How to find TOP Gainers or Stellar Performers?
We are not discussing about TOP gainers of the day or week, rather our eye is on the TOP performers over a period of time. We want to invest in stocks which can make significant gains such as 50%+ or 100%+ or even 500%+ gains in couple of months to a year. At the same time, we also would like to invest significant portion of our investment capital in these stocks with minimal risk. If we can manage this in the right way then we can build significant wealth in relatively short period of time. Hence, discipline is absolutely necessary and all rules must be followed if we want to move from mediocre gains to stellar gains without incurring significant losses.
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Let's look at some stellar performers, but WHY?
- We already know that past performance is not guarantee of future gains
- If these stocks are already stellar performers then why are we studying them?
- These stocks are already top gainers, doesn't it mean we already missed the train!!!
What are we looking for?
- Identify any common traits
- What makes these stocks stellar performers?
- When is the good time to get IN & OUT?
- How much to invest and at what point in time?
- How much risk to take (in terms of potential loss)?
- How to find these stellar performers before they become TOP Gainers?
Our approach:
- Past TOP Performers - Chart Study of past stellar performers
- Stock research tools - Check out stock charts, research financial data related to EPS & Sales growth, etc.
- Stock scanning tools - Which resources are available and provide specific stock screening abilities for our needs. How to find potential candidates which shall become the next TOP performer in due time.
Things to remember:
- Market decides the direction NOT WE.
- Market can do anything it wants, hence our job is to understand and analyze market and not do wishful thinking
- Capital preservation remains first priority and utmost importance
Let's get started, shall we!
1. Past TOP Performers - Chart Study
If you haven't noticed yet, most stellar performers started their massive rally coming out of a market correction. Hence, market correction is our favorite time to identify the next stellar performer using relative strength as first criteria.
2. Stock research tools
By now, based on above chart study, what common traits of Best Performers have we identified?
Bookmark below sites as we will need them to perform our research regarding potential candidates for TOP Gainers:
TradingView charting tool - Chart is already setup with relative strength line at bottom of the chart. You may need to create a login, its free for minimal use.
Koyfin - Under financial analysis we can find Quarterly EPS growth and sales growth numbers. We need to register to see the data but its free to use for now. However do check the actual numbers as sometimes the percentages are not calculated properly when EPS goes from negative to position.
MoneyControl
MorningStar.in
Bookmark these sites so that it is handy for research purposes.
Now we can do our stock analysis and research but how to find potential candidates?
- Relative Strength is the key - We are not talking about RSI indicator, rather we are referring to Relative Strength of the stocks price compared with major market index. Read Relative Strength Based on Price Action for better understanding of relative strength, and read Price Relative / Relative Strength to understand how to interpret it.
- Pattern - It is simply a consolidation phase but looks like a shape, hence it is called different names. This allows a stock to stage the next leg of the rally, hence identifying patterns is necessary as it provides us with a low risk entry.
- EPS growth & Sales growth numbers in % - We do not need to go in lot of details regarding what is EPS growth and Sales growth?, and how to calculate it? , etc. Free resources are available which provide this information.
- Entry and Exit matters - Understand when to get IN and when to get OUT by carefully studying the chart study.
- Discipline - Every successful person in any field, requires to follow specific rules to remain on top of their game. Hence, always follow the specified rules and never get emotionally attached to stocks.
Bookmark below sites as we will need them to perform our research regarding potential candidates for TOP Gainers:
- Free Charting tool -
TradingView charting tool - Chart is already setup with relative strength line at bottom of the chart. You may need to create a login, its free for minimal use.
- EPS & Sales related information
Koyfin - Under financial analysis we can find Quarterly EPS growth and sales growth numbers. We need to register to see the data but its free to use for now. However do check the actual numbers as sometimes the percentages are not calculated properly when EPS goes from negative to position.
- Other sites which provide free financial data
MoneyControl
MorningStar.in
Bookmark these sites so that it is handy for research purposes.
Now we can do our stock analysis and research but how to find potential candidates?
3. Stock scanning tools
Fortunately, we found two sites which offer the kind of custom scanning we need to identify potential candidates. Unfortunately, the tools are not perfect but something is better than nothing. None of the tool provides a way to scan using relative strength the way we want it. So we simply improvise and use a workaround for our purposes.
Free Stock Scanning tools:
Chartink.com - Its free to use for now, provides charting & scanning capabilities. We are interested in scanning capabilities using specific parameters. The scan is already setup which we will explain here for our understanding. They also provide back testing up to 8 months for free.
