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Thx Jim. Really appreciate it.
Lorena
At 07:41 PM 24/01/99 -0800, you wrote:
>Lorena,
> Don't know why the attachments didn't make it. I'll copy them below
>instead of attach.
>
>JimG
>-----------------------------------------
>From: Jim Greening <JimGinVA@xxxxxxxxxxxxx>
>To: Metastock <metastock@xxxxxxxxxxxxx>
>Subject: Stock Trading Building Blocks
>Date: Saturday, November 14, 1998 7:46 PM
>
>All,
> This may be slightly out of scope in that it is a larger topic
>than just MetaStock charting and testing, although that's definitely a
>good part of it. I thought it would be interesting to share our ideas
>on the building blocks or elements of a complete stock trading
>methodology.
>
> I have tried to build my own trading system on what I think is a
>logical set of building blocks. The elements of my trading system
>follow:
>1. A systematic method of narrowing the universe of stocks to a few
>potential trading candidates that have certain characteristics that
>have resulted in successful trades in the past. My searches or
>filters use a combination of fundamental and technical criteria.
>2. A market tracking mechanism that indicates when it is OK to enter
>a position and whether that position should be long or short. I use
>trend channels for this.
>3. Tests and a methodology for making the final stock selection for
>new positions.
>4. A money management system that limits overall portfolio risk on
>each new position and tells how large each position should be. I
>won't risk more than 5% (usually 2 to 3%) of my portfolio on any one
>position.
>5. A method for setting stops and targets although targets are not
>always required. Stops should be based on Technical Analysis rather
>than an arbitrary percentage or point move. Stop placement tied back
>to money management can affect position size. Again, I use trend
>channels for this.
>6. An exit strategy. Mine is simple, exit when a target or stop is
>hit.
>
> Does anyone have any comments on the above building blocks? Any
>to add? Do you disagree with any? Is anyone interested into going
>into details on each of the building blocks?
>
>JimG
>--------------------------------
>From: Jim Greening <JimGinVA@xxxxxxxxxxxxx>
>To: Metastock <metastock@xxxxxxxxxxxxx>
>Subject: Building Blocks - Charts, Trendlines, & Channels
>Date: Sunday, November 15, 1998 4:29 PM
>
>All,
> Before I discuss trend lines and channels as I promised, I want
>to say a few words about the type of charts. Most people use H,L,C
>bar charts for their charting. I don't, I use CandleVolume charts. I
>always thought that having an arbitrary time period such as a day for
>the x axis of a price time chart didn't make a lot of sense. When
>Arm's wrote his EquiVolume book back in the 60s he made his x axis a
>function of volume per unit time. This made a lot of intuitive sense
>to me. The more volume in a given trading period, the wider the bar.
>I've been using volume based charts every since then. When MetaStock
>started using CandleVolume charts I switched to them. In CandleVolume
>charts, the width of the candle is a function of volume, just like
>Arm's equiVolume charts. I thought the additional information on the
>candlestick should be valuable, although I'll be the first to admit
>that I have never gotten any consistent results based on only
>CandleStick patterns. I keep using CandleVolume charts because I like
>the way they look and maybe, just maybe, I'll run across that magic
>pattern some day <G>.
> The reason I go into this, is that if you are using trend lines
>or channels for signals, you will get different signals and different
>results with H,L,C bar charts and CandleVolume charts. I'm very
>comfortable using CandleVolume charts and happen to think that they
>give better results than H,L,C bar charts. Having said that, I also
>have to say that I have absolutely no proof of that. I've never done
>a systematic study and haven't seen any done by others. But I feel
>they are better and it's important to go with what you believe <G>.
> For constructing trend lines I prefer Trader Vic's methodology.
>For a Trader Vic up trend line, start with the lowest low in the
>timeframe being considered. Draw a line to a low before the highest
>high in the time frame and extend the line to the right. It's
>important that you pick the right low to draw the line to. It must be
>before the highest high in the timeframe and it must be the one low
>that will allow you to draw a line that doesn't intersect any data
>before the highest high. A down trend line is just the mirror image.
>You start with the highest high in the timeframe being considered.
