Bottom Fisher - Examples

The basic setup is featured in the above illustration. It can be used for a stock that is in an uptrend or downtrend. The trigger event for an entry is for the stock to be up from yesterday’s close. As long as a stop loss below today’s low is an acceptable risk while trying to capture the price target reward, you can enter the trade. Otherwise, you would have to use intraday support levels. 

This stock represents a classic swing trading setup. It showed up on my scan when it was trading at 39.10. The low of the day was 37.19. If I were to buy it, my stop loss would be placed 5 cents below 37. My price target would be the previous high minus 25 cents. The high was 46, so my price target would be 45.75. Let’s plug these numbers into my calculator.

Since the reward/risk ratio is greater than three, this would be an acceptable trade. I must mention that there is a significant difference between the traditional swing trading methodology and the methodology and money management I have developed for this scan. If you were to use my system, you would have bought the stock at 39.10. Let’s use this case study to compare my swing trading system with the traditional swing trading system.

At the end of day, the stock closed at 41.00, but it traded as high as 41.25. The traditional swing trading methodology would be to buy the stock the following day should it trade higher than 41.50. A stop loss should be placed 25 cents below the 37.19 low. The price target would still be 45.75. Let’s plug these numbers into my calculator.

The reward to risk ratio in this case is less than one. There would be no way that I could enter this trade according to my money management system. Yet, if you subscribe to swing trading advisory newsletters, you would see them recommend such trades frequently. Let’s see what happened next.

Stock goes up to 45.38 the very next day. It then sells off and trades below 40. If I were using my trailing stop system, I would have sold the stock north of 45 and pocket almost six points in profit. If I were to use the traditional swing trading system and buy the stock on the second day, I would most likely be in it at 42.20, and depending on the newsletter that I followed, I could have realistically made two points or even lost money.

The difference between my approach and the traditional approach is crystal clear. There is no need to wait until the next trading day to enter a position if you are running the Bottom Fisher Scan. Another beauty of this scan is that it could be used also at the end of the day. In fact, most swing trading advisory services use the basics of this scan to find trades for the next morning. However, you should definitely see the benefits of using this scan in real-time. Now that you understand the main difference between my approach and the traditional approach, we can study the following examples.

This stock showed up on my Bottom Fisher Scan when it was trading at 33.12. The stock was up for the first time after four consecutive down days. The resistance level for the stock is the previous top at 39.80 or the downtrend line through the previous two tops at 38.50. The low of the day was 32.25. The first thing I need to do is see if I can have a trading plan that answers to my money management system.

Since the reward/risk ratio was greater than three, I decided to enter the trade. The stop loss was placed at 31.95. Since 32 is a whole number, I gave the trade an extra five cents than the normal 25 cents from the low of the day stop. Let’s follow this trade in more detail.

The above chart shows the intraday action. The stock ran up from 32 to 33.25 where it topped. The stock then consolidated between 32.75 and 33.25. I bought 300 shares at 33.12. The stock then broke out.

The stock was very strong and traded up to my 38.25 price target. I sold my 300 shares at 38.25 for a net profit of $1,517.11.

Here is what the chart looked like at the end of the trading day. The price target was met in one day. However, if I were not using the Bottom Fisher Real-Time Scan, I would have never been able to make this trade. If I were using the end of day data, I would have missed this trade.

This stock showed up on my Bottom Fisher Scan when it was trading at 30.25. The stock was up for the first time after three consecutive down days. The resistance level for the stock is the previous top at 39.12 or the downtrend line through the previous two tops at 37.80. The low of the day was 27.75. The first thing I need to do is see if I can have a trading plan that answers to my money management system.

As you can see, I couldn’t take the trade, because the reward/risk ratio was smaller than three. Consequently, I needed to find intraday support levels to place my stop under.

The above chart shows the intraday action. The stock ran up from 27.75 to 30.50 where it topped. The stock then consolidated between 29.87 and 30.37. I felt that if the stock would trade down through 29.87 it would be a bearish signal, and if it traded up through 30.50 it would be a bullish signal. I decided to buy half a position at 30.25. I placed a stop loss at 29.67. Should the stock trade higher than 30.50, I would complete my position and trail a stop loss.

This plan provided me with reward/risk ratio that was greater than 12. It was my kind of risk management. The stock broke out, and I completed my position at 30.67. My average cost was 30.46 and the reward/risk ratio was now 8.97. Let’s see what happened next.

The stock trades up to 33.50. I sold ½ of my position at 32.62 and locked in 2.16 (7%) in profits. The stock was up 5.75 from the low to the high. I still liked the strength in the stock, so I decided to watch the pullback carefully. I was going to use the low of that pullback as my stop loss for the remainder of my position.

The stock traded up to 35. It then pulled back to 34. The stock was bouncing off 34 for 20 minutes. I moved my stop loss to 33.87. I felt that if 34 was to be taken out, the stock could fall down hard. I sold the remainder of my position at 33.87. I captured a profit 3.41 (11%) on this part of the position. I bet you want to know what happened next.

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