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Usual
Suspects
One of the first successful trading
strategies I developed was for stocks that traded higher
in price on higher relative volume. It all started in 1994
when I was subscribing to the Investors’ Business
Daily. What I liked most about the paper was that it
had tables, which featured stocks that were moving in
price on higher than average volume. I would study each
one of the stocks in great detail. I was looking for
stocks that just broke out of a base.
Unfortunately, most of the stocks that
broke out of a base already made a significant advance in
price yesterday and would gap up the following day.
However, many of them would still move higher the second
day. On the third day, it would be time to take some
profits off the table, because the stock would often gap
up and sell off. Consequently, I realized that the lucky
traders entered the stock on the first day it made
its movement. The smart traders entered the
stock on the second day, and the bag-holders
entered the stock on the third day.
Since I remembered that a wise man once
said, “I’d rather be lucky than smart,” I knew that
I had to discover a way to find these stocks on the first
day of their move. Consequently, I developed the Usual
Suspects Scan. This scan filters the entire market
searching for stocks that are moving up and are on
pace to trade higher than their average daily
volume. I use this scan to see which stocks are moving. I
try to detect the stocks early enough in the day. The
ultimate candidate is a stock that breaks out after
consolidation on relatively high volume. The following
examples illustrate how I use the Usual Suspects Scan in
my trading. |