Filtering criteria:
Screener.in - Its free to use for now, provides charting & scanning capabilities. We are interested in scanning capabilities using specific parameters. The scan is already setup which we will explain here for our understanding.
Filtering criteria:
Both tools provide similar results, you can choose any other tools which provide similar capabilities. Once our scan has identified potential candidates then we simply need to go over each stock in the list and identify which is the next BIG winner. DO NOT forget to check next earnings date especially for 1st buy area, we typically do not take a position if the next earnings date is within 10 trading days as we do not have any cushion if the stock reverses.
Free Stock Scanning tools:
Chartink.com - Its free to use for now, provides charting & scanning capabilities. We are interested in scanning capabilities using specific parameters. The scan is already setup which we will explain here for our understanding. They also provide back testing up to 8 months for free.
Filtering criteria:
- Latest Close Greater than equal to Number 10 - Only consider stocks with latest close above Rs.10/- as we do not want to trade very low priced stocks.
- Latest Min ( 20, Latest Volume ) Greater than equal to Number 100000 - Only consider stocks with minimum 20 day volume of 100,000 to ensure liquidity.
- Bracket ( Latest Close - Latest Min ( 252, Latest Close ) / Latest Min ( 252, Latest Close ) ) * Number 100 Greater than equal to Number 80 - Relative Strength alternative as the scanning tool does not provide Relative Strength the way we need it, so we use Relative Strength of recent closing price as compared to the price on same day last year
- Latest Max ( 252, Latest High ) * Number 0.85 Less than equal to Latest Close - Only look for stocks which are within 15% of 52 week High
- Latest Close Greater than equal to Latest Sma ( close,50 ) - Only look for stocks which are above their 50 day simple moving average
- Latest Close Greater than equal to Latest Sma ( close,200 ) - Only look for stocks which are above their 200 day simple moving average
- Earning Per Share[EPS] Greater than equal to Prev Year EPS - Only look for stocks with latest quarterly EPS greater than or equal to same quarter previous year
- Quarterly Gross sales Greater than equal to 5 quarters ago Gross sales - Only look for stocks with latest quarterly sales greater than or equal to same quarter previous year
- Weekly Sma ( true range(1),3 ) * Number 100 / Bracket ( Weekly Max ( 3, Weekly High ) - Weekly Min ( 3, Weekly Low ) ) Greater than equal to Number 61.8 - Only look for stocks which are still in consolidation phase, this is Choppiness Index.
Screener.in - Its free to use for now, provides charting & scanning capabilities. We are interested in scanning capabilities using specific parameters. The scan is already setup which we will explain here for our understanding.
Filtering criteria:
- EPS preceding year quarter >10 - Only look for stocks with latest quarterly EPS greater than or equal to same quarter previous year
- YOY Quarterly sales growth > 10 - Only look for stocks with latest quarterly sales greater than or equal to same quarter previous year
- Return over 3months > 15 - Only look for stocks which are gaining over last 3 months or change it to 6 months as appropriate
- From 52w high < 15 - Only look for stocks which are within 15% of 52 week High
- Current price > 10 - Only consider stocks with latest close above Rs.10/- as we do not want to trade very low priced stocks.
- Volume > 100000 - Only consider stocks with minimum 7 day average volume of 100,000 to ensure liquidity.
- Return on equity > 15 - Only consider stocks with efficient capital management
Both tools provide similar results, you can choose any other tools which provide similar capabilities. Once our scan has identified potential candidates then we simply need to go over each stock in the list and identify which is the next BIG winner. DO NOT forget to check next earnings date especially for 1st buy area, we typically do not take a position if the next earnings date is within 10 trading days as we do not have any cushion if the stock reverses.
As soon as market provides evidence of correction or bear market cycle then its better to close all positions. By default, following our rules will ensure that all open positions will be automatically closed once the rule is violated. MarketSmith does provide market outlook for guidance, however we should learn to understand this on our own based on the market analysis we covered in earlier sections.
What do we do if market is in correction or Bear market cycle!!!
When market is going down (market correction or bear market) then how should we choose stocks? We do not recommend buying stocks when market is moving down as it is extremely difficult to identify right candidates. Remember, market correction can last for several weeks/months. However, in bad market some stocks will make big moves but to identify such a group is not an easy task. Our primary goal is to protect our capital.
What do we do if market is in correction or Bear market cycle!!!
When market is going down (market correction or bear market) then how should we choose stocks? We do not recommend buying stocks when market is moving down as it is extremely difficult to identify right candidates. Remember, market correction can last for several weeks/months. However, in bad market some stocks will make big moves but to identify such a group is not an easy task. Our primary goal is to protect our capital.