April 15, 2023 - The RightLine Report
Notes From The Editor
Over the years I've noticed that some traders jump from one trading system to another, never spending enough time with a single method to find out if it really works. While this quick-change approach to trading stocks can be very entertaining, it is usually as unproductive as it is stimulating.
When I find someone in this situation, I usually suggest they select one method and consistently trade it for at least three months using small positions. Then they can measure the results and see how it performs. If it works well, I recommend that they should stick with it and increase their position size. If it doesn't, then find out why it isn't working, and then fix or replace it.
Keep in mind that most winning routines contain robust stock selection, risk management, and exit strategies. In an effort to improve your results, let's examine what a trading method actually is, how to determine yours, and take a brief look at the RightLine Report method.
Method Over Madness ...
First off, your "method" simply refers to the procedures you use in your trading routine. This includes everything you do from start to finish such as your general trading plan, how you select stocks to trade, your setup and entry criteria, how you manage and exit each trade, and the records you keep.
Most traders have never clearly defined their method. If you find yourself in this group, you will need to clarify exactly what makes up your personal trading strategy.
How To Determine Your Trading Method
The easiest way is to write down everything you do when you're trading. I suggest that you start by keeping a simple journal that includes how and why you selected your stocks, plus all of the entry/exit tactics used to buy and sell them.
A couple of weeks is usually sufficient if you trade several times a week, a month or two may be required if you only trade a few times each month. This will give you the information you need to determine and evaluate your method. Many traders find that their approach is not consistent and includes too many variables. This make it virtually impossible to tell what actually works and what doesn't.
Choosing A Trading Method
One solution is to use an established method like the RightLine Report, which includes all of the components that are necessary for a successful short-term trading method. For example, our strategy includes entry tactics based primarily on Technical Analysis (TA). This approach increases the probability that each trade will meet expectations.
We also use a Risk Management module, a very powerful tool that will improve results for almost any trading strategy. Every trade recommended in the RightLine Report lists specific entry price points, or triggers. Each one is based on a technical setup selected by our analysts. Every suggested position also includes an exit plan with trailing stops to prevent losses and lock in gains.
We also suggest that traders follow the RightLine method by trading as many of the setups in each issue as possible. If this isn't practical due to capital or time constraints, then you may want to use an alternate routine. This could mean trading all of the recommended setups in the weekend Report, or depending on your schedule one of the weekday issues. You might even trade the first one or two setups in each Quick List.
Regardless of the routine you choose, committing to a consistent approach allows you to simplify the process so you can measure your results.
Bottom Line: It's been said that if you want to know your past - look into your present conditions. If you want to know your future - look into your present actions.
As always, enjoy the weekend!
- Thomas Sutton, Editor
Stocks Covered Today Stock Splits Trader's Corner
Quick List
Stock 04/14 04/14 Buy Short Trailing Stops Gain
Symbol Price +/- Entry Entry Initial/Tighten Amount
------ -------- -------- -------- -------- --------------- --------
ATAT 22.83 0.25 23.58 21.89 1.69/0.85 3.98
FET 24.45 0.06 24.88 23.33 1.55/0.78 2.68
SKWD 21.18 0.10 21.85 20.24 1.61/0.81 1.76
SAVA 23.32 -0.30 22.14 1.7/0.85 2.28
HROW 21.94 -0.19 22.92 20.86 2.06/1.03 2.5
The "Quick List" provides a brief summary of each stock write-up and should be taken in the context of the related write-up presented in the "Stocks Covered in This Issue" section of this Report.
Be sure to read "How To Use The RightLine Quick List" and always use the RightLine Risk Control Calculator before entering any position.
For more on controlling risk go to the RightLine Risk Control System
For a glossary of terms unique to The RightLine Report go to: Glossary
Questions? Send us an email using our Contact Form.
