Your homework this weekend: 1. Scan the weekly charts of the top 10% 1, 3, and 6-month relative strength stocks within 25% of recent highs - 30-day highs, 60-day highs, 52-week highs. It doesn't matter - pick one. The point is that the stock has retained recent momentum. Don't obsess about it. You want stocks with trend, momentum, volatility, liquidity, and relative strength. Examples: Trend - xavgc10>xavgc20 and xavgc20>xavgc50 Momentum - c/c60 > 1.30 Relative strength - c/c60 ranks top 10% Retaining RS - c>maxh60*.75 Volatility (ADR %) - avg((h-l)/c, 20)*100 > 4 Liquidity - avgv20>300000 and avgv20*c>5000000 This is just an example, but offers a simple, scannable way to narrow your universe of stocks down to things with technical potential. If you want to add fundamental criteria to that, be my guest. 2. Flag all the ones with 1-3+ weeks consolidations and are pulled back in the vicinity of their 20-day EMA. If you need help understanding what solid setups look like, then compare those stocks to the model setups in the attached images. There may be none that match. That's ok. It may take another week or four. You'll track these stocks until they look like the picture - or shit the bed and break through the MAs. These are setups, not buys. They only become buys once they break through the pivot on solid price/volume action. 3) Whittle the flagged items down to those that have an orderly, constructive consolidation where the volatility is contracting, the stock is building higher lows, and getting tight. Could be two days, could be 6 or 7; 3-5 days is just a general rule of thumb to help you avoid chasing shit that hasn't consolidated long enough. The overall pullback or pattern might be several weeks long, so I'm not talking about looking for 3-5 day bases. It's more like a contraction/consolidation/tightening within a bigger picture base or pullback. If using the image, ideally you want points 2 and 3 getting closer together with each up mini-rally and selloff. 4) Identify the pivot or breakout point where the stock would have to breakout of to trigger you into the trade. Typically, this will be highest points of the 3-5 day tight range you identified in the last setup. Using the model image, the pivot point is point 2. 5) Track these stocks until they look like the picture - or shit the bed and break through the MAs. These are setups, not buys. The plurality and presence of these setups is almost as important as the setup itself. If there are scant setups, that's often a bad omen. It means the mkt has already meaningfully taken off and you missed the boat or the mkt is in a poor backdrop and the odds are low for breakouts. Breakouts and momentum tends to happen in clusters. 6) At a minimum, make sure that the group/sector you're trading is in an uptrend - 10 over 20EMA and both trending up on the group chart. Preferably, you want the major indices to be in an uptrend as well. $QQQ for tech and $SPY for consumer/stuff stocks. If these are in downtrends, the odds of anything you do working is much much lower. Your batting average will be pitiful, and most of your stocks won't follow through.

Bet size matters because the first rule of trading is you have to survive. In the law of large numbers, there are some things working against us - namely probabilities of losing streaks. Let’s take a simple 100 time coin flip game where for heads you add plus 2 and tails you minus 1. I want you to take a few minutes and actually do this exercise. Write 1-100 on a paper, take a coin and flip it 100 times, writing +2 for heads and -1 for tails or vice versa. What were my numbers? I had a 53% win rate and a total of 59R when adding up pluses and minus. Not bad, right? But here’s the catch - I had a 9 flip losing streak and several 3-5 streaks. What does this have to do with trading? A lot. If you oversize your positions, when you hit one of these inevitable losing streaks, the damage can be massive. I had a 9 loss streak in a game that is theoretically 50/50. In poor markets your win rate will be much lower. Look at the image posted. If your win rate drops to 40%, there’s a near statistical guarantee that over 50 or 100 trades that you’ll get many 3-6 trade loss streaks. That same 9 trade loss streak that was 8% probable at 50% win rate becomes more than 35% probable with a 40% win rate. The bad news is your win rate will probably be worse than 40% in a poor market. Qullamaggies win rate is in the 20-30% range much of the time, which is why he says he’s in a drawdown 80% of the time. He hits these streaks of losses quite often, but he is wildly profitable. He survives and thrives against these odds because he keeps his bet size reasonable on every trade and he catches enough large winners to offset the losses. He lets the law of large averages tilt the end result in his favor. It’s not about 5 trades making you rich, but understanding that you’ll take hundreds and thousands of trades as a swing trader. Oversizing can work for a short time, but the probabilities of a loss streak catching up to you is extremely high. This is why market corrections are so dangerous and deadly.