>Draw a line to another high before the lowest low such that the line
>does not pass through any data and extend the line to the right. To
>construct the trend channel, draw a parallel line on the other side of
>the data that only touches the data at the extreme point. That is it
>doesn't intersect any other data points. This is easy with MetaStock.
>You can hold the CTRL key down, then hold the left mouse key down once
>you are on the original line and drag a parallel line to where ever
>you want it.
> I use these Trader Vic type channels for my long (years) and
>intermediate term (few months to over a year) channels. I use the
>channels to get my buy signals and set my stops. If they are wide
>enough, I may even use them for setting my targets, but that will be
>the subject of a later post. Right now I want to just concentrate on
>how I construct my trend channels. There is a problem with using
>Trader Vic type channels for Short term (days to few months) channels.
>That problem is that you will tend to get too many false breakout
>signals for a data set that hasn't gone through one or two significant
>corrections. To try to overcome this problem for short term channels,
>I use the Standard Deviation channels built into MS6.5. The problem
>with this type of channel is to know where to start and end your
>channel. I did not want this to be arbritary, so after some
>experimenting, I decided on the following. For up trend channels, I
>start my channel immediately to the left of the lowest low in the
>timeframe being considered just like Trader Vic. Then I end my
>channel immediately to the right of the highest high in the time frame
>being considered. Initially, I set the deviation at 2 and extend the
>channel to the right. Anytime a new high is hit, I'll drag the right
>end of the channel just to the right of that new high. As soon as I
>get a decent reaction in the stock data, I'll check to see if I should
>change the deviation. I'll use 1, 1.3, 1.5, 1.8, or 2 for the
>deviation, using the lowest number that will bound all the data
>between the end points without intersecting any. After a few months
>with at least two good reactions, I switch to Trader Vic type trend
>lines.
> That's it. That's the way I construct my trend channels so there
>isn't any arbitrary settings. Any questions or suggestions?
>
>JimG
>--------------------------------
>From: Jim Greening <JimGinVA@xxxxxxxxxxxxx>
>To: Metastock <metastock@xxxxxxxxxxxxx>
>Subject: Building Blocks - Trend Channels
>Date: Sunday, December 13, 1998 12:52 PM
>
>All,
> Last week I talked about how I use trend channels to set targets and
>stops to tell me when to exit a position. This week I'm going to go back to
>the beginning to discuss how I use trend channels to tell me when to enter a
>position. I'd appreciate any comments pro or con on this methodology.
> I've come to depend more and more on trend channels as my primary
>technical analysis tool. The theory of trend channel investing is simple.
>First you have to construct the trend channel. After that is done the rest
>is easy. For up trend channels you open a long position right after a stock
>bounces off the bottom of a channel and close the position when it hits the
>top of a channel. Vice versa for down trend channels. I treat horizontal
>channels like up trend channels for trading purposes.
> Of course, I expand on this simple methodology slightly <G>. First I
>construct short, intermediate, and long term channels on all my charts. My
>definition of short, intermediate and long term is flexible. In general
>short term is days to up to a few months, intermediate term is a few months
>to over a year, and long term is years. I like to open a position in the
>direction of the long term trend channel when an intermediate term trend
>channel is broken and the stock reverses in the direction of the long term
>trend. Since this is a fairly rare occurence, my secondary method which
>occurs much more frequently and is, therefore, the one I use the most, is to
>enter a position when the short term trend channel is broken and the stock
>reverses in direction of the intermediate term trend channel. In both
>cases, the reversal is a better buy signal when it occurs in conjunction
>with a bounce off the bottom of the longer term trend channel. Once a stock
>has reversed its trend, I construct a new short term trend channel in the
>direction of the longer term trend. I use this new Short Term Trend Channel
>to set my targets and stops as I described last week if I entered a position
>on the breakout of the old channel. If I missed entering the position at
>the brekout, there are additional entry points every time the stock bounces
>off the bottom of the new short term trend channel.
> As you can see, using trend channels for signaling when to enter a
>new position is straight forward and simple. The trick is how to
>objectively and consistently construct the trend channels. For short term
>up trend channels I use the Standard Deviation Channel built into MetaStock.