Stocks Covered Today Stock Splits Trader's Corner
Market Summary
The top US stock indices were lower on Friday after a Federal Reserve official said that inflation remains stubbornly high, so the central bank needs to continue raising interest rates to slow the pace of lending. Data released earlier this week showed that inflation softened in March, but that underlying price pressures are persistent. In equities, big banks were among the few upbeat sectors on Friday after several posted better earnings results than analysts had predicted, though some executives warned that recent stress in the financial sector is lowering their outlook for the economy. Gold was lower, while oil
Friday On The Week
-------------------- --------------------
Dow 33,886.47 -143.22 +401.18 1.2%
Nasdaq 12,123.47 -42.81 +35.51 0.29%
S&P 500 4,137.64 -8.58 +32.62 0.79%
NYSE Volume 3.58B
NYSE Advancers 1,018
NYSE Decliners 1,945
Nasdaq Volume 4.67B
Nasdaq Advancers 1,447
Nasdaq Decliners 2,945
New Highs/Lows
04/06 04/10 04/11 04/12 04/13 04/14
--------------------------------------------
NYSE New Highs 34 34 48 57 54 46
NYSE New Lows 39 39 20 28 31 40
Nasdaq New Highs 63 55 71 80 86 71
Nasdaq New Lows 175 167 120 192 157 222
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "Get Rich Quick"
Only an extremely tiny percentage of individuals who enter the stock market to get rich quick ever accomplish that goal. Most of them bust our rather quickly. This is due to the tendency for "get rich quick" folks to accept way too much risk - usually by putting too much of their account into one position.
The Technical Analyst
For help with this chart, be sure to read "Understanding The Importance Of Support And Resistance"
and "Improve Your Trading With Moving Averages".
S&P 500 - 4137.64 April 14, 2023
52-Week High: 4512.94
52-Week Low: 3491.58
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 4305.73
Resistance 2: 4215.09
Resistance 1: 4176.37
Pivot: 4124.46
Support 1: 4085.73
Support 2: 4033.82
Support 3: 3943.18
NASDAQ Composite - 12123.47 April 14, 2023
52-Week High: 13710.70
52-Week Low: 10088.83
Daily Trend: DOWN
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 12660.26
Resistance 2: 12371.09
Resistance 1: 12247.28
Pivot: 12081.91
Support 1: 11958.10
Support 2: 11792.73
Support 3: 11503.55
Dow Industrials - 33886.47 April 14, 2023
52-Week High: 35492.22
52-Week Low: 28660.94
Daily Trend: UP
Weekly trend: UP
Weekly Pivot Levels
Resistance 3: 35249.96
Resistance 2: 34510.45
Resistance 1: 34198.46
Pivot: 33770.94
Support 1: 33458.95
Support 2: 33031.43
Support 3: 32291.92
Stocks Covered Today Stock Splits Trader's Corner
Market Calendar
ECONOMIC REPORTS AND EVENTS (all times are Eastern): MONDAY, APRIL 17 8:30 am Empire State manufacturing April 10:00 am Home builder confidence index April 12:45 pm Richmond Fed President Tom Barkin speaks TUESDAY, APRIL 18 8:30 am Housing starts March 8:30 am Building permits March 1 pm Fed Gov. Michelle Bowman speaks WEDNESDAY, APRIL 19 2:00 pm Fed Beige Book 7:00 pm New York Fed President Williams speaks THURSDAY, APRIL 20 8:30 am Initial jobless claims April 15 8:30 am Continuing jobless claims April 8 8:30 am Philadelphia Fed manufacturing survey April 10:00 am Existing home sales March 10:00 am U.S. leading economic indicators 12:00 pm Fed Gov. Christopher Waller speaks 12:20 pm Cleveland Fed President Loretta Mester speaks 3:00 pm Dallas Fed listens with Dallas Fed President Lorie Logan and Fed Gov. Michelle Bowman 5:00 pm Atlanta Fed President Raphael Bostic speaks FRIDAY, APRIL 21 9:45 am S&P flash U.S. services PMI April 9.45 am S&P flash U.S. manufacturing PMI April 4:35 pm Fed Gov Lisa Cook speaks For a chart of typical Up or Down market reactions to specific major US economic reports go to: Economic Indicator Effects
Stocks Covered Today Stock Splits Trader's Corner
TRADER'S TIP: "Ten Feet Tall and Bullet Proof"
The height of a support or resistance zone determines its strength. For example a thick congestion zone is more resistant than a thin one. As a rule of thumb a zone height equal to 1% of the current price is considered minor, 3% is intermediate, and 7% or more is major support or resistance.
