First I need to be able to identify these patterns with minimal effort.
Now, I use zacks.com to identify theses as they have a free custom screener. I use the following screen
% Price Change (12 Weeks) >= “55″
Last Close >= “1″
Market Cap >= “50″
Now in order to qualify for a “high tight flag” by Oneil’s guidelines taken as a strict rule rather than general guidelines, the stock should be up 100% in a period of 2 months. However, it can consolidate afterwards up to 20% lower than the peak of the run up, and it can rise above the peak of the run up before the real “breakout”. Because it may spend a month in consolidation, or just be in the process of consolidating, or not completely done with it’s move upwards, or it could have traded higher 3 months ago, then much lower before it finally advanced, I think any stock up 55% in the last 3 months is a significant enough move to rule out a lot of stocks and will help identify high tight flags pretty quickly.
If you want to constantly monitor stocks that meet the strict guidelines and are ready to trade just about now, you want to do price change of 80% in last 12 weeks, price change above -20 and below 10% in last 4 weeks as well. I feel this may rule some good stocks out that are worth watching so I’m going to stick to the first screen criteria I mentioned.
I’m not against accepting less than perfect high and tight flags, because I know bull flags are powerful too, and the higher the move up, the more powerful they are, and a breakout will still work. In a perfect world I would be able to find stocks that are reach all of the CANSLIM criteria of ONeil’s/IBD criteria, that aside from a 100% move in the last 2 months before consolidation, also made a huge run up prior to that, that are breaking out as PPT is giving a 1.6 reading on the S&P, as these stocks will emerge as the new leaders which lead the market higher before the market follows. However, it is not a perfect world and I am not going to be too concerned about it. High tight flags are strong enough on their own that it doesn’t matter too much if it is a bear market or not, they still produce a high enough percentage reaching the price target that they are worth it.
Once I have ran the screen, it’s time to take a quick look at all of the charts. The quick way to do this is to export the results of the screen to excel, then copy and paste the ticker symbols into a notepad doc, then to make sure you have commas seperating them instead of spaces. Then to copy and paste these into finviz’s screener and look at the thumbnails giving you a url that looks something like this
You will want to remove all stocks that have consolidated because of a merger/acquisition as they are pretty well fixed in price. (however, arbitrage opportunities are available for those if you want) Then you will want to identify those that have consolidated for awhile, and those that have broken out of their first buypoint, while keeping the remaining list for the future. Even if the stocks have already broken out of a high and tight flag, it’s very possible that they will make another one within the upward trend sometime in the future. If you take a look at the ticker symbol TEN over the last few years it made a few high and tight flags as it continued higher.
So you will be left with a list like this
Ready to breakout soon:
aly,bsdm,gyro,INTX,wxco
kro (warning)
Above first breakout:
ahd,apl,arna,ccbp,
Special case: MBI as it has only just barely broken out to it’s second buypoint of $10 at new relative highs, but the high tight flag is also the 2nd part of a cup and handle. It still is within 5% of the buypoint and offers a 2nd buypoint above new highs. Additionally if levels hold around here for awhile, a break to new relative highs could potentially even signal another buypoint. Not sure if I would be too thrilled to trade this one now, and I don’t like the May highs acting as potential resistance that may form a double top, but I wouldn’t rule it out completely.
The remaining symbols not mentioned above are for future use.
ALY,AHD,AAU,APL,ARNA,ASYS,AWRCF,KGJI,AZC,BVF,BJGP,BORN,BSDM,CCBP,CULBF,DYIHY,GYRO,HWK,HOOK,HTHT,IBPM,INTX,ISLN,JKS,KRO,MBI,MDCO,MDM,MSB,NZ,PAR,PCLN,PRXI,RDCM,SCMR,TAWNF,CALL,WXCO,ZAGG
My eye is on JKS as well because it is listed as a CANSLIM leader
special case: MBI (broke out of flag down, broke out o2nd breakout making a handle, but still hasn’t broken May highs)
Now you know how to identify the winners. What we want is to focus in on a select group. We want to buy these right at the buypoint, we want to add on at the 2nd buypoint. Of those that we purchase, we want MORE of our money in both the leaders (the first of the group to emerge as a strong gainer) as well as the performers (the ones that reach the 2nd buy point first) We want a simple way to do this. We want to have no more than 5 stocks, but if one or more of those 5 stocks don’t break out, we still want to put our money to work somewhere. Of course, we want to cut losses short and let our winners run. We also want to avoid having our money tied up for too long in the stocks that aren’t performing, while allowing ourselves to keep the best performers as long as they perform. That information will be in part 2 and 3.
flag trading system introduction
Part 1 how to identify high and tight flags
Part 2 flag trading system rules
Part 3 Concluding the high return investments system.
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