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Changes To Database and Frequency?

The following was sent to subscribers who were asked to read it and respond with a vote. A little has been added after the vote to clarify issues for later readers, but those additions amount to only a few sentences.  There is information below on how to effectively use weekly lists to get new daily purchase candidates.  Subscribers get daily lists.
NOTICE--Since this page was written, we have been at work reconfiguring our scanner reports and the algorithms that generate them.  Our goal is to be able to issue all our reports every day rather than provide some of them weekly.  We also intend to expand the number of free daily reports.  We hope to complete the job before the end of February.  Even so, you might find some benefit in reading this page, especially the portions that explain how to use weekly reports (including the chart at the bottom of the page), because the procedure given can also be adapted for use with daily reports. 

 

We Have A Decision To Make, And It Affects You
Help Us To Know What You Want

Until now we have purposely limited the size of our database in order to complete all data processing in a reasonable amount of time (more on that later). However, with the permission of Reuters, we have just acquired direct access to the entire Reuters database, and that has caused us to consider whether or not it is time for a change. We can now access and scan their database directly with our own custom-designed algorithms just like we scan our own database. Because their database is about three times the size of our own and growing, using our algorithms on their database could result in certain benefits for subscribers. Currently, we publish various lists for subscribers on a daily basis. Depending on the particular list, these lists may have up to 30, 50, 75, or 100 stocks. If we take advantage of this new availability, the lists we publish for you would have maybe three times as many of the most attractive candidates for you to review, but there are several things to consider, including a change in the frequency of the reports we provide. First, there is the matter of size.

ETFs
If we do not switch to the Reuters database, it could be some time before we add more ETFs to our current database. In conducting a test of our ability to access the Reuters database (with permission and cooperation from Reuters), we added about 400 ETFs to our scan list. By making full use of the Reuters database, we can immediately expand our ETF database from less than 500 ETFs to more than 1400. In other words, it will approximately triple the size of the ETF database that we scanned before using the Reuters database. We estimate that expanding the ETF database to over 1400 would increase our ETF universe enough to justify expanding our reports of the Strongest ETFs from a list of 50 to a list of about 150 on a regular basis. There is much more to this than simply adding more ETFs.  The added ETFs would represent a significant increase in the number that would be competing to make it on the Strongest ETFs list. With more competition, the lists will be stronger. Also, If we tap into the Reuters database with our algorithms, new ETFs would automatically become candidates as soon as they join the Reuters database. ● The ETF Alerts list (not to be confused with the Strongest ETFs list) has generally consisted of no more than 30 stocks. If we use the larger database, we estimate the size of that list could expand to about 90 at times, depending on market conditions.

StockAlerts, Strongest Stocks, Breakouts, Etc.
All stock reports will approximately triple in size (with the exception of the Volume Surges reports). The volume surge report is currently our only report that lists 100 stocks. That report would be expanded to 200, but the 200 listed would be taken from a database that is three times the size of our current database. That means many of the stocks at the top of the list would have greater volume surges than those currently at the top of the list. The same concept applies to the other reports. For example, even if the number of stocks listed in the Strongest ETFs and the Strongest Stocks reports remained the same (it will not), there would be three times as many stocks vying for a position on those lists. It is reasonable to assume that many of those will be stronger than the ones currently being listed.

More Attractive Candidates
There will likely be an increased number of attractive candidates even if you review the same number of stocks as you currently review. Because there are three times as many stocks in the database we would be scanning, there would be the possibility of finding more of the most attractive stock setups for most of our reports than with our current approach. Think of it this way. In a room of 2500 men, there might be 30 men who are 6'4". In a room of 7500 men, there might be 90 men who are 6'4", some who are 6'5", and maybe a few who are 6'6" or more. This concept would also apply to the number of stocks we can find that are setting up for a surge, stocks that are having Bollinger band penetrations after a squeeze, stocks having an R.C. Allen setup, and so on. If we can search a much larger database, we will likely find more candidates at each level of attractiveness. Instead of one top-ranked stock, we might find 3 of similar attractiveness. Even if you currently get lists of, say, 30 stocks and the list is expanded to 90, you might find three times as many attractive stocks in the top 30 as currently. Having more stocks on a list does not mean you have to review more stocks to benefit.