Stocks Covered in This Issue
CONSUMER CYCLICAL SECTOR
Atour Lifestyle Holdings Limited (ATAT: Consumer Cyclical/Lodging) - SQUEEZE PLAY. Sometimes when Bulls and Bears face off in the market arena for a typical day-long battle, there is no clear winner. This is evident when the daily price range contracts to an unusually narrow state. ATAT found itself in this condition on Friday when neither buyers or sellers were able to push ahead. This setup provides traders a chance to hop on board the next breakout - whether it's to the upside or down - with little risk of loss. To do this place a BUY order at 23.58 and a SELL short trigger at 21.89. When ATAT moves outside of Friday's range, one of the orders will be filled. Once you hold a position of shares, cancel the unfilled order and place a 1.69 trailing stop. After you've got a 3.98 profit, tighten the stop to 0.85. ATAT closed at 22.83 on Friday. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 2.977B. Not Optionable.
ENERGY SECTOR
Forum Energy Technologies, Inc. (FET: Energy/Oil & Gas Equipment & Services) - SQUEEZE PLAY. FET shareholders know what it feels like to be squeezed. Friday's slim price range reveals uncertainty on both sides of the table, a situation which often resolves itself by either Bears or Bulls quickly gaining a clear advantage. The question is "who will win?" Near-term market action tell us whether we should sell short or we should buy shares instead. FET closed Friday at 24.45. The plan is to enter in the right direction by placing a BUY trigger at 24.88 and a SELL short trigger at 23.33. Once FET establishes direction, place your triggered order. As soon as you are in the trade, place a trailing stop in the amount of 1.55. After you've collected a 2.68 profit, tighten the stop to 0.78. Earnings Report Date: May 05, 2023. Beta: 2.84. Market-Cap: 251.781M. Not Optionable.
FINANCIAL SERVICES SECTOR
Skyward Specialty Insurance Group, Inc. (SKWD: Financial Services/Insurance-Property & Casualty) - SQUEEZE PLAY. In certain stocks a tightly constricted price range is a sign that neither bulls nor bears are confident of winning in the near term. This often means that the side that gives up first causes a quick move in the opposite direction. In these fear dominated skirmishes, opposing traders always benefit from the retreat. In the Squeeze Play setup you can actually play both sides of the inevitable surge. SKWD traders reached this state of stand-off on Friday with the tightest range of the past seven days. You can take advantage of their efforts by placing a low risk BUY trigger at 21.85 and a SELL short trigger at 20.24. After one of the two orders is filled, cancel the un-triggered order and place a trailing stop at 1.61 which can be tightened to 0.81 on a 1.76 gain. SKWD closed Friday at 21.18. Earnings Report Date: N/A. Beta: N/A. Market-Cap: 824.811M. Not Optionable.
HEALTHCARE SECTOR
Cassava Sciences, Inc. (SAVA: Healthcare/Biotechnology) - BEARISH U-TURN. The weight of SAVA's declining weekly trend was lightened recently when shares began to move upward. However, like a swimmer against the tide SAVA encountered strong resistance on Friday. Price action indicates a likely return to the previous downtrend, so plan to short SAVA upon reaching our SELL trigger at 22.14. Set a 1.7 trailing stop which can be tightened to 0.85 after you have a 2.28 gain. SAVA ended the latest session at 23.32. Earnings Report Date: May 03, 2023. Beta: -0.09. Market-Cap: 973.596M. Optionable.
