| GBS
Trading System: Rules: 2. Gary prefers the average volume to be at least 50K; he also likes it to be fairly consistent. He also looks at liquidity, by scanning the prior day's transaction log and noting the size of the blocks and size of the spreads. If he sees large spreads and predominately small lots, he passes. If you're trading less than a 1000 shares, you can pick stocks with a smaller average volume, but avoid stocks that have days of less than 30K. 3. The minimum price stock Gary looks at used to be $20, but because his equity and lot size have grown he changed it to $25. 4. Stocks don't have to be breaking out to new 52 week high. 5. EPS/RS don't have to be > 80. In fact, he doesn't use Investor's Business Daily anymore. 6. Beware of stocks that break out more than 6% above prior resistance. 7. Put in market order to buy stock before market opens. 8. As soon as you get your fill, put in a sell limit order for a 5% profit. If the stock starts having problems, change the order to a stop loss of 6% below the fill price. 9. Generally, the tighter the base the better. Avoid the big V formations. Or, if you want to take a positive approach, look for the resistance line to have at least a few tests before the breakout. Watch what happened in the days right before the trade. 10. To measure how far a breakout can go, look at the number of points within the current congestion. A good rule of thumb says if resistance is taken out, then the succeeding rise should move by the same amount of points. 11. If an acquiring company breaks out it's OK. The reverse is not OK. Also, Gary tends to shy away from companies that fall or rise in sympathy with another company in the news. If it's just one specific sympathy stock, don't trade it. If it's a whole industry, something is endemically wrong, and it is OK to trade those. 12. Average hold time is 12 days for longs and 3 days for shorts. Closes the trade if still open after 20 days. 13. The maximum number of open positions he favors is about 20. He averages 15-20. His formula for determining lot size =(2*cash)/1000 where cash equals your net equity in your account. 14. Look for short candidates as well. When shorting, there must be a major downside break of at least 1 point. This break can be either from an uptrend of at least a 20 days or a break through clearly defined support level. The stock does not have to fall below it's 50 day moving average. Volume should be +100% or more. Don't short stocks that are already in a down trend for the few days or weeks, unless the break takes out a clearly defined support level. Otherwise, a big down day after a downtrend might just be a blow-off and a bottom. The size of the drop isn't important as long as the stock looks broken. The same 5% profit, 6% loss applies. 15. If your stock has gone up, but then starts to decline slowly on decreasing volume, that's OK, as long as it doesn't violate its previous support level. Dipping on heavy volume is bad. 16. When he buys and holds stocks, for an exit, he'd probably start out using the 50-day moving average as a stop loss, but then use a 20-day moving average as the trailing stop. 17. With regard to expected returns, Gary shoots for 100% return, compounded, per year. In 1996 he got 77%. In 1997 it was 46%. In 1998 86%. Long: Example:(Long) |
Shorts:
(C > 20) and (AVGV50 > 500) and (C < MINC5.1) and (C < C1 - 1) and (V > 1.5 * AVGV50)
Example:(Short)
Message 12829 http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=14700038 http://www.tradeon.com/tradeon/tc2000/gbs.html Suggestion:
Other Support and Resistance methods: simple moving averages Fib
Retracement http://clubs.yahoo.com/clubs/telechart2000usergroup >>
where the breakout day (today) >>
has a price increase of at least $1 Note: (C>C1+1) doesn’t account for a gap with an open to close reversal (O>C) >>
the volume surges +50% above the 50-day moving average 2.
Gary prefers the average volume to be at least 50K >>>
He also looks at liquidity, by scanning the prior day's transaction
log and noting the size of the blocks and size of the spreads. 3. The minimum price stock Gary looks at used to be $20, but because his equity and lot size have grown he changed it to $25. Suggestion:
Focus on the stocks that you’ll actually buy, i.e. 6.
Beware of stocks that break out more than 6% above prior
resistance. Suggested
PCFs for GBS Long strategy: #2
GBS BreakOut #3
GBS Volume = = = = = = = = Suggestioned
EasyScan for Longs: Indicator
Tab# Middle
or Bottom = = = = = Message 12845 - More on GBS Strategy Notes As message 12825 points out, “(Gary B Smith) just "knows" its the right one based on past experience”. For
more “experience”, review the strategy at Experiential
notes: 9. Generally, THE TIGHTER THE BASE THE BETTER. Avoid the big V formations. Or, if you want to take a positive approach, look for the resistance line to have at least a few tests before the breakout. Watch what happened in the days right before the trade. 11. If an acquiring company breaks out it's OK. The reverse is not OK. Also, Gary tends to shy away from companies that fall or rise in sympathy with another company in the news. If it's just one specific sympathy stock, don't trade it. If it's a whole industry, something is endemically wrong, and it is OK to trade those. 15. If your stock has gone up, but then starts to decline slowly on decreasing volume, that's OK, as long as it doesn't violate its previous support level. Dipping on heavy volume is bad. Entry
Strategy: Suggestion:
Stops: 16.
When he buys and holds stocks, for an exit he'd probably start out
using the 50-day moving average as a stop loss, but then use a 20-day
moving average as the trailing Risk
/ Reward: (Gary B Smith’s) formula for determining lot size = (2*cash) / 1000 where cash equals your net equity in your account. 12.
Average hold time is 12 days for longs. Close the trade if still
open after 20 days. |