>I start the channel immediately to the left of the lowest low in the data
>being considered and end immediately to the right of the highest high in the
>time frame. I set the deviation at 2 to determine the targets and at 1 to
>determine the stops. I usually leave it at 1 for looking at the charts
>since the stop is more important than the tartget. I extend the channel to
>the right. Anytime a new high is hit, I'll drag the right end of the
>channel immediately to the right of that high. After a few months with at
>least two good reactions, I switch to Trader Vic type trend lines to
>construct my short term channels. I only use Trader Vic type trend lines
>for intermediate and long term channels. I like the Trader Vic methodology
>much better than using a standard deviation channel, but it gives many more
>false signals than standard deviation channels do for very short term
>channels without any major reactions in the data.
> For a Trader Vic up trend line, start with the lowest low in the time
>frame being considered. Draw a line from that low to a low before the
>highest high in the time frame such that the line doesn't pass through any
>data. It's important that you don't draw the line through any data or to a
>low that is past the highest high in the timeframe. A down trend line is
>just the mirror image using the highs in the time frame. To construct the
>up trend channel, extend the line to the right, then draw a parallel line
>through the most extreme high in the time frame such that the line doesn't
>intersect any other data points. This is easy with MetaStock. You can hold
>the CTRL key down, then hold the left mouse key down once you are on the
>original line and drag a parallel line to where ever you want it. You can
>do the down trend channels in a similar manner. Horizontal channels are the
>easiest. Just drop a horizontal line on the highest high and lowest low in
>the time frame. My final touch is to change the line color and style: blue
>and dashed for short term channels; red and dashed for intermediate term
>channels; and magenta and dashed for long term channels.
> That's all there is to it, what do you think? Does it make sense?
>
>Jim
>-------------------------
>From: Jim Greening <JimGinVA@xxxxxxxxxxxxx>
>To: Metastock <metastock@xxxxxxxxxxxxx>
>Subject: Building Blocks - Direction and Timing
>Date: Sunday, December 20, 1998 2:19 PM
>
>All,
> This week I want to complete my discussion of trend channels by telling
>how I use them to determine if it is OK to enter the market and what
>direction, long or short, I should enter. To do this, I go back to the old
>thesis that the trend is your friend. I used to always have long and short
>positions simultaneously and would weight the ratio from even for flat
>markets up to 3 to 1 in the direction of the trend for trending markets.
>However, over time, I found that I was better suited to just trading with
>the trend.
> My first rule is that I always trade in the direction of the
>intermediate term trend. When the intermediate term trend is up, I only
>open long positions and when its down, I only open short positions. I use
>the Dow Jones Industrial Average as my indicator for large cap, nifty fifty
>type stocks, I use the S&P 100 as a confirmation for the DJI and the S&P
>500 as an indication for mid to large caps. I use the NASD OTC index as my
>indication for tech and INet stocks. I use the Russel 2000 as my indicator
>for small cap stocks. I feel better when the intermediate term trends of
>all are going in the same direction, but can and sometimes do limit my
>trading to stocks represented by one index. For the last couple of months
>I've been in the process of changing my portfolio from all large cap stocks
>to a mix of large and small cap stocks as the RUT broke out of its
>Intermediate Term Down Trend in mid Oct and gave a Trader Vic type trend
>reversal signal in early November. I'm currently experimenting with
>applying trend channel analysis to sector charts and am limiting my stock
>selections to strong sectors only, but that's another story.
> I've used this rule of trading only in the direction of the
>intermediate term trend for quite some time now. I've recently experimented
>with some fine tuning, that I'm in the process of adopting. I use Short
>Term Trend Channels within the Intermediate Term Trend Channel for further
>guidance. I'll describe what I do for long positions within an Intermediate
>Term Up Trend Channel (ITUTC). I won't describe short positions in
>Intermediate Term Down Trend Channel, but the strategy is just the mirror
>image.
> If we have a Short Term Down Trend Channel (STDTC) within the ITUTC I
>won't enter any new positions and will just sit on the cash when I close any
>positions that have hit targets or stops. If the stock breaks out of the
>STDTC I'll start entering new long positions at the rate of one per week.
>If a Short Term Up Trend Channel (STUTC) is formed (confirmed by a Trader
>Vic type trend reversal signal) in the bottom half of the ITUTC I'll enter
>new long positions rapidly until my cash is all committed. As long as the
>STUTC holds I'll enter new long positions when I have the cash. When the
>STUTC is still in the bottom half of the ITUTC, I'll replace a closed
>position with a new position on the day I close the position. When the
>STUTC is in the top half of the ITUTC, I'll slow down on entering new
>positions and build cash by only entering one new position per week.