Time for a change?
Our algorithms do a very good job of finding what we call "setups," stock behavior patterns that often appear before a price surge (see bottom of "Stock Alerts" page for some examples).  To do that, they place a heavy computational load on a computer. That means it takes time for even a very fast computer to handle the processing requirements in a reasonable amount of time. Up till now we have purposely limited the size of our database to less than 3000 stocks. That is because, with that size database and the computational requirements of our algorithms, it can take us up to hours to update the site, and the biggest chunk of that time is spent generating the reports we currently make available. That amount of time is about the limit of what is practical for daily reports. If we were to triple the size of the database, the daily time requirement would be prohibitive. However, there is a possible solution to this problem. If we generate our reports once a week on Saturday (when we can start on the update very early rather than wait until the market closes), we could do it.  Because of the increased size of our reports, there would be plenty to work with during the following week. The lists we currently publish have size limitations based on a number of factors.  The most important of these is the level of attractiveness of the alerts at the cutoff point. The following table shows the current list sizes and the probable list sizes if we scan all the stocks in the Reuters database.

Here is the way it would work. Once a week, probably on Saturday, we would provide a fresh list of stocks similar to what we provide now, except that the lists would be about three times the current size. The reports posted on Saturday would remain the same throughout the week until the following Saturday, when fresh reports would be provided.

The indicator charts on the site and the daily comments in the Market Review would be updated every day, just as they are now.


Procedure For Using Weekly Expanded Lists

Here is how a person might work with large weekly lists. He could review the list of stocks or ETFs over the weekend and mark the ones of greatest interest.  Of course they would be the stocks that are ready (in a setup configuration) and those that have a chart pattern that is nearing a setup configuration.  The marked stocks would become his "Watch List" for the week. He could actually print the list and mark the stocks, but that is a personal choice. Then, each day of the following week, he could review the ones he had marked, and buy when he thinks the timing is right. [This step would replace looking at the current daily lists based on our much smaller database] The setups of the marked stocks would be in different stages of development and the setups would evolve over the week, with some becoming less attractive and some becoming more attractive, depending on market action. Sometimes it is difficult to find stocks that are timely (that appear ready to move), so the idea of having more to choose from is particularly attractive from that perspective.  Selecting over the weekend the stocks to watch during the week would enable a person to pick stocks that are most likely to be timely during the week. That is, he would not select only the stocks that are ready now, but also stocks that might become ready in a few days. Then, he can watch the way those setups evolve daily. Essentially I think it would be better than getting new lists every day based on a smaller database. Why? Stocks tend to evolve in their setups. They do not suddenly appear on the list as excellent candidates overnight, so fresh lists daily are not apt to turn up something new that was not there before (sometimes this seems to be the case when the list is limited to 50 because those lower on the list work their way up into the top 50). With the larger lists, there should be enough for the week, and by reviewing a pre-selected list of stocks each day, a person can become acquainted with the way the setups are evolving. For example, If he is focusing on strength stocks (the Strongest Stocks subscription), he would have a list of 225 very strong stocks to review over the weekend. From that list he would create his "Watch List" for the week. The same procedure outlined above can be used for all the lists.

