Cooper 1-2-3-4 picks for the week

[DSteckler]

ISRG
ELN (broke out Friday)


Methodology

1. Identify a strongly trending stock. I use RS >= 95

2. After making a short-term high, the stock makes either:
a) three consecutive lower lows; or
b) a combination of lower lows and inside days.

3. Enter long on Day 4 one or two ticks above Day 3 high.

4. Place a protective stop a tick or two below the Day 3 low.

5. If not filled on Day 4, work one more day to Day 5 (fill a tick or two above Day 4 high). If not filled on Day 5, fuhgeddaboudit.

---Dave

[skiracer]

Dave,
I wouldn't call the move up on Friday, Dec. 30 a breakout but a move back up close to previous highs after consolidating from the spike up on Tuesday, Dec. 27. If you go back and look at the daily or weekly charts it will give a clear picture of a strong impulsive spike up the week of Dec. 12 thru Dec. 19 and then again on Dec. 27. Friday's late afternoon move was a strong move but I wouldn't consider it a breakout being that it didn't clear higher highs.

[DSteckler]

"Break out" here means it traded at least a tick above the previous day high. That it did, since Friday's high was 28 cents high than Thursday's high.

---Dave Steckler

[DSteckler]

Actually, looking again at the chart shows that ELN is a candidate, not a breakout. Why? Because it's only pulled back for three days, not four. The pivot point is a tick or two above Friday's high.

[skiracer]

Actually, looking again at the chart shows that ELN is a candidate, not a breakout. Why? Because it's only pulled back for three days, not four. The pivot point is a tick or two above Friday's high.
Dave,
No big. I guess it is just a matter of semantics and how one uses their strategies.

[New-born baby]

ISRG
ELN (broke out Friday)


Methodology

1. Identify a strongly trending stock. I use RS >= 95

2. After making a short-term high, the stock makes either:
a) three consecutive lower lows; or
b) a combination of lower lows and inside days.

3. Enter long on Day 4 one or two ticks above Day 3 high.

4. Place a protective stop a tick or two below the Day 3 low.

5. If not filled on Day 4, work one more day to Day 5 (fill a tick or two above Day 4 high). If not filled on Day 5, fuhgeddaboudit.

---Dave

Dave,
Thanks for the post. Who is Cooper?
And have you personally tried to invest according to this system?

[DSteckler]

Jeff Cooper, a former contributor to Tradehard.com and publisher of several books on swing trading. Yes, I've used this technique and it works well but you have to follow a money management system religiously (e.g., taking partial profits on the way up; using stop-losses; etc.) or you'll run the risk of giving it all back.

[DSteckler]

ISRG broke out as per Cooper's buy rule but traded below Friday's low, so it's out and a small loser. ELN traded above Friday's high so it's a purchase and still in the portfolio.

[DSteckler]

I selected ELN using a Cooper 1-2-3-4 pullback strategy. The sell stop is a tick or two below Tuesday's low of 13.73 so let's use 13.65 in this example. Assume my entry price was 14. My risk is 35 cents therefore I'll sell half my shares once the reward equals the risk, or a price objective of $14.35. That was reached today so I would sell half the shares. The balance of the position is held using a trailing stop.

[skiracer]

I selected ELN using a Cooper 1-2-3-4 pullback strategy. The sell stop is a tick or two below Tuesday's low of 13.73 so let's use 13.65 in this example. Assume my entry price was 14. My risk is 35 cents therefore I'll sell half my shares once the reward equals the risk, or a price objective of $14.35. That was reached today so I would sell half the shares. The balance of the position is held using a trailing stop.

I'm a big proponent of developing a discipline, having a strategy and plan, entry trigger points, exit strategys, an always honoring your stops once placed. So in lieu of all that I like the idea of your plan because without one your lost. But I just can't agree on the point of selling off half at such a low point in your initial gains. I also sell off half a position on many occassions after seeing how the position is working out. When it's beaming of strength I can't justify selling off so early in the life of the trade. Other times I will take what I can early on. Your strategy seems almost to mechanical an I would imagine that it takes away alot of your possible gains expecially when the r/r is a low number or %. When you believe in a stock or position your feelings are that it is going to go off. When it does and nipping it so early in the bud doesn't seem fair to the position.

[DSteckler]

When you believe in a stock or position your feelings are that it is going to go off.

"Belief" has driven many traders to the poorhouse, Ski. Trade what the market gives you, not what you want it to give you.

A 35 cent gain in one day on a $14 stock is a 2.5% gain. Assume I sell the other half for a 70 cent gain; now the total return for the trade is 3.75%. Do that just 2X/month and you made a 90% annual return. Do that 4X/month and you have a 180% annual return.

[skiracer]

"Belief" has driven many traders to the poorhouse, Ski. Trade what the market gives you, not what you want it to give you.

A 35 cent gain in one day on a $14 stock is a 2.5% gain. Assume I sell the other half for a 70 cent gain; now the total return for the trade is 3.75%. Do that just 2X/month and you made a 90% annual return. Do that 4X/month and you have a 180% annual return.

