STEP 1 – Find a setup to watch

First of all how do I find stocks to watch? Good question! Currently there are just a few people I follow on Twitter. You have to be real careful with social media. Most people are just clowns, but there are some legit ones. The people I follow recommend things from time to time based on some real reasons. I never just buy because they recommend, and I doubt they would want me too. It’s just a heads up for something to do my own analysis on.

Once I have a stock to analyze, I first look at a 5 year weekly chart to get the big picture. I draw my support and resistance lines based on this overall view. I also like to use a volume profile study here. This is just a double check of the lines I plotted. In the volume profile, you will see where all the congestion of volume is. If your support and resistance lines are good, then all that volume congestion should be between those lines.

This will also help me see where trading ranges of accumulation and distribution are, as well as the trends that go up and down to connect these areas. Basically I’m creating a landscape of the stock performance, because any future analysis  will be done within the context of it’s location in it.

Here is an example of creating the landscape. At the time of writing this, I am currently watching this one. This is a weekly chart of 5 years, but this example is zoomed into the key area I was looking at. The magenta lines are my support and resistance. When looking at the volume profile, you can see all the volume fits pretty well between those sets of lines at the top and bottom of the chart. I’m also thinking that top trading range is my area of distribution and the bottom is my area of accumulation.

Now that I have a landscape of defined support and resistance areas, accumulation and distribution trading ranges and trend lines; it’s time to see where it is currently in that landscape. If I cannot define those things with good clarity, I ditch it and go find another stock.

From the example above, it looks like the current price is in that accumulation range. I’m looking for stocks in these ranges, not stocks that are already trending. That is because, trends are born and die from these ranges. The idea is to get in or out at the beginning or end of trends, not in the middle. However, that idea is based on your time frame and style of trading, this just so happens to be mine in a bit longer time frame, but not too long. A day trader would probably disagree with my method.

At this point we have our landscape and, from above, we have determined we are currently in an accumulation trading range which should eventually break out into an up trend back to the distribution range. That breakout is where we want to position ourselves and ride the trend and we have some well defined areas of where to buy and where to sell if it all works out.

So, we are in an accumulation trading range, do we buy it? No! We need to find out how far along we are in the range. I rely pretty heavy on the resources A Complete Guide To Volume Price Analysis  and The Wyckoff Method: A Tutorial at this point. The book uses a loosely interpreted version of the Wyckoff phases, which is good, but I find at this point in my learning, I like referring to that tutorial more. It lays out the Wyckoff phases in more detail, so that is what I use it determining where the current price is in the phase cycle. I suspect once I get better at it, the method in the book will be easier to use. But, in the end, if you put both ways side by side, they are saying the same thing.

Below is an example of the same chart above, just zoomed in again to show the current price more clearly. The annotations, again, are based on the teachings in that tutorial.

Now, I have the landscape and our current position in it. According to what I’ve been learning, you want to buy a stock in phase C or D of the accumulation trading range. You can see above, I have determined we are only in phase A, but not sure if A is completely over yet. The next phase, B, can be long, so I won’t be quick to take a position, but it’s a good one to watch.

Also, with this knowledge, and learning the characteristics of the B phase, I could possibly find some good points to make quick trades with more confidence if I chose to.

Once I like what I see, I publish all that analysis to the “Stocks I’m Watching” category and update it as it progresses. It is a great way for me to be able to look back at what I was thinking and seeing if I made the right assessment and learn from the power of retrospect.

Finally, I have set a price range and events to look for. If any of the parameters I’m watching are broken, then I stop watching and move on to something else, or reanalyze my thesis.

However, if it all plays out pretty much as expected and those parameters are maintained, I move to step 2.