Notes from Kristjan Kullamägi’s streams mid nov 2020-8.01.2021 + swing trading school +
Twitter
Setups
Simple breakouts:
Stocks move like on a staircase - move higher, sideways move, one more move higher etc. We
are trying to identify the areas when the next move higher could be formed. We’re looking for
tight areas, so we can get a tight stop, so we can get a good risk-reward.
Higher lows before a breakout is an important concept, most of the time price builds higher lows
before a breakout, this adds to the quality of the setup.
That a setup builds a range, a tight one before breakout, is very important. Then you have a
more exact breakout point and more momentum on the break.
When looking at setups, look at in what condition are other stocks in the same sector, are they
gaining strength or weakening? This has an impact on how the setup works out.
The best time to buy breakouts is when the market is coming out of a correction. It is a bad time
to buy breakouts when the market has had a run for 6-7 weeks. If you buy a breakout after a
good market run, it means the stock is a big laggard, and also, there were not many other
setups. It has a much higher likelihood to fail and it often does.
When a stock is already up massively and has had several good flag setups. When a new setup
forms now, this is going to be a lower probability one. The stock is not going to go up forever.
Gap up in an extended market that sells off is usually not a good thing.
You look at the past performance of the stock - on which MA has it found support regularly. On
this MA it is logical to find a 5-star new setup.
When there’s a very fast stock - ADR close to 20, they are so fast, you have to look at the
smaller time frames (hourly?) (can’t wait for the 20 MA to catch up).
As long as your stop is not farther away than the ATR, then it’s an ok entry, not yet chasing.
My stops are usually less than 0,5 ATR away from entry.
My remark: wouldn’t it be a good idea to trail the last 10% of your position under the 20-day?
Then you could catch huge moves, sometimes 50-baggers that would yield a large profit also
with a 10% remainder of the initial position. Often before a stock goes parabolic, it tests the 20day.
When bigger cap stocks in a hot sector go up a lot, then they are going to run the smaller ones
also soon.
When I see a sector starting to move, I look for other stocks in this sector. When a sector gets
hot, the shitty, illiquid small ones can go up hundreds and hundreds of percent.
On indexes - when the 10-day is above the 20-day and up, it is generally a good market, you
can buy breakouts then. But not when 10-day is below the 20-day - this is the red light for
trading breakouts.
Best breakouts happen above normal daily volume.
FIZZ is a growth stock to study. My remark from here - it’s very important to have a strong prior
price advance before the setup, also a clean one. That shows you this stock is recently moving
and having followthrough and it keeps you away from looking for stocks in a sideways price
action where the price is likely to continue to go mostly sideways.
The 10 and 20 daily should be strongly up by the best setups, about 45-degrees up, these are
the stocks you want to be in.
When indexes are extended, you can still buy breakouts when there are a lot of setups. When
you are starting to run out of setups, then is the time to get worried.
You can rebuy when stopped out and price finds support on the 10 or 20 MA and starts making
higher lows.
When markets are already really extended, there are few good breakout setups left, the ones
that break out often are laggards.
For a setup to get good - often the 20-day needs to catch up and it needs to get tight. Higher
lows, surfing the 20-day, then it starts getting really tight and has a breakout there.
You need to find a stock that:
1. makes a big move;
2.
then pulls back and/or goes sideways for a while;
3.
finds support on either the 10, 20 or the 50-day moving averages;
4.
bounces and starts either building higher lows or has an undercut and reclaim (pin bar
through the MA);
5.
then breaks out of a tight multi-day or multi-week range.
When you have a leading sector, the setups do not have to be so good, when it’s like a 3,5-4star setup, it still counts as a five star setup. Because if everything is running in a sector, there’s
increased probability of success.
It’s very important that a setup has recent strong momentum and a clean price action. When a
stock has retraced for very long and far, below the 50-day, it has lost its momentum and setups
there are not good ones.
For a setup to be a good one it has to have built a base, a tight consolidation. When something
has been retracing and breaks right out, that has no base, it has to stay there and build a tight
area.
When evaluating a setup, also look at the previous price action of it, the chart history, is it a
clean one with strong moves or choppy and sideways. Stocks have individual characteristics,
they are likely to continue to behave similarly in price action than in the past.
There has to be tightness on a setup on entry. If it’s wide, you really have no good edge. In this
case, if you really need to do it, take a small starter and add when it gets tight on the 60-minute
chart.
