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I'm often asked how I'm able to time and post trades just a bit before big moves.
I'll start with the simplest answer... My calls are imperfect at best, but to the extent I'm able to make good and timely calls, it's a function of 3 things. My TAOST Power List, the power of structure [also known as context], and the power of dropping down to smaller timeframes [fractals].
To illustrate, let's trace the path on a recent trade idea. It's an idea that I didn't post, but could have as it's sourced from the TPL. That's important because if it's on the TPL, then if you have access to the list, you can pull the idea for yourself.
At any rate, here goes.
1] The Art of Simple Trading [TAOST] Power List [TPL] - This is a curated list of stocks with excellent structure and behavioral characteristics. At the time of this writing [5 May 2024] there are 252 stocks on TPL. That's out of the more than 4,000 candidates. TPL creates a much more accessible and thus usable list from which to pull stalk candidates.
Here, PRCT has been on TPL for quite some time...certainly since November of 2023 based on the lack of background color.
2] Structure/Context - The power of structure means just that. Just like a rising tide lifts all boats, it's hard for securities with price behavior structured to the upside to do anything but move higher absent, of course, any exogenous events.
Here, PRCT was approaching its all-time high on the weekly chart in a fairly smooth, steady march. Further, as the yellow circle indicates, the MACD Histogram was offering hints of a potential blow through resistance at that all-time high.
3] Lower Time Frame - Given the structure of the weekly chart and the consequent context provided, the next step was to drop down to a lower time frame to seek a chart pattern setup. Here, the Triangle provides both a strong chart pattern setup and a great place to have an ultimate stop.
Note: the ultimate stop loss is similar to a regular stop loss, but different in the sense that it's the line in the sand that says stop looking for entries on this particular idea as the idea is no longer valid. A regular stop loss is the place where you exit because the entry itself isn't working.
Here, the rising trendline on the Daily Chart is a great line in the sand for the trade setup.
Daily Chart
2 Hour Chart - Dropping down further heading into earnings on 1 May 2024 [so a potential catalyst], we see a strong up candle suggesting a pullback is worth entering. But the real reason to drop down even further in time frame is the tightened bar ranges and thus the much smaller risk per trade. It really doesn't matter if it's the swing low below the large up candle or the more recent candle with the low at $52.53... in either case, tight risk, so excellent trade profiles.
2 Hour Chart -- The result is price explodes through the all time high based on changed perspective on the stock given the earnings report on Wednesday. The stock closed the week at $64.31.
And here's how the weekly chart looks with the move higher.
So that's it. Again, while every trade doesn't [and can't] work out like this one, it does happen frequently enough to help make you a profitable trader.
Questions welcome.
Ev