Dave,
You may have missed my point. I believe in every setup I enter because they fit within the parameters. I believe every trade I make is going to go off because of that. It's just that they don't all do that and a good % get stopped out at 7% or less. But the others, the winners, I let go until they either stall or get stopped out with another stop. My point was that I felt that your mechanical approach might be limiting your gains by taking half off the table before it was necessary. But that is only my opinion an I'm certainly not trying to tell you how to spend your capital. Believe me I know an understand the percentages, the r/r, and the money management. It just felt to me that that approach wasn't maximizing the opportunities. Just my opinion. I hang out with some pretty big spenders, both stock traders and wise guy gamblers, and no one that I know, that is in action on a consistent basis, is averaging 180% much less 90 % a year at either one. But it's all good and just trying to understand another traders strategys an how they approach what they do. When you put it out there for everyone to see I guess you have to deal with this type of commentary. But believe me it's all meant in a positive fashion.

[Karel]

Hi Dave! Some questions: what is a short-term high, or: what time horizon do we look for? And how much is a tick? In your example the stop loss was -2% and the partial stop gain would secure at least breakeven. How does this work out; what is the expected gain/loss distribution? And return calculations should be based on that distribution, of course, not on one winner.

And ski: I think this is a meant as a very-low-risk/short-time-horizon kind of play. $$$Mr.Market$$$ aims to get 15% from a stock and needs a time horizon of weeks, if not months. Dave, in this strategy, is happy with a percent or so. Then he needs to grab the chance to break even as fast as he can, because his wins are so small.

Regards,

Karel

[DSteckler]

<< My point was that I felt that your mechanical approach might be limiting your gains by taking half off the table before it was necessary. >>

Ski, the idea with this swing trade strategy isn't to try to hit a home run, it's to keep the losses as small as possible in order to consistantly squeeze out 2 - 5% per trade. The average holding period is only 3 - 5 days although it can be longer, depending upon the stock's action.

I've used this system since mid-2000 (although there weren't very many long trades that year!). I typically take 3 - 4 trades/month and about 45% of them are profitable, using my money management approach. Average gain is about 3.50%, before trading costs. That works out to about a 65% annual return, which I achieved in 2003 and 2004; last year was a little lower, about a 50% return. Maybe your big spenders would like to try this Cooper system? <BG>

And no, I don't trade all my money using this system. In fact, only a small part is traded with this system.

Karel, a "short-term high" is one that's hard to define but easy to see. John Murphy calls this "visual investing." Basically, you're looking for a high RS rank (95 or greater) and either a recent spike high or a high that jumped up at the end of a trend.

[skiracer]

Dave,
I guess that's what makes a horse race. I'm strictly short term swing, although of late I have been stretching it out some, and look to max out on any trade I'm in and stop the bleeding at some minimun %. My friends are of the same mindset. Anyone who is successful and comfortable with what they're doing should stick with it. Great to see that you are doing as well as you stated. I love to hear that an only wish you the more success. Keep posting on your strategys and picks and the reasons why as it gives the rest of us a chance to learn something new an understand your approach better. Good luck. Ed

[Karel]

Thanks, Dave! And am I right that your ticks are about 6c? (http://www.investopedia.com/terms/t/tick.asp)

Regards,

Karel

[DSteckler]

Close enough, Karel. I use nickles since it's easier to keep track in my mind.

[DSteckler]

Assuming today CCJ makes a lower low than yesterday, it will be Day 1 of a Cooper 1-2-3-4 pullback.

[dmk112]

Dave, How does REGN look to you?

[DSteckler]

REGN was a 1-2-3-4 pullback candidate. It successfully broke out today when it traded above Tuesday's high.

[DSteckler]

The scan turned up nothing with an RS >= 95.

[dmk112]

SUF worked today :D

GIL setting up also...

That RS filter will keep you out of alot of trending stocks. IMO.. .Just because RS is not greater that 95, I don't think it's not trending.

BTW where do you get the RS values from?

[DSteckler]

<< BTW where do you get the RS values from? >>

From HGSI software. You could use IBD/DG as well.

The idea of using RS >=95 isn't to look for trending stocks per se, it's to look for stocks that when they start moving again after a 3- 4 day pullback, will move sharply. Remember, the average trade in this strategy is only held 3 - 5 days so it has to make a nice move to make it worthwhile.

[ParkTwain]

Depends of course on what time period is used to compute the RS measure. The fewer days into the past that are used, the better for your purposes. That's why I find IBD's RS measure to be pretty useless.

[dmk112]

<< BTW where do you get the RS values from? >>

From HGSI software. You could use IBD/DG as well.

The idea of using RS >=95 isn't to look for trending stocks per se, it's to look for stocks that when they start moving again after a 3- 4 day pullback, will move sharply. Remember, the average trade in this strategy is only held 3 - 5 days so it has to make a nice move to make it worthwhile.


Can you look up SUF's RS for me?

[DSteckler]

No RS rank on SUF. It's too new, having IPOed in October. The RS rank measures price change over the past 12 months.

[dmk112]

OH ok, thanks anyway.

[DSteckler]

A buddy brought to my attention CNTF, which has formed a flag. Has pulled back for three days and has a RS rank = 96. The buy price will be tommorrow coming through today's high.