My remark: a breakout occurs at a much higher volume than usual, it creates a volume spike on
the hourly.
You buy strong stocks in good markets with momentum.
Weekly flag breakouts are very powerful - the ones what have gone sideways for 3-4 months.
The best flag setups and consolidation breakouts are the ones with the longest formations.
When you see a flag, wait for the 20-day to catch up before you enter a breakout. Earlier
breakouts are probably not so strong and can fail more easily.
Volume is important on breakouts - it confirms that this is really a breakout that could get going.
On why Kristjan draws lines on patterns the way he does and disregards some candles:
A few candles don't affect the overall trend. You have to focus on the overall trend, not a few
candles.
An example on $Z.
Several false breakouts and false breakdowns can make a pattern stronger.
The price became tighter and tighter on a strongly trending stock.
It's not an exact science and there are lots of variations.
Momentum, tightness and relative strength are the key.
When drawing trendlines and lining out borders of flags and ranges, Kristjan ignores the highs
and previous breakouts and tries to find the area with the most touches, often a sneaky one.
Some of the most powerful entries are when stocks break out of a multi-month range on
earnings.
Episodic pivot (earnings breakout):
- great earnings;
- big beat;
- big growth;
- gap up;
- range breakout, ideally multi-month range breakout;
- has been building higher lows for months;
- the best earnings breakouts are the ones that break out of solid bases and are a surprise.
If something has good earnings, it does not mean it has to go up, it might be up a lot already. It
needs to build a base (range). Breaking out of a base means here breaking the highs of a
mostly horizontal channel, often to new all time highs.
There’s a big edge in earnings breakouts, if you study them (charts + earnings reports) and
trade them. You need to catch only a few good ones a year. They are so infrequent, you only
get 4 earnings seasons per year, so you don’t have to sit there and trade all the time. Big
volume is the key.
My comment: what if I set alerts on stocks in hot sectors before earnings and when something
breaks out, set an alert on the opening range high and when it breaks, I buy it, stop at lows of
day. This can bring very high RR trades. Sell 1/3-1/2 on day 3-5 and trail the rest on an MA or
EMA. BEAT ON EPS AND REVENUE + GAP UP + BIG VOLUME
On earnings, when a stock gaps up 30% or more, it’s not too much, this can be a start of a
200% move.
Parabolic shorts:
- you watch them very closely on the first day of breakdown;
- you cover some quite soon;
- target is about 40-50% down the way back on a clear support level, 10 or 20 day MA;
- you need to wait for ranges to develop to potentially add more.
- These shorts are often daytrades for Kristjan, because he does not have the buying power to
hold them overnight.
- You should not trade parabolic shorts until you have made a few million in the markets, stick
to the simple breakouts. It takes 2-3 years to master a setup. There’s plenty of opportunity to
add in the next day’s when hourly support areas break down.
- Liquidate your short position when it approaches the 10-day. Often it will stop or have a
decent bounce there.
NVDA is kind of slow for the upside but for the downside I like it. I like shorting megacaps,
they’re kind of safer to trade.
Don’t short low priced small caps, RR is so bad.
Parabolic short possible entry - when it has its first crack, breaks below WVAP, bounces up
again and starts to make lower highs near the VWAP.
You short when a range breaks to the downside. Tight ranges.
Kristjan sometimes also looks on the weekly or monthly to gauge how stretched a stock is.
Parabolic longs are a different game, they don’t really have to bounce the way parabolic shorts
can crash.
Parabolic long entries after a parabolic short:
Wait for really tight entries like:
- if you get a range on the 60-min: couple of green candles in a row preferably making higher
lows, building a range and then a breakout of this range.
- Or something like opening range highs. - Very specific setups with tight stop. Again, it’s all
about the risk-reward.
When you have a stock that is up a lot for it’s size - a large cap 500% for the year for example.
And it has speeded up over the last months-weeks and been orderly, for example respected the
10-day and 20-day (or the 20 EMA on 1h for faster smaller stocks) and it starts to break down
from there. This can be a short entry. When it got really tight and then broke those support
areas. Building lower highs too is an important thing. My remark - wait for some confirmation
too. - look for low risk (tight) high reward (room until the next MA) high probability (tight, clean,
long) setups. That’s what it’s all about.
Mean reversion trades:
- How to enter: same thing as always, opening range highs, opening range lows, VWAP fail
VWAP support.
