I use two ways to enter:
a) market entry next day with a 3-ATR-stop or a stop below the VAL (Value Area Low that is necessarily created by the breakout on the volume profile);
trade management: exit when
- performance since 52 week low falls below 100%
- no new high for 65 days
- position size falls below 3% (in general: 10 open positions, each with initially 10%, no rebalancing)
- reduce positions to 5% when index (usually S&P 500) < MA200
b) wait til the consolidation has formed around the breakout-candle and enter on next new high (only if the next new high happens within 20 days of initial breakout); stop below breakout (advantage of this method: less stop-outs; disadvantage: some instruments never form the consdolidation)
exit: like above
c) it’s possible to trade this system without intitial stops in the market, just follow the exit-rules under a). But I don’t feel comfortable with that.
very important: no new trades are taken when index is < MA200
This is setup is totally counter-intuitive, I know, it takes Darvas’ rule “Buy expensive, sell even more expensive” to an extreme. I call it “Neo-Radge”, because the 100,3-Bollinger Band-Breakout comes from Nick Radge, the 100%-performance-rule though is from Darvas though. It works very well with minimum screen time.
What I still need is a ranking mechanism: If a position is closed and I open a new one, I need a quick way to decide which of the signals to take, even if there are only so few of them. My idea is to use the smoothness of the ascent, meaning: if two stocks have risen by the same amount I’d pick the one with the less volatile rise. But I am not sure how to go about it, yet.
Do you have any suggestions?
.
