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.

If you do some research, you will quickly find out that all famous discretionary traders used volume: Livermore, Darvas, O’Neil and many more. But famous today’s traders use volume information, too: Minervini, Zanger, Ryan …

1. Volume shows greed and fear

The trading volume can give you clues about the greed and fear in a stock or any other trading instrument. An example of this trade model can be found on this BTC to USD website, live.

• If the volume is high on up-days it shows greed. Traders are heavily buying the stock and absorb all possible selling volume.
• If the volume is high on down-days people are fearfully. They sell a lot of stocks and throw their trading positions out of the window.

You can easily determine which side is in control if you look at the volume action. But the volume must be in synch with the price action.

2. Price and volume must be in synch

The best way to interpret volume is to look at the price simultaneously. Huge volume and huge price moves shows clearly which side is in control: Buyers or sellers.

If you see small price moves with high volume, you should be sceptical. Why? Because volume should be in synch with price! If this is not the case, volume should be seen as a warning sign. Maybe somebody is selling into strength or buying falling prices heavily.

Small moves and huge volume is NOT a selling signal, but you should monitor the stock closer.

3. Volume and small caps

Stocks with small trading volume are much more difficult to analyze. Sometimes there is one good volume day, but the other day the stock is crashing on low volume. This happens because there are not enough traders which trades the stock.

If only one mutual fund wants to buy a position in a smaller stock, there is not enough buying power for big trends. As soon as the mutual fund completed the position, the price and volume collapse.

A solution is to wait until there is enough interest and volume in the stock.

4. Everyone can see “monster volume”

You will not believe it, but there are traders out there which buys a ton of stocks in a second without looking at the price. Why? Because it’s their job! If a fund wants to buy a position and makes only money by fees, they can buy without looking at the price. In that situation a stock can explode to the upside with high volume.

Everyone can see “monster volume” in the chart. A 5x, 7x, 10x or 20 times the average volume is clearly visible and shows high demand or selling pressure. If you do some research, you will see that the most powerful trends started with more than 10 times the average volume. Screen for such situations and put the stocks on your watchlist.

5. Excessive volume

Volume is good, but too much volume can be a problem. It’s like a motor which is out of control …

In some special situations all outstanding shares are trades multiple times per day in a stock. That shows a high focus of all traders on that stock. And if a stock is highly in focus and everyone knows about it, there will not be enough buyers left. It maybe will work for some days or weeks, but then the stock has no fuel left and collapse.

6. One day wonders

Besides excessive volume there is another type which I call “one day wonders“. A stock explodes to the upside with huge volume and price action. The next day the stock is doing like if nothing happened: No volume, no price action anymore.

Such situations should make you sceptical. If that stock is the best stock in the world, where are the buyers? Maybe there was just one buyer and you. Normally such a stock will return to the level before the huge price move or collapse if no one is there to support higher prices.

7. Volume in ETFs

ETFs and volume is a different thing as stocks and volume. The reason is that ETFs are based on price movements of a basket of stocks. Even the ETF is traded on piece a day, it can explode to the upside. The underlying stocks determines the price movement of the ETF.

But the volume of an ETF can give you clues about the demand of the ETF or sector. If a sector ETF is traded with high volume, it can show you that the whole sector is on demand.

Of course this is not true in every situation. Sometimes there are large short-sellers in ETFs which hedges their portfolios.

8. Options expiration

A lot stocks are traded by options, too. You know that options have an expiration day. On that day, options are exercised and the option holder has to deliver.

The trading volume is very high on such a day, but price movement can be “normal”. You should know these days and ignore it. Of course this effect can have implications on a stock or the price move, but normally this is just intraday.

9. You don’t see all volume

Today there are a lot of ways to trade stocks. Especially market participants with huge volume uses different stock exchanges as you and I. There are market like OTC, Dark Pools or ECNs. The volume of such exchanges is normally added to the main volume after close.