Let's look at this a little more closely. What is said here about the Strongest Stocks list also applies to the Strongest ETFs list and, in general, to the other lists. Just buying fast rising stocks indiscriminately because they are rising fast, is buying without a proper "trigger event."  We believe it would be much better to buy on a bounce after a pullback or other action that makes them attractive. The "bounce" validates the setup by showing that support is holding and that new buyers are taking positions.  To check these things, a person would have to wait a day or two after the initial event that made them attractive "candidates," and observe their behavior.  [Depending on the list you are using, you will be interested in their behavior after testing support, after the breakout, after the moving average crossover, after the price gap, after the volume surge, or whatever.]  When you select your list, you should be selecting those that are ready now and also those that are almost ready. That is the approach we personally use. Then we watch the setups evolve and buy when we think the timing is right. So, the list is not your investment list, but your "Watch List." When we buy a list of stocks, we want replacements ready in case one of our positions is stopped out or in the event we decide to sell something. As soon as a stock breaks pattern, we want out. We use very tight stop losses on the Strongest Stocks lists. As soon as we sell one, we want a replacement. That's where the watch list becomes very useful, because we have become acquainted with the status of various setups as they have evolved.  It is a ready made list of attractive stocks we can review quickly and then select the most attractive on the list at that particular moment. Since the setups of the stocks on the Watch List are evolving on a daily basis, the "most attractive" will be different at different times. Buying at the right time on a trigger event is one of the ways we reduce risk and the probability of failure. Thus, having a larger database, a longer list of desirables in our Watch Lists, and more competition among stocks for the top spots would be a big advantage. The same thing would be true for those who are intermediate-term and long-term investors.

While we are talking about the Strongest Stocks lists there is another point that should be mentioned. Most of the stocks on that list are climbing rapidly. The big problem for many people is finding a place to enter. We look at 1-year, 3-year, and sometimes 5-year charts to see if there is any overhead resistance nearby. Once satisfied on that issue, we then look at those stocks with interval charts. Examples might be a 20-day chart based on 1-hour intervals or a 10-day chart based on 15-minute intervals. With interval charts it is much easier to see pullbacks, support areas, and short-term breakout points for a stock that looks like it is going nearly straight up on a daily chart. This is useful in timing entry points. Without the use of interval charts stocks on the Strongest Stocks lists can be intimidating. We select our buy points carefully even for stocks that are rising very rapidly, and interval charts can be useful for that. When we want a detailed view of the setup we look at the stocks with interval charts. That is how we decide whether a  stock is ready. That is also where the Watch List is useful. Having more stocks competing for top positions makes for a stronger list. Viewing those stocks with interval charts helps us better define the status of a stock's setup pattern and select the most attractive ones for our Watch List. Reviewing those stocks every day enables us to monitor the changing status of their setups.

Breakouts, Gaps, And Other Signals
Some people buy a stock as soon as it breaks through overhead resistance or suddenly gaps up. Many expert traders believe that is a big mistake. For example, some stocks have a history of pattern gaps. These are gaps that do not mean anything. You see them often with ADRs. Also, many gaps up are "fake-outs." A stock will gap up and then fall back below the gap. Or, it might gap and go nowhere after that. You see this a lot when there is a buyout or takeover. A stock will gap from $35 to $45, then flatline after that. We have some gap examples on the site. We avoid such stocks because they are unlikely to go higher. They might if there is a bidding contest, but we do not consider investing in that hope to be our best option. We prefer to go elsewhere. Similarly, breakouts can be "fake-outs." The stocks will break out and then fall back below the breakout level. These "breakout" conditions have been created by big traders who know others have stop-buy orders just above the breakout level. The big traders will sometimes run a stock's price up enough to trigger the closest stop-buy orders that have accumulated. As the first stop-buy orders are triggered the price rises and triggers other stop-buy orders a little higher. As the price accelerates, the big traders then sell out their position during all the buying activity. That enables the big players to unload their shares at a good price. In our own trading, we will often wait after a breakout has occurred in order to see if the breakout level offers support. If the breakout is a true breakout, it should offer that support. With gaps, we look for follow-up action for the same reason. To verify the validity of breakouts and gaps, it is necessary to wait a day or two, and sometimes longer, before acting on the original signal. With daily reports, there is a greater sense of urgency for many people, compelling them to act immediately. Weekly reports may remove some of the sense of urgency for those people, enabling them to better judge whether the breakouts are the real thing. Of course, it is possible to do the same thing with daily alerts, so weekly reports will not be a benefit in this regard for the more disciplined investors. The benefit for them is the longer list of candidates and the greater competition among the stocks to make it on the lists.