Harrow Health, Inc. (HROW: Healthcare/Drug Manufacturers-Specialty & Generic) - SQUEEZE PLAY. HROW traders on both sides of the fence are now locked in a head-to-head shootout. Friday's price range was the narrowest in over a week, as neither Bears or Bulls have been able to clearly gain the upper hand. This gives us an opportunity to catch the next directional move with little risk of loss. To do this we'll place both a long and a short trigger with a BUY at 22.92 and a SELL short trigger at 20.86. When one of the orders is filled, cancel the remaining order and enter a 2.06 trailing stop. When you've reached a 2.5 paper profit, tighten the stop to 1.03. HROW closed at 21.94 on Friday. Earnings Report Date: May 03, 2023. Beta: 0.16. Market-Cap: 657.491M. Optionable.
IMPORTANT: Before entering any positions, always use the Risk Control System to determine the level of acceptable risk and the maximum number of shares to buy. Use Gap Adjusted Entries to reset the Entry Price for stocks that gap beyond recommended entry levels.
Stocks Covered Today Stock Splits Trader's Corner
Stock Splits
Below are the stocks that have announced splits and have recently executed or will execute soon. There is generally a return to normal price behavior in the weeks following a split announcement in what we call a "Dormancy Phase." As the stock nears its split execution date (Effective Date) it often moves into the "Pre-Split Run" stage where quick and sometimes dramatic gains can occur.
Announce Eff. Split
Company Name (Symbol) Date Date Ratio Options
---------------- ------- -------- ------- ------ -------
NOTE: The number of stock split announcments goes up during Bull markets,
and goes down during Bear market cycles. There are currently no upcoming
stock splits that meet RightLine's proprietary criteria for split ratio,
trading volume and price action.
Split details are also available online at the RightLine Online Stock Split Calendar. For a detailed look at the different stages of a Stock Split, Click Here.
Stocks Covered Today Stock Splits Trader's Corner
Trader's Corner
Stop Loss Questions And Answers - Part I
I get more questions about stop losses than about any other subject. Clearly this strategy causes traders a lot of pain and confusion. Some of it stems from the schizoid nature of our modern markets. But most of it reflects an underlying weakness in trade management skills.
What takes place at the end of a trade usually reflects decisions made at the beginning. In other words, the best entries usually lead to the most profitable exits. This is the most urgent wisdom I can give when it comes to stop-loss placement.
We can spend hours deciding whether a stock is a good buy or a good sell, but this emphasis is often misplaced. Over time, carefully chosen exits are more important than great entries. You don't believe me? Just ask all those folks who bought tech stocks in the late 1990s.
I've compiled a question-and-answer session that addresses the most important elements of stop-loss strategy.
Question: Where do I place my stop loss when shorting a stock that gaps down?
Answer: The most obvious place is just above the price level where the gap would be filled. But that's a generic answer. It's more effective to place the stop loss on top of converging resistance, such as highs, Fibonacci retracements and moving averages. A bouncing stock will have a very hard time getting through those levels.
Q: I'm getting stopped out of both my longs and my shorts in this market. Are my stops too tight, or should I blame it in the choppy market?
A: There are many reasons why stops get hit too often. It's hard to tell without knowing the specifics of each placement. This is a tough market, and you often have only two choices. First, place a tight stop loss and trade the small swings to avoid all the choppy reversals. Second, back up a giant step and trade the broader trend you see in front of your nose. In other words, the market is only choppy if you're a daytrader or if you flip positions every few days.
The trends are more obvious if your holding period is weeks or longer. But longer holds have a disadvantage when it comes to stop placement. You have to take on greater risk with longer-term positions, because stocks will wiggle around a lot more before getting from point A to point B.
There's one more caution in regard to stop placement. Your stops have to match your trading strategy. For example, if you're looking for a 3- point swing, you have to stay out of the market until your risk (current price to stop price) is a point or less. This goes back to the importance of picking good entry points.
Q: My stops get hit all the time. What am I doing wrong?
