistance.

The stock rose 1200% from the low in August 2015 until today. Is this too high? No! Stocks with such a growth rate can reach much higher prices. Of course the P/E ratio with around 90 seems to be high, but the forward P/E ratio only reaches 26! I don’t work with P/E ratio, but you can see that there is a lot of potential to the upside as long as the company growths. Always have in mind that a stock can rise much, much higher if there is a high demand and a strong trend.

The trading volume of Baozun increases in May 2017. That shows that institutional money is flowing into the stock and the liquidity increased. Higher liquidity, a strong trend and good fundamentals means that more and more institutional traders will have that stock on their list.

I am not a big fan of price goals. I never use them. But I cannot see any reason why this stock should not go higher and trade at $100 or more.

The Baozun weekly chart

In the weekly chart you can see that this stock has not a long trading history. That’s good! Young and fresh stocks with less than 10 years trading history produces the strongest trends. You can see that if you go back in time in stocks like Apple, Amazon etc.

You can also see that the stock is trading at all-time high prices. That’s good, too! There is no one you needs to sell to close a past trading position at break-even. And there are no history prices which can be used as orientation marks for trader.

Look at the volume. It’s increasing which shows a higher interests in the stock. There are two big shakeouts which throw out all weak hands and leave room for new traders. In addition the volume is higher on strong weeks and lower in consolidation. That’s exactly what you want to see: Strong buyers and weak sellers.

Daily chart of Baozun

The daily chart shows perfectly the consolidation between September 2017 and February 2018. The trading volume dries up in that time which shows me that not a lot of stock holders are willing to sell. This is a good signs because the strong hands will hold their positions.

With the earnings in February 2018 the stock exploded and gapped up to a new all-time high. This is a very good sign. There is a lot of demand behind it! The buying continues the whole day and you can see the terrific trading volume at that day: 10 times the average 50 day volume!

Now the stock consolidates calmly and prepares the next move. When it’s time to enter? I don’t know, but you will see it if a new all-time high is printed with higher volume.

Of course don’t ignore other scenarios. The stock can gap down on bad news and destroy the whole chart situation. That’s why I only act if I see a strong breakout and new buying pressure.

Recommended books

Here is a small list of recommended trading books about this topic.

[amazon box=”B0755Y5LCZ,0071494715,0071614133″]

Der Beitrag Baozun ($BZUN) chart analysis – China eCommerce stock erschien zuerst auf Trading Blog - Julian Komar.

Yes, I also spend a big portion of my time to find setups. But the methods stay the same. In the past I developed multiple ways to screen the market for interesting setups. Today I only seldom adjust the programming codes.

Do you have to be a programmer to find good setups? I don’t think so. Programming knowledge will help you and you should learn to program, but there are many other ways to discover great trading setups. I will show you 3 …

3 easy ways to discover great momentum trading setups

Here are some simple ways to look for great momentum trading setups. The methods are not complex or science and the tool I use is free!

Looking at biggest winners today/week/year

Momentum stocks have one in common: They are rising fast. So you can use the top gainer lists to look for setups.

I mostly look at these criteria at Finviz:

1. Stocks that moved more than 5% today. These are really strong movers and you maybe want to take some of them on your watchlist.
2. 10% week winners: Here are stocks included that moved more than 10% a week. Mostly strong momentum moves starts with a strong move over a few days. I go trough all stocks in a Finviz chart gallery and maybe add some to my watchlists.
3. Strongest stocks for 1 year: You will make the discovery that all the leading stocks are the most strong movers over 1 year. They always appear on the lists. Why? Because there is a great demand and they are making continuously new all-time highs.

Strongest mover from 52 week low

Another method I use is to look at the strongest movers from their 52 week low. The reason is simple: Good performing momentum stocks hold their acceleration. That means that the distance between the current price and the 52 week low will be the same or getting bigger.

In Finviz you can sort all stocks by their distance from the 52 week low. I normally use a minimum of 70%. That means all stocks should be at minimum 70% away from their 52 week low.

Unusual or high relative volume

I want to find stocks that not only show momentum but strong volume, too. My biggest winners all started with a huge volume. Sometimes 5 or 10 times the average volume.

Here are two ways to find strong volume movers:

• Unsual volume: That is a signal filter in Finviz. It shows you all stocks where the volume is strongly above average. Sometimes here you can find interesting candidates for a watchlist.
• Strong relative volume: This is almost the same, but you can choose your own setting. I run a Finviz filter multiple times per trading session. For my filter I use the value 1.5, which means that I want to see only stocks with at least 1.5 above average volume.

Keep it simple to find good momentum setups

Yes, I run also more complex screeners. But they all come down to two things: Movement and volume. In all screeners I combine different filters. You can do it in Finviz, too.

I sometimes think about to give up my complex screeners and switch to the simpler ones. The more simple the better you can follow your routines.

The upper filters and screeners are good to start with. Especially for beginers. You must find a simple routine and follow it. If you did it for a while, you build up trust and you know what you are looking for.

Filters and screeners help you to focus more on price- and volume-behavior. They are not a trading system, they are just a tool to make the process easier for you.

Although I have multiple screeners running, I went through hundreds of charts per day! In a week I maybe see 2500 or more charts. Some of them I see every day. If I had no routine, screener or filter, I would not be able to do this.

Recommended books

Here is a small list of recommended trading books about this topic.

[amazon box=”0996307923″]

[amazon box=”0071807225,0071614133″]

Der Beitrag 3 easy ways to find momentum stocks with Finviz erschien zuerst auf Trading Blog - Julian Komar.