Question:

I appreciate all the upgrades you’ve made to selfinvestors.com since I
started subscribing in July.  However, about the only thing I’ve accomplished,
since resuming my active investing last June, has been to limit my
losses.  After numerous trades, my only significant gain was 21% on DHB.

I’m sure some of this resulted from poor decisions on my part.  But one
problem is that, even if I could arrange to watch specific stocks in
real time and/or receive your buy & sell e-mails in a timely manner, my
day job doesn’t lend itself to making immediate trades.  With few
exceptions, I must make my buy & sell decisions in the evening or early
in the morning–before the market opens & before you send your buy &
sell e-mails.

Last night I made another decision that is not working out well.  After
reading about OMM on your watch list, I researched it at investors.com
& other internet sites.  The fundamentals & earnings report seemed very
good, and the stock was up nicely in after-hours trading.  I bought at
the open today (with a limit order) and am already down more than 7%.

I’m seriously wondering whether I should return to investing in mutual
funds–which I don’t find particularly interesting.

I’d welcome your comments.  Thank you.

My Response:

As far as the time issue I understand.  Other members have expressed similar
concern about implementing this method successfully while maintaining a full
time job.  It can be done.  I’m willing to work with you until you are
successful if you’re willing.  You sound like you are.

A couple of key things from what you are telling me:
1.  I think I have mentioned this a couple to times before in emails, but
now I realize I haven’t highlighted this enough.  It is very important.  You
almost NEVER want to buy a stock in the first half hour of trading,
ESPECIALLY on a gap up after an earnings report.  In the first half hour
trading, overnight orders are filled and there is much manipulation going on
from market makers.  You get a much more accurate direction of a stock after
that first half hour.  In the OMM example, I was looking to pull the trigger
only if it proved the breakout.  What do I mean by this?  It proves the
breakout only if the stock clears the high that it made in the first half
hour.  The stock never confirmed a buy.  In your situation you probably
would not have been around long enough to wait to see if it would confirm a
purchase – what you could have done is set a buy stop order above the high
point of the first half hour.  The order will execute only if it clears the
high for the first half hour (you would just need to make sure that the high
point of that first half hour would still be within 5% from the pivot, which
in this case I would have been).

That is one strategy.  A safer strategy would be to just hold off on the
breakout and wait for a return to the pivot area, which about half of stocks
will do.  There is nothing wrong with holding off on the initial breakout
and waiting for the stock to return to an acceptable buy range (0 – 5% from
the breakout point).  The Buy Watch screen lists stocks near a breakout, but
also lists stocks that are still within an acceptable buy range.  For
example, INFY remains in a buyable range, but I’m waiting for a drop to
around the 72 range before entering.  There is a good chance the stock could
do this in the morning when you are able to watch or you could set a buy
limit order at 72, so that your order gets filled if it drops to that point.
DOW is another great company highlighed that has been slow to breakout which
could have been purchased this morning.

Question:

Do the stocks in the "Portfolio" always follow the CANSLIM
criteria.  It seems that some of the "Watch" stocks aren’t always above
$15,  earnings aren’t always in the excellent category, trading volume
is on the slim side, etc.  Are there some CANSLIM criteria that are more
important than others?  Are we mostly looking for breakouts and
interesting technical analysis?  Do I just need a little more experience
in CANSLIM?

My Response:

[the originial response has been edited to reflect changes in the Model Portfolio]

First off, I’ll say that I don’t follow a strict CANSLIM approach but rather elements
of it that are common to many successful investing strategies, such as focusing
on companies that are exhibiting strong earnings/sales growth and technically
superior.  Where I tend to differ is that I won’t hesitate to purchase stocks under
$10/share or that may not have a history of strong earnings but are expected to
increase earnings dramatically in the near future.  In addition I tend to hold more
positions than what would be recommended in a classic CANSLIM approach.

I would characterize the SelfInvestors Model Portfolio as one that ecompasses
a variety of strategies to achieve market beating returns.  Short plays are used
in a market downturn and recently (last half of 2006) I have added the use of ETF’s
and what I call Quick Strike Profit plays (technical swing plays with big short term
profit potential) to add some oomph to portfolio gains.  While the portfolio focuses
almost exclusively on high growth stocks, it’s fairly conservative and well diversifed.