>Hopefully, that way I'll be fully committed to long positions for most of
>the short term up trends and mostly cash for most of the short term down
>trends. Right now I only exit positions when my targets or stops are hit as
>I described last week. An option I'm considering, but haven't adopted yet,
>is to close all long positions associated with a particular index when the
>STUTC is broken in that index. I'm in the process of looking back over my
>trades for the last few years to see if this option makes sense. When the
>ITUTC is broken, I start opening short positions using the mirror image of
>the ITUTC strategy.
> That's about it, any thoughts or suggestions.
>
>JimG
>--------------------------
>From: Jim Greening <JimGinVA@xxxxxxxxxxxxx>
>To: Metastock <metastock@xxxxxxxxxxxxx>
>Subject: Building Blocks - Money Management
>Date: Sunday, December 27, 1998 11:18 AM
>
>All
> Money Management was the last thing I learned as I came to understand
>the stock market and investment, but, of all the building blocks, it is
>probably the most important. Money management is nothing more than risk
>management and, if done properly, should help let you survive the rough
>spots with enough money left to take advantage of the good times. It's not
>complicated, at least the way I do it <G>, and is easy to do.
> The first thing you have to do minimize risk is to only enter position
>when the odds of winning are stacked in your favor. I discussed how I do
>that last week with my post on the "Direction and Timing" building block.
>In other words, only enter when the shorter term trend is running in the
>direction of the longer term trend and when it isn't, stay out. The next
>thing you have to do is to only select from stocks that have the
>characteristics that represented winners in the past. I discussed that a
>few weeks ago in my "Narrowing the Universe" building block post. The final
>thing you have to do is to decide how much money to risk on each position.
>In fact, some people say that this last part is their definition of money
>management.
> Before I get into specifics on how much money to risk on each position,
>I want to touch on my general philosophy I believe in diversifying to
>minimize risk, but I don't believe that more is better. In general, I think
>5 to 10 positions mostly in different well performing industry groups is
>enough. If you over diversify you are going to guarantee average
>performance and that's not what I want. If I'm lucky enough to get a 200%
>gainer like I did with AOL, I want it to make a meaningful impact on my
>overall portfolio. In other words, I think its better to put all my eggs in
>a few baskets and watch those baskets carefully, then to use so many baskets
>that I can't keep track of them and my performance suffers.
> For my actual money management I observe the following rules:
> 1. Each position initially represents 10 to 20% of my portfolio
>although I may go less than 10% for small cap Christmas Special type stocks.
> 2. I won't risk more than 3 to 5% of my total portfolio value on
>any one position and I'm usually under 3%. This risk is defined as the
>maximum loss possible for the position. That's based on where my initial
>stop is placed.
> 3. No more than 2 positions in any one industry group.
> That's it, I told you it was simple <G>. However, it is a very
>powerful concept. It gets you to thinking about the risk involved in each
>and every position and makes sure that, if followed, you will have enough
>resources to survive a bad streak. If you are more risk adverse and less
>profit oriented than I am, you can decrease the position size and the amount
>at risk. If you can stand more risk, then you can increase the position
>size and the amount of risk, but I wouldn't go too far in that direction
>since my model is already pretty risk tolerant. The important thing is to
>recognize the need for a money management system and get one that you are
>comfortable with so you can follow it.
> Any thoughts or comments?
>
>JimG
>------------------------
>From: Jim Greening <JimGinVA@xxxxxxxxxxxxx>
>To: Metastock <metastock@xxxxxxxxxxxxx>
>Subject: Building Blocks - Narrowing the Universe of Potential Stocks
>Date: Sunday, November 22, 1998 3:10 PM
>
>All,
> I'd like to start a discussion on how to narrow the universe of stocks
>to a few potential trading candidates that have certain characteristics that
>have resulted in successful trades in the past. I'll explain what I do and
>hope you chime in with comments on additional suggestions or comments on why
>you believe what I'm doing is wrong.
> First I believe that there are many different selection techniques that
>work and there are times when one technique will work better than others.