- Gap ups ruin mean reversion longs and gap downs ruin mean reversion shorts, there is no
edge there anymore. It’s all about the odds and the odds of success do decrease significantly
when you get these big gaps in these mean reversion candidates (gaps in the direction of the
planned trade, so it’s not so extended anymore).
- a 5-star mean reversion setup RMO 05.01.2021: was down 5 days in a row, down 52% from
the highs. Opening range highs was the entry there.
- Mean reversion setups are fast bounce setups, they have to bounce right away at the turning
point, when it goes sideways for some days, it’s not a mean reversion setup anymore.
Trade management
The 10- and 20-day work very well as bounces, it’s almost like cheating. Using them for short
targets and breakout supports.
I’m up 5 mill on the week, I don’t care, I’m protecting my profit - I rather miss 2 mill of additional
profit than give 2 mill back.
I get stopped out quite a lot but most of the time you can get back in. My stops are perfect, I
don’t change them. That’s one of the main problems with beginning traders - they get stopped
out and start tinkering with the stops.
When a lot of people on social media start posting their returns, it might be time to get cautious.
Trading breakouts like this you can double, triple, quadruple your money in a year even when
you have a 30% win rate. Get used to losing. The best traders are the ones who take the best
losses.
Backside is when the moving averages that were previously support, become resistance.
You use the 5 and 1 min charts only at the open, never later, ever.
You can’t outsmart the 10- and 20-day consistently.
Tight stops, big targets - shoot for 10R, 20R even 50R, you can take a big number of 1R losses
in a row but once in a while you hit a big win, and this is going to pay for all of them + leave a
big profit. That’s what trading is all about. You can be wrong on most of your trades and make a
lot of money.
On parabolic moves, you should use the 10-ema on the 60 min for stop loss, otherwise you are
going to give back half or most of your profits.
You got to watch your open positions like a hawk, anything that’s not acting right……….if the
markets start going down…you obviously get rid of them first.
Don’t tinker with the rules, you won’t outsmart the 10-day MA.
Going into profit protection mode - trailing on the 10 and 20 ema on 1H - when everything is
really overextended and parabolic.
If a stock can’t go anywhere for 3-5 days - feel free to sell it.
You have to play defense all the time, defense comes first. Be passionate about your stops not
your stocks.
Regular bull market trade management - trim and trail.
If you missed a setup, you missed it, have to look for new ones. Do not chase.
min daily $volume = position-size * 200
Avoid buying 3-days before earnings.
When you see a lot of euphoria around, even though the market indices are not extended, I’ve
learned that it’s best to size down on the longs because usually you have a pullback around the
corner.
When price undercuts the 10-day, makes a wick and closes above it, this is very bullish price
action.
Remember: you can take 5 trades, exit 4 of them with small losses and hit a home run with the
5-th one. This will make you a lot of money.
When a setup does not go really, you should lighten up, sell a part of the position. It can be
done also during the entry day.
You liquidate 33-50% of your position on day 3-5 and put your stop to breakeven. After this you
trail it under the 10-day.
When price closes below the 10-day MA - close out the position (goes for longs).
If something does not go and is moving sideways near the entry, sell it and buy back later when
a new level breaks.
When you enter a position, stop loss goes under the low of day. In very aggressive entries
under the opening range lows. You trail your stop loss mostly under the 10-day and exit when
price closes under the 10 day MA for the day. In some cases you trail your stop loss tighter.
If a trade goes parabolic, goes straight up 200-500% in a short period, you cannot use the
traditional exit methods like 10 or 20-day. You have to exit faster.
You go through your open positions regularly and sell the ones that are not performing and keep
the ones or even add to the ones that are performing. You buy breakouts, you sell the ones that
get overextended, sell the ones that hit trailing stops and the ones that don’t really perform. You
want to have the most efficient use for your money, you don’t want to sit in something that is not
performing.
On some stocks the trailing stop is a close below the 10-day, on some 20-day.
In a bull market you position yourself correctly and then you just wait. The more you do, the
more you are going to sabotage yourself if you’re a swing trader.
Portfolio management
Close out the slow movers, you want to be in the faster moving stocks.
In a crazy bull market you really want to be in the fastest moving stocks. Sell the slow movers to
free buying power, buy faster movers instead.
I don’t want any stocks in my portfolio, long or short, that are not acting perfectly.
When considering general risk - your other open positions have to be deep in the green before
you can add margin. When your trade is just put on, the risk is the most real.
Fundamentals
Great quote from Quallamaggie's Twitch stream today "Stocks don’t go up because there is a
pattern. Find stocks that have a reason to go up then look for the pattern." That one hit me hard.