Question:

I am not sure I completely follow how you decide when we are in
a bull or bear market.  I guess I would like a little tutorial in this
area or maybe I should I just be following the "Big Picture" in IBD?  It
seems to me that IBD never really comes right out and says whether they
think it’s a bull or a bear market.

My Response:

The strength of the market, like the strength of an individual stock is determined by price and volume levels as well as support and resistance areas.  I’d say more than half of my time spent on blog articles is focused on the health of the overall market. IBD’s The Big Picture is helpful and you may like to look at the tutorial here.  I suggest you read through the entire tutorial, specifically the section  regarding Market Direction.  Once you’re comfortable with the idea behind that and are familiar with distribution and accumulation, you’ll understand why I track those days in the calendar on the Market Outlook page (accumulation – green days, distribution – red days). 

Question:

Would you cover on an intra-day bounce above 31 or closing above 31?

My Response:

The reason for waiting until market close would be  to see what the so
called "smart money" will do (institutions do much of their trading in
the last hour of the day).  Many traders will avoid making a sell decision
(or in this case, a cover decision until then).  However, if SFA surges
above 31with heavy volume I would be covering regardless of when that occurs,
considering that volume levels will tell you what institutions are
doing. The only exception might be in the first 30 – 60 min. of trading, where I
typically avoid making any trading decision. 

Follow up question:

Thanks.  Just curious, do you use more of a mental stop than a hard stop
order so you can watch volume?  And if SFA goes above 31 on light volume
will you not sell.

Since I don’t trade full time and have trouble monitoring trades
throughout the day I enter stop orders immediately after a trade has
been entered.  I have placed my stop on SFA at 31.  This seems to work
best for me but always open to suggestions if you have any (I feel exits
are one of the more important aspects to trading and always looking to
improve in this area).

My Response:

Since I am able to watch the market most days, I don’t use stop orders.
This way I can base my decision on volume levels as well as the strength
of the market.  To answer your question, I would be less likely to cover if
the stock rises through resistance with light volume.  Although, it would be
surprising to see it get past those resistance levels with light volume.

Most are not able to watch the market during the day, so you MUST use
stops.  Here’s a hint though.  Never place a stop on a whole number.  You
increase your chances of getting shaken out.  Remember that market makers know
all stop loss levels.  It is human nature to want to set stops at even numbers,
so there will be a large number of stops at those places.  Market makers
may run a stock up in order to cause a short squeeze.  I don’t want to get
too complicated here.. make sure you place stops at odd numbers where others
wont’.  So maybe 31.23 or something like that.

Question:

It looks like you didn’t make the ADBL and CRDN shorts part of the portfolio. Will you notify by email a buy to cover or should I just follow you targets you gave? Both look great so far. I’m kicking myself for not realizing the climax tops of DHB and XXIA as I’m sure you are, too. Good picks but both went down so quickly. Such is life. This is the first time I’ve shorted a stock so I’m pretty anxious about the whole thing. It helps that they both dropped on good volume yesterday. Thanks for your efforts. The web site looks great. Dave

My Response:

Question:

I signed up your service last Thursday so my exposure to the tools is limited.  I have been a user of [edited] and switched to your service because of the market analysis, model portfolio and the breakout sections on the web site.  I also didn’t feel the buy candidates were all that great on [edited].  I did some back testing of [edited] recommendations (although it was not overly scientific) and was not satisfied with the results.  The back testing of your model portfolio proved much better results.

I am a person who is dedicated to becoming a better trader.  However I have a full-time job and a family so time is very precious.   I am looking for the following from your service:

• An easy way to monitor the direction of the market.  A red/green light or number system to tell me quickly the market direction.  Should on be long, short, on the sidelines, etc.  I think this can be found on selfinvestors.com in the “market strategy” section of the “market outlook” tab.
• Bullish CANSLIM investment opportunities.  I don’t want to do all the research to find CANSLIM trading candidates with the proper charts/technicals.  I use to believe that entry was the most important aspect of trading.  However, I have come to believe more and more that the entry of a trade is of far less significance.  I want to focus my attention on exits, position size, and the psychology of trading and use selfinvestors.com to give me buy candidates of stocks that are moving in the right direction and have a decent probability of continuing that move.  I think the model portfolio with email alerts and breakout sections provide these candidates.
• Bearish CANSLIM investment opportunities.  I do not see this as part of you service today but would definitely like to.  When the market direction turns bearish would like to profit rather than be on the sidelines.
• Monitoring and commentary of recommended positions.
• An online journaling method.  Not provided today by your service but I am looking at traderbrain.com for this functionality. 
   
