Rather than replying to individual DMs about my $Kingsoft Cloud Holdings Ltd(KC)$ position (ironically, my earlier post was about $Fidelity Wise Origin Bitcoin Fund(FBTC)$ ), I decided it’s better to share this as part of the free educational content for everyone to benefit from.
Here are a few key points about the share structure of KC before the breakout, so you can adjust your screening parameters if needed. This is the type of stock profile that typically shows up in the 'Top 100 Performance% Stocks' annually. It's also why I tend to focus on small to mid-cap stocks most of the time.
Share Structure Before Breakout at $3
i) Market Cap: $700M USD (Current: $2B USD)
ii) ADR%: 5.7% (Current: 10.8%)
iii) IPO Timer: 4.5 Years ago
iv) Outstanding Share Float: 250M
v) Avg (50) $ Vol: $35M USD/day
vi) Avg (50) Share Volume: 4M/day
1. 1st move back above 200-MA after 1 year, +80% with RS during the 2 weeks.
KC will initially show up on your '1-Month Strongest Move' screener. I move the entire list (which includes KC) to my watchlist, awaiting a higher low swing to confirm a character change.
2. Higher Low may be in place at this point with price contraction within a symmetrical triangle. I abolutely pay more attention to stocks when price contract along with ALL moving averages contracts together. (10, 20, 50, 100, 150, 200 DMA)
KC remains in watchlist, but will begin to keep appearing in my 'Screener within Watchlist' based on technical price compression.
3. Entry day on 5/11; here are some qualification
i) it broke out of a 2 week technical triangle pattern and consolidated range
ii) it broke out with high RVOL (RVOL was 40% in 10mins of open)
iii) LoD was only 40% (i skip trade beyond 60%. I want high possibility of position ending the day with unrealized profit, not near entry price)
Entry day is T. 3 stop set based on 33% stop level from entry to LoD. I do not consolidate and adjust my stops to breakeven (avg price) until T+3 days
T+3 = 33% size down (immediate partial profit taking or shaving risk down on trade that did not follow through but still hovering above avg entry as I have tight stops (since I only do execution when price action presents entry to LoD below 60%). All stops are consolidated to breakeven level on 1 full singular size.
4. Day 4 onwards is all mental stop on 10-MA. I do not mess with the trade if it doesn't close below 10-MA.
5. This trade did not close below 10-MA at all even at 13 x ATR% from 50-MA currently (highest ever). No reason to sell everything, but you have every reason to sell some pieces into strength at extension beyond 10 x ATR% beyond 50-MA.
To be fair, nobody will know the outcome on the day their trade execution; but what I strongly advise is to adhere to the principle of law of large number and you need to have this few things right;
i) make sure your screener gets u the setup before they MOVE, not after (i do not believe in high volume scan, you have already missed the most optimal entry day and the risk/reward is skewed after it. Try volume based high RVOL 'at time' scan instead during live market at minimum. High volume scan works best only as post continuation base setup, and the perfect entry spot often is a few weeks after that result appear)
ii) have a entry rule that stack the odds of position ending the day with unrealized profit. LoD 60% rule, high RVOL etc are my 'secret'
iii) ensure you have non-discretionary profit taking/stop loss rule. you cannot second guess the market, and u need to keep your emotion in check. you won't be able to hold a big runner if you like to second guess 'top' and 'bottom' in the market. the trades that can move needle in your annual performance % are trades that you never expect to do what they are doing. they make moves against basic human instinct.
iv) you need to know when to go 'heavy' vs 'light' in terms of trade frequency and activity. $KC trade was taken right on the day market bounce off it's rising 50-MA, before subsequent market gap up to reclaim 10 & 20-MA. Market index chart eg. $SPY $RSP $QQQ are great to cushion you when to layer your risk or release the pedal. I will never take on risk when $SPY is 4 x ATR% from 50-MA when it historically pullback from 5 x ATR% from 50-MA. I am pretty certain $KC sort of move will never happen in any stock at this juncture of the market. You need to stack every single possible odds to let the trade work in your favor, and the current market extension now is a headwind more than a tailwind.
v) repetition & refine; do this 100 times, go through your trade data and refine. do it another 100 times again, go through your trade data and refine. in a year, you will be able to refine up to 4 times at least. you only can get better if you refine your trading based on your trade journal. you can't escape this part of the work, please.
I hope this is helpful, it's just some basic principle, math and plenty of repetition in trading for me.
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