SPAC’s - you don’t need to know what they are doing, you just need to know they are the
hottest thing right now. When you see a setup, you should buy, that’s all you need to know.
Doesn't matter what the FED is doing, what Trump or Biden are doing. Your job is to identify
where the money is going to and where the money is leaving (sectors). Everything else is
secondary.
Kristjan’s news comes mostly from the fly on the wall and twitter.
Low float + blockchain - if you find something gapping up and having some buzz on social
media - these things can go a lot: very hot sector + low float. When a sector gets really hot even these random shitty stocks in that sector can make enormous moves.
Marketsmith has a relative strength rating on stocks.
Stocks that are below one dollar, even below 2 dollars, are generally near bankruptcy.
Analyst estimates on Koyfin: security analysis - snapshots - overview.
Don’t look just for setups, look for stocks that have some more reason to go.
Twitter is my main trading tool. There are a lot of good people on twitter that give great ideas.
Additionally to the setup, you need good stocks they are on - hot sector, great company, great
earnings, great product. These are the ones that make money. - 3-digit revenue and eps growth
(over 100%) YOY (year over year). You want high estimates as well, and also those stocks are
good where there is no growth right now but they have high estimates - there also can be big
moves.
Hot sector, big stories, great momentum, great earnings, you got to go with what is hot - that is
our job as traders.
You can have very high current growth, but when the estimates are down for the next year or
two - there’s no reason for the stock to go up.
I prefer to be in a hot sector or in growth stocks. Avoid these random stocks with mediocre
growth and probably no catalyst, too much randomness, you need to get as much randomness
out of your trading as possible.
Q: What other trading services/platforms do I use?
A: eSignal for intraday charts near the market open, but not every day.
MarketSmith for EPS/revenue numbers, KoyFin for EPS/revenue estimates for the next few
years.
Seeking Alpha for reading up on companies and also news/earnings reports.
If a stock has very fast earnings and revenue growth, it can be a buy after the earnings release
without very much technical support. Triple digit EPS and revenue growth are a huge factor.
Where do you get earnings data?
I use Fly On The Wall but you can also use Seeking Alpha, that’s for free. Koyfin too.
Scans
If you get more than about 50 results on your scan, you should increase the rank or ADR
condition in your scan.
No-one should trade sub-dollar stocks.
Biggest 2-year gainers scan:
Do the following scans:
- 1 month gainers;
- 3 month gainers;
- 6 month gainers;
Scan conponents;
- ADR (for example 6%);
- daily volume (now - 10 milj);
- price increase
1-Month Gainers:
100 * (C / C21 - 1)
3-Month Gainers:
100 * (C / C63 - 1)
6-Month Gainers:
100 * (C / C126 - 1)
Very important things Kristjan said
FOMO (fear of missing out) is one of the reasons most people don’t make it in this business. It
starts with the bad feeling of missing out on a trade that had worked out beautifully. Then people
expect similar results from the next setup and start chasing when they miss the initial entry.
Chasing is what is going to run down the account.
Accepting your losses is the first step towards profitable trading, most people don’t.
I never widen my stops, that’s going to kill my risk-reward. Take your losses and accept
them, that is needed for winning. Get used to getting stopped out. Not getting stopped
out is for losers. Sitting in a stock that is not moving or not going in your way is a waste
of time and money. Small losses-big gains is the important concept.
Buy tight and then sit tight.
Avoid all scalping, it is not going to help you.
If you are trading on margin and things don’t act perfectly, you gotta size down, otherwise you
are going to blow up.
You can make a lot of mistakes and still do well as long as you don’t make the big mistakes, not
taking losses is the biggest one.
If you haven’t made your first million yet, don’t short.
You don’t need to know everything, you just need to know enough to be successful in the
markets. I think people try to know everything, they're gonna start overthinking things and
they’re gonna start breaking their rules. They're gonna start loving certain stocks too much and
hating certain stocks too much. You see it all the time. People keep stocks that just go down
and down because they love them and they don’t buy stocks that are acting really well and
where all the money is going to just because they don't like the, I don’t know, valuation or this or
that, or they don’t like the CEO. Like I see it on Twitter all the time. I am trying to know enough that’s the key. You want to know enough but not too much.
The more longer time trader you are, the more you need something additional to momentum,
some fuel to get a 100% + run. This fuel many times is earnings - big earnings and revenue
growth, and obviously big volume.
