Meta-Trader - Hunting for Elephants

Welcome back, Meta-Traders.

Last weekend John Carter held a class on how he looks for "Elephant Trades".  These are longer-term plays based on weekly chart action.  He defines elephant trades as trades that can grow your account in a "life changing" way, turning 10K into 100K or 250K into 1 MM or more.

I was too cheap to attend the class, but I am a do-it-yourself kind of guy anyway.  So I went on an elephant hunt of my own using my prior scan New High, Low PE, High Growth as a starting point.  I also used some new criteria that Mr Carter identified in a free Webinar earlier last week in an attempt to sell the elephant hunting class.

So I created a new scan in TC-2000 with criteria as follows:

• New All time high in price
• PE Ratio Less than 20
• 5 Year Earnings Growth Greater than Zero
• Capitalization between 25% and 75% percentile

This last one is key since once a stock reaches a certain high level of capitalization, the growth naturally becomes limited due to the law of large numbers.  Take high flyer Google for example.  It meets most of the above criteria except its market cap is too big.  At that level of Capitalization, stock is just too big to double let alone triple or quadruple.  Think of it like trees in a forest, you want to bet on the smaller, up-and-coming ones, not the mightiest oak in the forest.

So the above list shows a list of winners, many of which you might also find in the Investor Business Daily IBD-100 list.  Two such examples are SCL and JCOM which I have seen there many times.  Okay now you have your list of winners, when do you pull the trigger?

The answer is very simple, you enter when the chart makes a new all-time high as shown using the "Show Me" feature of TradeStation as shown on the right.

Can you lose money buying at all time highs?  Of course you can.  You can use a percentage stop or (very simply) you can put your stop below the low of the entry bar.  If you get stopped out, you can always enter at another new high.

It also helps to understand what the company does and to become familiar with the earnings and the news.  Listening to a web-cast of the earnings call for the company is a great way to get aquainted with the story. 

Then there's the N part of Canslim which stands for New.  There's always a new technology that's up and coming, Its been just about everything at one point in time, railroads, electricy, software, the Internet etc.  At this point in time, its 3D-Printing stocks.  Its good new know the story and follow it as it unfolds.

Okay, that's all I have, my best information available. Now go out there and make some money, its not that hard. 

Enjoy your Saturday.