A: Keep those stops away from the most obvious support or resistance levels, such as round numbers. There's a lot to gain by pushing price through these levels. It cleans out one side of the market and sets up a vacuum headed the other way. It's one reason I'll actually sell short into a breakout or go long into a breakdown. Keep in mind that many traders look for price stretching through a barrier as a signal to go the other way.
Q: Should I use a flat dollar or percentage stop loss?
A: I never use percentage or dollar stop losses, at least for the initial placement. The first stop loss is always based on the price pattern and where current action violates the trade setup. Of course, you need good trailing stops once a position moves in your favor, and flat dollar strategies have a useful purpose in protecting profits. But I would avoid percentage stop losses in all cases.
A move of 5%, 10% or 50% says nothing about the current market or trade setup. You could enter a position where a stock moves 11% every day on average. So your 10% stop is at risk every day because of market noise, rather than anything else. A percentage stop loss gives the illusion of controlling risk without giving you the realization of what risk is in the first place. Why is this important? Reward and risk are joined at the hip. If you don't have one right, the other won't be right either.
There is a definable risk based on the pattern and where you enter the trade. Each trade has a different risk profile, and your trade entry tells you how much it can wiggle but still get you to the goal. You need to include this standard deviation in your stop-loss planning, or you'll take maximum loss after maximum loss.
Q: I'm thinking about using time-based stops instead of price-based stops. Do they work?
A: Time-based stops may work, but time cycles are 10 times harder to manage properly than price. So your chances of being wrong with time stops are about 10 times as great. You'll also experience major drawdowns while you wait for your time to get hit.
Q: How can I protect my positions from gaps and sudden price moves? Sometimes they happen before I have a chance to set my stop losses.
A: Plan a fire drill and practice it in your head at all times. The fire drill is a consideration for the worst-case scenario. Of course, we protect positions with stops whenever we can. But things such as gaps and world events can carry positions through them, and we need to know exactly what to do when the market spikes. The only way to accomplish this is to visualize it happening and to see how you really want to address it. Then you'll act spontaneously when the time comes.
If a stock is set to gap through your stop loss when it opens, do you sell it immediately or wait for a bounce? There's really no right answer. I usually pull my stop and watch the first few minutes of trading. If the market reverses, I try to close out on the bounce to a common retracement level.
Some midday panic situations are global, while others are sudden. Most times, my preferred fire drill is to exit first and ask questions later. Sometimes I'll see the futures go crazy and not know why. They may not affect my individual positions at the time, but I'll often exit everything until I can find out what happened. I still remember the futures going crazy on Sept. 11, 2001. There was only a few minutes to jump ship before the market was shut down for days.
Q: I'm placing very tight stops on every trade, but they keep getting hit. What am I doing wrong?
A: Base your stops on the risk profile of the stock you're trading. You can't trade a volatile biotech stock and expect to get away with a 15- cent stop loss. But you might be able to do it with a slow moving REIT or paper company. Look at total dollar exposure and the stock's volatility. Be focused on exiting when you're wrong, wherever that is on the price chart. The only way that makes sense with your stop loss is if your entry was appropriate to the trade setup. You can also take another shot at a stock if your stop loss gets hit or the stock recovers. These new positions should move in your favor immediately, or you should jump ship again because you were already wrong once.
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This guest article was written by Alan Farley, author of "The Master Swing Trader." Be sure to read "Stop Loss Questions And Answers - Part II" in the next weekend issue of the RightLine Report.
A simple yet powerful tool, the Risk Control Calculator helps you manage risk by recommending a maximum number of shares to purchase. Available in the RightLine Member's Area.
Disclaimer
The RightLine Report is an information service for investors and traders. It is not a solicitation nor a recommendation or offer to buy or sell securities. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The publishers of The RightLine Report are not brokers or financial advisors, and are not acting in any way to influence the purchase or sale of any security. Stock picks, entry points and exit points should be considered an information resource to assist the trader in developing a trading plan and it is the sole responsibility of the reader to conduct his or her own due diligence before executing a trade. Trading securities should be considered speculative with a high degree of volatility and risk.
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