The market has 2 periods - aggressive ones and the slow ones where speculation money has
left. It is usual to make very good gains in the aggressive periods and give back half or more in
the slow ones. It is very important to distinguish the slow ones from the aggressive ones and be
very careful during the slow ones.
It is better to hold the shittiest stock in the hottest sector than to hold the best stock in a not so
hot sector.
Listening to the market means looking at what prices do on a more subtle level - are they
making higher lows, are short starters having followtrough or do they stop you out. In the
second case the overextended names are not ready to go down yet. Most people are not
listening to the markets, they are forcing their own beliefs on them.
You have to adapt to different market conditions. There are periods where there’s nothing to do
for weeks. You cannot buy breakouts when the market is not good and there are not many
breakouts.
You got to be careful when you buy these breakouts. Just because it’s a breakout, doesn’t make
it a good buy. You have to be aware where we are at in the market, where we’re coming from.
You have to be super aware of what's going on. Just can’t randomly, blindly buy setups.
Identifying setups is the easiest thing. You can get perfect entries on perfect setups, but the
hard thing is identifying what kind of market we are in.
Other details
When some MA, for example the 65 EMA on the 60-min chart has acted as support a long way
during an upmove, this often acts as resistance on the way down, on the backside of the move.
Don’t look to buy breakouts in this market guys, a lot of speculation money is leaving the
markets. The best time to buy breakouts is when a lot of things are setting up.
A clean bounce on the 10, 20 or 50-day MA is a great thing.
Smallcaps (market cap less than 1B?) usually need a catalyst to get moving, there’s no
institutional buying.
Kristjan keeps track of all the stocks in the hottest sectors, they are in his theme watchlists.
I’ve been cautious for a while, I just don’t like the action, it's very mixed. Some stocks have been
going up but most stocks have been stalling and just become sluggish.
A bounce play - something that's initially up massively and very fast, several hundred percent in
a few weeks or days, topped from the highs, lost about 50% or more (?) and is finding support
on an MA and building higher lows(?). This one can go up 50-75% or more. A bounce needs to
occur fast after the retrace, if it stalls out at the MA, it’s not a setup anymore.
Markets need time to digest or pull back here. You are not going to last long when you are going
to randomly buy breakouts here. Got to realize in which market cycle we are right now.
Usually after a really good month it is good to take a step back (take it more calmly).
If you want to make big gains, you have to keep track of what’s hot - my remark: keep a list,
mark area alerts on it and go through it regularly.
Intraday games (price swings) are irrelevant, you got to make decisions to reduce your
exposure 5-10 minutes before close - whether you need to reduce the exposure on the long
side or short side in your portfolio.
With the new stimulus check, who knows what will happen, maybe the craziness continues. But
in this case, the names we are in, they are not going straight up, they will have 30-50%
corrections along the way. That’s why it’s so important to trim and trail. And maybe going
forward, the current leaders will be leaders no more, maybe we will have other sectors leading.
Identifying hot sectors:
- in which sectors do stocks make the biggest moves?
- where have the 50,100 and more % movers been in the past few months
Kristjan has a list of the best stocks of each hot sector, a list named after the sector. There he
can also rank the stocks by liquidity to find the ones from one sector best suitable for trading.
Nothing holds up when the market goes down 10%
Kristjan risks mostly 0,3-0,5% on a trade, rarely more than 1%
On doing the work
For struggling traders, the work starts when markets are closed, for hours and hours each day.
You cannot be a mediocre trader, they don’t last. Need to put in hours and hours outside market
hours.
Oullamaggie 3:16 PM Apr 17th 2015 Okay so a bit of background. When I realized there was an
edge in this kind of trades, I needed to confirm that so I went through every chart in the U.S. on
the monthly time frame in TC2000 and looked for these kinds of movers 10-15 years back. Then
I used eSignal to get the daily and intraday charts and Briefing.com to get the news of what was
the catalyst/reason for that kind of a move. (I have also done this research on every EP that had
follow through the past)
You need to put in your own work, every day, just scan for big winners, and then just search for
setups.
World of warcraft - if I had not played it, I would not be a successful trader. You have to
understand the mechanics behind different aspects of your game, understand how each part
works and how they work together, and where are the weak spots of your enemy. And the grind,
you have to go through the grinding to figure it out.
Yes! The stock market is like a game in that regard. Figure out the game mechanics to get an
edge and combine with a grind most people aren't willing to go through.