>For example, large cap momentum selection searches have worked exceptionally
>well for the last three years and small cap value techniques have not.
>However, if you look back in history, that's very unusual because small cap
>value techniques have worked better on average over the last fifty years. I
>also believe that the mirror image of a search for long candidates isn't
>necessarily a good search for short candidates, but I don't want to get into
>that today. I test the market indices to decide if my new positions should
>be long or short and my new positions have been long positions for some time
>now, but that is also the subject of a future post <G>. To keep this post
>fairly short, I want to concentrate on searches for long stock candidates
>only today.
> I use several different searches to select the few (less than 200)
>stocks that I keep in my MetaStock database. My searches are only to find
>stocks to add to my database and I only add a few each week. (I also prune
>my MetaStock database periodically.) I look at the results of the searches
>and use my 20/20 eyeballs for my final decision. I used to use Telescan for
>this by recently dropped them due to cost and bad data. I'm now using QP2
>for my daily and historical data. It does have a built in search capability
>using a combination of fundamental and technical data. However, I'm just
>learning its programming language and it doesn't have a lot of criteria to
>search on. Still, I believe it has great potential and understand that they
>may add additional fundamental data after the first of the year. In the
>mean time I'm using Microsoft Investor and eSchwab search capabilities.
> What I'd like to do here, is not give the search formulas, but rather
>discuss the criteria I use for the various searches. I'll be glad to share
>the QP2 searches after I finish them. I've found that for fundamental
>criteria, the price/sales ratio by itself works best for me. I can enhance
>it's performance by also using debt/equity, and various earning and revenue
>growth criteria. Today I'd like to describe a momentum breakout search
>CANSLIM that I use for both large and small cap stocks; a bottom fishing
>search BotFish; a value growth search,ValuGro that can be used for both
>large and small cap stocks; and a small cap search, SmalCap. You will see
>my favorite criteria used in most of them.
> CANSLIM is a momentum search that I've been using for a long time that
>is based on parts of the CANSLIM strategy. What it looks for is stocks that
>are trading at a new 52 week high on high volume and meets several other
>conditions. In all my searches I begin by limiting the stock to a price
>above a minimum and below a maximum. For CANSLIM that's 5 and 144. Then I
>ask the search to list the 52 week high and the 52 week low for my info on
>making a final decision on adding the stock or not. The search continues by
>limiting the selection to those stocks which are in the top 20% considering
>earnings per share growth and the top 20% considering price growth over the
>last year. Then I ask for group rank, fundamental rank, 30 day average
>Volume, and 3/30 day Volume to be as high as possible. This doesn't limit
>the selection, but helps rank the selection and I only take the top 20. I
>also ask for analyst rank to be as good as possible, institutional holding
>to be as low as possible, market cap be as low as possible, and insider
>trading to be as high as possible (buying). Finally I ask that the stock
>has set a new 52 week high within the last 5 days.
> BotFish is a search for stocks that have been beaten down and look like
>they are bottoming. It looks for stocks that are trading at 50% or more
>below their 52 week high but still have decent fundamentals and are showing
>signs of recovering. I again start by asking for a price between 5 and 21.
>I also ask it to list the 52 week high and low. Then I ask that yesterday's
>close be lower than 1/2 the 52 week high. That makes sure that we are
>looking at only beaten down stocks. To insure good value I ask that the
>Price/sale ratio be less than 1 although I sometimes raise that to 2.1. I
>may also use the same criteria for price/book if that's available. I
>further ask that the price/sales be as low as possible. I may or may not
>use a debt/equity below 1 requirement. I then ask that the annual revenue
>growth be greater than 13% and that it also be as high as possible. I may
>or may not use the same criteria on earnings growth depending on how much
>that limits my results. Finally I ask that the 3 month relative strength be
>as high as possible to show early signs of turning up.
> ValuGro looks for stocks that are growing strongly yet are still good
>values as shown by low price/sales ratios. It starts off asking for a
>close greater than 3 but then asks for a price as low as possible. I also
>ask it to list the 52 week high and low. I then ask for a price to sales
>ratio that is well below the industry average. This way I get the benefit
>of a relative low price/sales but don't eliminate stocks in groups that have
>higher price/sales ratios. I then ask that the price/sales be as low as
>possible. I then ask that the debt/equity be below 1. I ask for a market
>cap above 250,000,000 to eliminate micro caps. I eliminate stocks whose
>price dropped in the last quarter. I then ask that the quarterly price
>change, the annual revenue and earnings growth be as high as possible.
