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Jan 25, 2008 - Try this scan and do your own research and modify the settings however you feel comfortable...
In the book written by Linda Raschke and Larry Connors called “Street Smarts: High Probability Short Term Trading Strategies” the 80-20 is a day trading set up that can be used as a scan to find the profitable trades. This book is highly heralded by many successful day traders. Linda was one of the first to train and mentor traders via the online trading room with success. She has many setups that are later copied and modified by others in the field. One of the better-known counter-trend trades in the book is called the 80-20 setup. This setup is fairly simple so putting into the SwingTracker Scan wasn’t so difficult. We’ll dssect the formula into one expression at a time: Although this strategy focuses of the entry, the authors mentioned about placing the stop loss and vaguely about how to place trailing stop. This is up to each trader to determine on his own to make this a successful strategy. Here are some of the examples from the scan.
TXT fits the typical action this ideal setup. Having opened above the 80 percentile of the previous day’s high and low and closed below the 20 percentile. Finally, the last criteria was made when the prices dipped below the previous day’s low by more than 15 cents. Upon making the dip, prices reversed. When it got back to the previous day’s low, a buy signal was taken. With the stop loss placed at the day’s low and a trailing stop or predetermined target.
The scan showed AKAM as a candidate with the right setup. The previous was a heavy selling day. The next day, prices remained higher than the previous day’s low at the opening, but then moved lowered then suddenly reversed. When it moved back above the previous day’s low, a long entry was alerted. However, this up momentum didn’t stay very long. Either profit had taken immediately or moved the stops to breakeven (at yesterday’s low)).
HPC was another candidate but this time it happened at the opening hour. Prices gapped up then moved down past the previous day’s low, then moved back up again. A small gain would have sufficed given the nature of the bearish market. Below is an example that the scan would not have caught in the filter. Because prices never moved back to yesterday’s low, the scan didn’t alert the trader and therefore had sit out of a losing trade. On the bottom horizontal line is the low of yesterday, that is also the long entry point should prices decide to move back up. Fortunately, the stock opened with a gap up but then moved down straight away and never came back above the previous day’s low. This is one the advantage of this strategy: weeding out highly momentum stocks.
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Disclaimer: Please note that charts and commentary provided by the moderator are for educational purposes only. Any trades placed upon reliance on the moderator’s charts or information is taken at your own risk for your own account. Past performance is no guarantee of future results. While there is great potential for reward trading stocks, futures and options, there is also substantial risk of loss and you must decide your own suitability to trade. Future trading results can never be guaranteed. This is not an offer to buy or sell stock, futures, options or commodity interests. Most trading systems are based on historical formulas which have worked in the past. However, what has happened before may or may not happen again. You can lose all your money trading stocks, futures, and options and you must decide your own suitability as to whether or not to trade. Only trade with true risk capital you can afford to lose. Only trade markets you can properly afford to trade. Properly funded trading accounts typically perform better than those that are not. Never risk more than 2-3% of your account on any one trade. Always define your risk before entering a trade and place a stop to limit your risk. There are no guarantees or certainties in trading. Trading involves hard work, risk, discipline and the ability to follow rules and trade through any tough periods during a system’s draw downs. If you are looking for a guarantee, trading is probably not for you. Most people lose money trading. One of the reasons is that they lack discipline and are unable to be consistent. A system can help you become consistent. Ironically, worrying about the monetary aspect of trading can contribute to and cause a trader to make trading errors. Therefore, it is important to only trade with true risk capital.
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