10. Volume on news and earnings

News and earning reports can influence prices heavily. Sometimes this can be good for you and sometimes bad. But you should watch price and volume closely on such days.

If there is a great earnings report and nobody reacts with price and volume action, you should be sceptical. On the other side, if the market reacts strongly I can give you a clue that maybe more price and volume action will follow.

You must always have in mind that huge and smart market participants are not willing to buy their whole position in one day.

Recommended books

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

[amazon box=”0471668265,0735201811,1118443926″]

Der Beitrag 10 tips to work with trading volume erschien zuerst auf Trading Blog - Julian Komar.

For a lot of people it goes against their beliefs to buy new highs. Why? Because the stock seems to be expensive in that moment. But the stock market works not like a supermarket. Cheap stocks are mostly not a bargain, they are rotten eggs.

The most persuading argument for me to buy a stock on a new all-time high is: What must a stock do if it should move up 10.000% in a row? Answer: It must take out old highs and reach new highs.

Example: Amazon – New highs are buying opportunities

Amazon is one of the most successful stocks in the last years. I put a simple 52 week high line (with a Donchian Channel) on the chart. You can see clearly that every 52 week high was a buy opportunity.

Of course the stock had some seriously corrections, but that’s why you need a trading system with risk management and not only one indicator.

There are plenty of similar charts next to Amazon like Apple, Netflix, Nvdia and many more. All these super stocks have in common that they continuously reaching new 52 week highs and especially all-time highs.

The difference between a 52 week high and an all-time high: Overhead resistance

Not in all cases is there a difference between a 52 week high and an all-time high. Because if a stock is priced on an all-time high, it is automatically a 52 week high. The only difference is “overhead resistance“.

With overhead resistance I mean all potential seller that would sell a stock at higher prices. These traders had bought a stock at a higher price and now their trading positions show a loss. If the price returns now to a higher price they maybe close their position for break-even. The problem is that a seller is a seller and they are able to stop a price move.

If a stock is priced on an all-time high, the stock has “blue sky potential“. That means every trader has a position that shows a profit. No one is urged to sell because the trading position hurts.

But there are situations where the overhead resistance is absorbed by other traders. In these situations the stock quickly moves to new highs and afterwards maybe to new all-time highs.

All-time high trends lasting longer as you think

A stock with “blue sky potential” can trend longer as you think. If there is no serious selling pressure, the stock can move a long time until it hits resistance.

Stocks on new all-time highs have no technical resistance because there is no trading history. A trader cannot look back and search for important price barriers other similar. The only situation where an all-time high stock can reverse is if the bias in the stock changes. This normally takes a longer time and is caused by bad news.

You will see a change in an all-time high stock quickly. Normally it is gapping down or moves quickly to the downside. In that situation new overhead-resistance is created.

But if there is no bad news or anything similar, the stock can move much longer as you think.

Bull markets and new highs

Of course all upper examples are selected in hindsight. But normally bull markets produces a lot of similar examples.

It’s not possible to catch every superstock but you may ask yourself: Where do I want to fish?

• Do I want to fish in a sea with small, stinky fishes and where my odds are bad to fish a big one?
• Or do I want to fish in a sea where some really big fishes are swimming.

I prefer the last one.

So you can see that the important question is about the odds. That’s what stock selection is about. If you combine multiple criteria, the odds will increase and you maybe fish a really big fish out of the sea of stocks.

Should I trade in the weekly chart because of 52 week highs?

You can do it if weekly charts are your preferred time-frame. But it’s not necessary. I personally prefer the daily chart. And you should not blindly use a 52 week high as a trading signal.

The upper examples should give you an idea about stock selection. It’s much easier to trade a stock on a new all-time high. The selection is easier because the stocks are obviously visible, there is no overhead-resistance, often smooth trends emerge and the moves to the up-side are faster. That’s why I look for stocks on new all-time highs.

Recommended books

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

[amazon box=”0071494715,0071614133,0071807225″]

Der Beitrag Buy high – sell higher: What must a stock do to rise 10.000%? 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.