> SmalCap looks for small cap stocks that are showing exceptional
>earnings growth but are undervalued. It starts by displaying the previous
>days close and the 52 week high and low. It asks for a market cap less than
>500,000,000. It asks that the 3 month relative strength be higher than the
>6 month relative strength. It asks for annual EPS growth greater than 30%
>and projected growth greater than 30%. It asks for price/sales less than 1.
>Finally I display P/E, ROE, and Debt/Equity.
> I run each of these searches weekly. I then look at charts of the
>resulting lists on QP2 and decide if I'm interesting in adding any to my
>MetaStock database. If they look good I'll export the historical data to my
>MetaStock database and run my MetaStock system tests on them. If they don't
>return better than a 100% profit on one of my system tests, I'll delete them
>form my MetaStock database. The point to remember is that these searches
>are not a stock selection system by themselves, they are merely the first
>building block in my stock selection system.
> Any comments or suggestions?
>
>JimG
>------------------------
>From: Jim Greening <JimGinVA@xxxxxxxxxxxxx>
>To: metastock@xxxxxxxxxxxxx <metastock@xxxxxxxxxxxxx>
>Subject: Re: Stock Trading Building Blocks
>Date: Sunday, November 15, 1998 11:15 AM
>
>Mike,
> That's one way. Actually I use several different types of tests,
>filters, or searches (whatever you want to call them <G>) including a
>CANSLIM breakout model. I switch around depending on what strategy I
>think is working at the time, right now for example I'm using both a
>large cap momentum and a small cap Christmas Special type search. I
>used to do my searches using Telescan searches which work fine, but
>the service was on the expensive side. I dropped Telescan several
>weeks ago and switched to QP2 for my quotes. QP2 also has a search
>capability, but I'm just coming up to speed learning how to program
>them. Right now I'm using both Schwab's search capability which is
>free for active traders and Microsoft Investor's Finder search
>capability. What I try to do is use a combination of fundamental and
>technical criteria to narrow the list of stocks that I might want to
>invest in. For my Christmas Special type stocks I use two searches, a
>BotFish and a SmalCap search. For momentum type Breakouts I use a
>CANSLIM, a FlarOut, and a ValuGro search. I could give the actual
>search code, but that wouldn't make much since if you don't use
>Finder. Instead I'll just describe BotFish below in general terms.
>If anyone is interested, I can also describe the others. When I get
>them changed to QP2 code and get them working, I'll be glad to share
>them with the other QP2 users out there.
> The bottom fishing (BotFish) search begins by eliminating stocks
>that trade below a certain price and above a certain price. If I'm
>looking at small caps only I usually set that to 3 and 21. It then
>eliminates all stocks that are trading above 1/2 their 55 week high.
>I'm looking for fallen angels here. To get good fundamentals it then
>eliminates stocks that have a price/book above 2.1, a price/sales
>above 1, debt/equity greater than 1, annual revenue growth less than
>13%, and annual earnings growth less than 13%. Finally to make sure
>that there has been an up turn I demand that the three month relative
>strength is greater than the six month relative strength. To rank the
>remanding stocks I ask for the price.sales to be as low as possible,
>the revenue growth to be as high as possible, and the 3 month relative
>strength to be as high as possible. I can and do play with the
>numerical values from time to time after looking at the results of my
>searches. Over time, I've come to believe that low price/sales couple
>with no debt is the best basic fundamental search criteria. Adding in
>earnings and revenue growth then helps with the final cuts.
> Yell if anyone wants me to describe the other searches.
>
>JimG
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>-----Original Message-----
>From: lorenab@xxxxxxx <lorenab@xxxxxxx>
>To: metastock@xxxxxxxxxxxxx <metastock@xxxxxxxxxxxxx>
>Date: Sunday, January 24, 1999 1:16 PM
>Subject: Re: Weekly Pick
>
>
>>Thanks Jim. I don't believe the building block posts managed to make it
>>through--but found your summary very helpful.
>>
>>Lorena
>
>
>
>
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