i forget the name of that strategy that says;
buy a stock that has gapped down & hold for (like) a month...
something like that.

anyway, for those who like that strategy check out UTIW.

if you trade it, let us know how it works out.

-ja

Joe,
I have been looking at a gap strategy today that is the opposite of the filled Black candlestick that I posted the other day.

Buy anytime a stock gaps down but shows a hollow red candle stick. Sell on any close that's profitable. Max 15 days.

This strategy also seems to produce about 88-95% winners.
I've noticed that both of these strategies have a fair amount of large winners. The Bollinger band system produces a large percentage of winners but it is starting to appear that lack of volatility in the markets means that most of the gains are small. A few large losses can wipeout a lot of the profits. I'm experimenting with a few trades using the Gap up and gap down strategy along with the momentum play to see if I can add some large winners. UTWI looks like a canidate for the gap down strat.

Jim

Jim,

Both of your black and red candle gap ideas are very valid. They're both classic candlestick patterns.

Larry

Hey Larry,
You must of been busy this past week. I've been looking at parabolic moves this weekend. Maybe you've done some work with this already. I took a look at tech stocks around 1999-2001 and the recent moves in oil stocks. I found quite a few parabolic moves in both sectors. One similarity I'm noticing is that when the stock finally closes below its 10 DMA about 9 times out of 10 the run is over and a serious decline is imminent. I also found that a lot of the times when the stock closed below the lower Bollinger band it was just the begining of the drop and even though there were winners using the B/B system on these stocks, quite a few of the big losers were also manifested by these stocks. With my prelimanary studies I would shy away from trying to apply the B/B strategy on any stock that has experienced a parabolic rise. As a matter of fact I get very high probability winners by shorting when the stock closes below the 10 DMA and also shorting when the stock closes below the lower Bollinger band. Same rules apply, take profits on any close thats profitable. It appears that shorting at the close may have an edge as quite a few of these stocks once they start to go down make big moves and frequently gap down.
What do you think?

Jim

P.S The reason I brought this up is that there have been a fair number of tech stocks that have made parabolic moves recently. I've got about 25 that I'm watching.

Jim,

I don’t know. I would have to look at the same charts you’re looking at to give you an opinion. It depends a lot on what you mean by a “parabolic” move. I know that it is not true over my career that after a stock makes a big move and closes below its 10 dma for the first time, it’s going to begin a big move to the downside. The topping process takes much longer than that. It may have happened a lot in 1999-2000 because that’s when the bubble popped. But it’s not normally the case.

In other words, I like your black and red candle idea a lot better.

Larry

Larry,
I like the candlestick idea better also. But here are just a few of the charts that I looked at for parabolic moves, XOM, CVX, COP, AHC, XTO and some techs stocks in 2000 (I can't remember which ones at the moment). These are some of the stocks that have made parabolic moves recently that look like they might be ready to fall soon or in the near future, CSCO, INTC, NXTL, A, ADCT, CTL, KSS, NE, and TGT. I was thinking of shorting them when they close under the 10 DMA and also on a close under the lower B/B. But if in your experience this pattern doesn't usually lead to declines I think I'll pass on the trades.

Jim

Jim,
The Candlestick strategies sounded interesting so I took a look at them. I looked at buying anytime a hollow candle appeared. Used your normal rules. Bought at the close, sold on any close that was profitable, max holding period 15 days. For the Nasdaq 100 last 6 months 307 trades, 297 profitable 28 losses, 90.8% winners. First 100 stocks in the S&P, 263 trades, 232 profitable, 31 losses 88.2% winners. You might want to check my stats for errors but I don't think you need to wait for a gap to implement the hollow red candlestick strategy.

Gary

Sorry about that, it should have been 279 profitable trades for the Nasdaq 100 not 297.

Gary