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“Shake Out Plus”
From the Active Trend Trader
WWW.ACTIVETRENDTRADING.COM
DENNIS W. WILBORN, SR.
DisclaimerU.S. GOVERNMENT REQUIRED DISCLAIMER – COMMODITY FUTURES TRADING COMMISSION FUTURES AND OPTIONS TRADING HAS LARGE POTENTIAL REWARDS, BUT ALSO LARGE POTENTIAL RISK. YOU MUST BE AWARE OF THE RISKS AND BE WILLING TO ACCEPT THEM IN ORDER TO INVEST IN THE FUTURES AND OPTIONS MARKETS.
DON’T TRADE WITH MONEY YOU CAN’T AFFORD TO LOSE. THIS IS NEITHER A SOLICITATION NOR AN OFFER TO BUY/SELL FUTURES OR OPTIONS. NO REPRESENTATION I S BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED IN THIS TRAINING. THE PAST PERFORMANCE OF ANY TRADING SYSTEM OR METHODOLOGY IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAINLIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOTREPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN E XECUTED, THERESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAINMARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS INGENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OFHINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELYTO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
ALL MATERIALS PRESENTED ARE FOR TRAINING PURPOSES ONLY . TRADERS SHOULD PAPER TRADE ANY NEW METHOD PRIOR TO RISK OF PERSONAL CAPITAL.
Copyright 2007-2017 ATTS
Jesse Livermore – A knack for recognizing patterns
Most notably, he was worth $3 million and $100 million after the 1907 and 1929 market crashes, respectively. Adjusted for inflation, $100 million in 1929, equals about $1.39 billion in 2016. He subsequently lost both fortunes.
Apart from his success as a securities speculator, Livermore left traders a working philosophy for trading securities that emphasizes increasing the size of one's position as it goes in the right direction and cutting losses quickly.
“The game of speculation is the most uniformly fascinating game in the
world. But it is not a game for the stupid, the mentally lazy, the
person of inferior emotional balance, or the get-rich-quick adventurer.
They will die poor.”
— Jesse Livermore, How To Trade In Stocks
The Boy Plunger
The Great Bear of Wall Street
Net Worth at death = $5 Million
Copyright 2007-2017 ATTS
Shake Out Plus – Used by Livermore & Bill O’Neil on bottoming stocks for an early entry point.
1. Based on a sell off or shake out of weak holders and then a rebound of 10% above the most recent Swing Low.
2. This rare pattern consists of two sharp sell-offs, with the second slump undercutting the first sell-off's low. It's a bit like a double-bottom structure, but it generally unfolds more quickly — within a few weeks vs. the double bottom's seven weeks or more.
3. So where does the "+3" come in? That refers to when you see the stock turn itself around after its two big sell-offs. You'll see it bounce back and soon jump to new high ground.
4. You want to see the stock rise at least three points above the first sell-off low in heavy volume, triggering an early entry. That's where you get the "+3." So if a stock has a first sell-off low of 30, a three-point gain past that price represents a 10% rally — signaling real demand.
5. For a higher-priced stock, you could look for a bigger gain. If it trades, say, around 50 or 60 a share, you might want to see a five- or six-point gain and think of that pattern as a "shakeout +6" if you want. The point: It must be an unusually strong move higher. i.e. a Shift in Momentum!
Examples: MOMO
5/25/17 Swing Low = 36.49
6/15/17 Swing Low = 35.02
Shake Out Plus = 36.49 + 3.65 = 40.14 Trigger
7/10/17 Entry Trigger Hit
5% Stop Loss = 38.13
5% Profit = 42.15
But…
Copyright 2007-2017 ATTS
MOMO-Daily
Entry = 40.14
36.49
Are there characteristics of the “Shake Out Plus” that can apply to other trading opportunities?
What about a shift in Momentum on the basis of price action—
Intraday
Daily
Weekly
Copyright 2007-2017 ATTS
Examples: MOMO - Alternative
5/25/17 Swing Low = 36.49
6/15/17 Swing Low = 35.02
Shake Out Plus = 1% – 2%
New Entry would be 36.49 + 1.5% = 36.49 + 0.55 = 37.04
6/16/17 Entry Trigger Hit
5% Stop Loss = 35.18
But…Wait there’s more
Copyright 2007-2017 ATTS
MOMO-Daily
Entry = 37.04
36.49
Examples: MOMO – Alternative 2
5/25/17 Swing Low = 36.49
6/15/17 Swing Low = 35.02
What will another timeframe chart show?
Copyright 2007-2017 ATTS
MOMO-Daily
Entry = ?
36.49
Examples: MOMO – Alternative 2
6/8/17 Swing Low = 38.08
6/9/17 Swing Low = 36.02
6/15/17 Swing Low = 35.02
Shake Out Plus = 1% – 2%
New Entry would be 36.02 + 1.5% = 36.02 + 0.54 = 36.56
6/16/17 Entry Trigger Hit at 0.4797 less than daily entry
5% Stop Loss = 34.73
Copyright 2007-2017 ATTS
MOMO – 1 Hour Intraday
Entry = 36.56
36.02
Summary
- When Jesse Livermore used this technique he was often reacting to price action depicted on hand-drawn charts – Delayed Days & Weeks
- Being aware of the mechanics can add additional surety to decision made with more data
- With the right tools, momentum shifts can be identified earlier
Copyright 2007-2017 ATTS
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Clarify, Simplify & Multiply
This has been the Motto of Active Trend Trading from the beginning!
We continuously work to Clarify & Simplify through refinements to the system to make it objective and easy to both learn and use.
The purpose of all presentations is to provide our fellow Active Trend Trader Members a jump start to accelerate progress up the Learning Curve.
We welcome suggestions on how to improve the learning process!
Trade Wisely & Profitably,
Dennis W. Wilborn, PE
Founder & Lead Technical Analyst