  Probably much more than you asked for.  But so far I do find your service fairly intuitive with the services I am looking for and at a fair price.  I will keep you posted on whether or not I find profitable opportunities.

Question:

Thank you so much for your long memo regarding the upcoming (and recent) changes. I am glad you have decided to go weekly on the update. I was becoming concerned with the obviously enormous amount of work you had to do each day, wondering how it was humanly possible to keep it up. So, I welcome the change. Besides, there are many places to go to get detailed daily updates.

I had not noticed the column change from breakout rank to 50% DMA. I guess that corroborates your view of its relative importance. I welcome the change. I think another value with this new column is the IBD notion that a sell signal flag is raised when the price gets too extended by becoming more than 51% above its 50 dma. It is not easy to get this visual information from Metastock, so you are providing a valuable service on this little-used signal.

Your description of the new look and function of Breakout Tracker sounds great. I can hardly wait. When you have the time, I will be very interested in finding out how you will be calculating the new sixty-point ranking system.

Finally, one last question. Are the numbers in the Breakout Tracker calculated each day? I’m thinking of the pivot point which sometimes tends to meander a bit.

Best of luck on your update. There are many of us who will be thankful.

My Response:

Question:

I joined a new  IBD group that met for the first time last month in the
Chicago area. The group  is interested in learning how to successfully
invest using CANSLIM. Just to keep things simple do you provide clear buy
and sell signals for the stocks that you recommend.

 I’m a little skeptical that anyone’s recieved a 100% return in the current
market. Do you provide proof that your portifolio made 100% this year?

My Response:

Thanks for your inquiry.  To simply answer your first question.. yes, I do
provide clear buy and sell signals to my members in a few different forms.
One way I do this is through a Weekly Stock Watch which is sent to members
every Sunday evening and takes a look at the best opportunities for the week
ahead.  Each stock is accompanied by analysis of the chart and buy and sell
strategies.  As you know, I also run a model portfolio so that members can
see a "real world" portfolio in action.  For each stock I provide
trading notes throughout the holding period at critical points (such as
break above resistance or below support, etc.)  When a position is purchased
or sold, the member is notified within a couple minutes time (usually as
fast as I can get an explanation written and sent out).  Of course, I
recommend that members do their own research before blindly purchasing these
picks.

You asked about performance.  That 100% performance is an annualized return
(actually, I need to update that.. it’s currently 95%).  That includes a
string of big winners that were recommended when I was working as an analyst
for CANSLIM.net near the end of 2003 (these picks included RIMM, AUO, COH).
As you know, it has been a difficult market in the past year for growth
investors.  Year to date, the SelfInvestors.com Portfolio is up 8.3%,
compared to a 6.6% year to date return when you average the major indices.

I’d like to discuss a bit too my investing strategy which is aligned with
the ultimate goal of many of the most successful investing strategies. 
It’s as simple as keeping losses small while letting your winners run. 
It’s not about how many winning trades you have, it’s the size of your
gains vs. losses.  For example, over the last couple months my winning
percentage has been less than 50%.  Buy by keeping losses small
(losing trades have averaged 5% loss) they can be easily recovered from. 
In fact, one pick (Jupiter Media – up 43% has more than covered these
losses).  That is the key to this strategy… you are basically searching for
the big winner and the good news is that you don’t need to be right very
often if you practice sound money management.