With expanded weekly reports, a person can act on the signals that have just occurred if he wants to.  Many successful traders have the disciplines needed to make that approach work.  With the size of the lists we publish, he may be able to fill all his positions the first day.  There would be no need to wait because all the money would be invested.  However, he could also choose to observe what happens after the signal.  Say there has been an R.C. Allen signal.  The investor could buy immediately, but he could also wait to see if there is follow-trough the next day.  Sometimes a stock will generate a signal, hesitate and fall back below the signal point, then start gaining momentum.  By monitoring the stock for a few days, it is often easier to find stocks that are not having a false start, and hitching a ride once momentum begins to build.  The same is true of the other alerts.  For example, a stock may have a Bollinger band squeeze followed by a penetration of the upper band.  Then it might decline a little for a day or two before rising back above the upper band and commencing its uptrend.  You could buy the first day after a breakout, but there is no reason a person could not buy a few days later, after the new trend is a little further along in its development.  Throughout the week, stocks that have given a signal will be in various stages of confirming the signal or denying it.  That is, any day of the week a person should have opportunities to buy one or more stocks that have just confirmed the signal that occurred the day the report was generated (because the patterns will continue to evolve after the initial alert.

We are about to make a decision on this issue and we welcome your input. We will either keep doing the daily updates the same way we have been doing them using our current database, or we will tap into the much larger database (8000+ stocks and 1400+ ETFs) and provide weekly reports with a larger selection of attractive stocks. Doing both is not an option. We want to do what will serve your interests best, and you are the best judge of that. So, if you have input to offer, please do so.

You can give your input with one word if you like. "Change" or "Same." Additional comments would be welcome. If you have input please respond quickly, so we will know where everybody is on this issue.

The Valuator will not be affected.  Also, the Donchian & R.C. Allen Alerts (Master Watch List Alerts) that cover the approximately 500 stocks in The Valuator would continue to be updated daily.
There would be no change in fees associated with the change.
 

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Result Of Survey

The above survey was completed on 12/12/14. The result was as follows.

84.6% voted to use the larger database and to get weekly reports. 
15.4% voted to continue with the daily reports based on the smaller database.

Regarding the vote results:
1. We had communicated with subscribers that if they voted for weekly reports, all reports would be issued weekly. Since the vote, we have concluded there would be enough time to generate all the reports previously reserved for subscribers (except the Volume Surges report) on a daily basis.  Hence, the Strongest Stocks, Strongest ETFs, ETF Alerts, StockAlerts, Donchian & R.C. Allen Alerts (for about 500 stocks on our Master Watch List), Breakouts, and Stock-Scanner will be generated daily
. The other reports we previously issued daily and free for visitors (Price/Volume Surges, Momentum, New Highs, and Volume Surges) will be generated weekly for lack of time (it seemed only fair that if we had to restrict the number of daily lists, it should be the people who subscribe who get them).  A few of the previously free lists have now been added to the lists available only by subscription.  However, parts of some of the lists for subscribers are still provided free to visitors.  Some of those lists are updated daily, and some are updated weekly.  Free lists include Price/Volume surges, Momentum, New Highs, Volume Surges, Strongest Stocks (free samples updated daily), and Strongest ETFs (free samples updated daily).   [Visitors get free samples taken from the bottom of lists for subscribers or from the stocks that rank immediately below those lists.  Even if free samples are provided from, say, the 50 stocks just below the top 150 on a list, those stocks are still ranked above the top 3% of the stocks in the database.] 
2. Since taking the vote, we have merged the R.C. Allen reports with the Stock-Scanner reports and expanded the Stock-Scanner reports from 90 stocks generating an alert to 150 stocks generating an alert (ranked in the order of the volume surge associated with the reported alerts).  The 150 number is a maximum.  On a given day, there may be less than 50 stocks on the list.

Addendum:  Since this page was written, we have made adjustments that have enabled us to issue all reports on a daily basis.  To learn about these adjustments, click on
Final Changes


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