I have talked quite a bit about the portfolio, but the real gem of the
service is the Breakout Tracker, which I think you’ll find incredibly
useful.  No other site offers a service like this.  Imagine having a list of
every potential breakout ranked according to fundamental and technical
analyis which can be sorted by industry group, relative strength, % change
from average volume (similar to IBD’s Where Is the Big Money Flowing), etc. 
A quick and highly effective strategy that I encourage members to use is
focusing on industry groups that are leading the market and create a watchlist
of the highest rated stocks in those groups that are near a breakout.  Set alerts
for your pivot points and be prepared to make the purchase!  The Breakout
Tracker allows you to do this in just a few minutes each evening.

I would encourage you to sign up for the free report which begins the
process of implementing a successful high growth strategy.  It discusses the
health of the market and pinpoints sector and industry group strength.  As I
do with all members I would be happy to discuss investing and/or my services
in greater detail if you’d like.  I’ll remind you that I aslo offer a free
premium trial, which I will be increasing to 30 days very soon (it’s
currently 10 days, which I don’t think gives the potential member a good
idea of what the service offers).  Anyway, I hope I’ve answered your
questions here and sincerely look forward to working with you in the future.

Question:

I want to ask you a question and advice on something.  I read your notes on
GIVN and feel the same way about HANS today.  What happened to that thing
today???  I caught it right above it’s pivot point this morning and watched
it go over 30 and thought this will be a good one!
Next thing I know I am stopped out 7% down in a flash. I have to leave to go
to my part time job at 2:15 PM EST.  When I got back home, I saw where it
really took a beating.  Thank goodness for stop loss orders.

Here’s what I learned from this one and I want your advice on how you would
have handled it.
I read somewhere that if you enter a trade, it should go up from the start
to some degree.  In other words, it should be a good trade from the start.
Now, it might wiggle a little after it moves up in a slight pullback but
should not tank before the end of the day.  I usually watch a new trade for
some time after I buy to see how it reacts.  I always immediately enter a
stop loss in case the computer or market crashes.  It is usually at some
support level around 7% to 8% below the buy price.  But today I learned to
put a shorter stop loss in on the first day especially since I can not be
here all day on the trade day.  If it survives the first day with a
reasonable gain, then the next day I will move it lower.  At least that’s
how I think it would work in this type of market.  In a bull market, maybe
the 7% stop would be best.

Finally, my question.  How do you handle a new buy the first day in this
type of market?  Where would be the best place to put a stop loss on initial
buy?  I know you can’t advise what to buy and stuff, but let me know what
you might do in these circumstances.  And another question.  Bill says to
let the winners run to about 20% from the pivot point before it bases again
and think about taking some profits while they are going up.  With this
market, many are not getting anywhere near even 15% before they fizzle. Two
stocks I am holding now have over 10% gain and I don’t want to lose it.
I’ll tell you what they are. JUPM is up 12.77 % and OS is up 11.51%.   How
close do you think Bill would put a stop loss under these?  There’s no
telling what could happen in this market we are in and I just thought I
would ask.

My Response:

• Purchasing in the first half hour of trading is rarely a good idea… this is the time that amateurs do most of their trading and the true direction of the stock has not been revealed.  Looking at that chart of HANS, the stock gapped up immediately at the open, consolidated and then plummeted below support of the bottom of the gap within a couple of hours on heavy volume.  It would have been best to watch a 5 or 10 min chart and waited until it cleared the consolidation on heavy buy volume… which it never did and the purchase would not have been made.
• Make sure volume is surging: Divide the 50 day average volume by 6.5 hours (hours in a trading day) and then multiply by where you are in the trading day (this is done automatically in the Breakout Tracker, but delayed 15 minutes.)  When monitoring a breakout you will want to know if volume is surging in real time.  Of course you could see this on a 5 minute chart as well.  Helps to have one monitor for your 5 minute charts and one for executing trades.

• Typically, you’ll want to lock in a profit at 20-25% if the stock doesn’t increase by this amount in less than 2-3 weeks.  Stocks that jump 20% in a short time frame (JUPM has this potential and possibly OS) should be given a chance to run.   Of course if the market turns negative, these rules will be modified and positions will be closed much sooner or held longer depending on conditions.  Currently, the market is strong and positions should be given a chance to ride out.. especially positions like JUPM.  I don’t believe in hard and fast rules for selling though.  It really depends on the overall market, price, volume and where support levels