Trading System

Fundamentals (the company is actually growing)

Quarterly EPS YoY growth of 25% or more, the higher the better, and acceleration over the last two quarters is even better. Annual EPS should be growing steadily too, with Revenue YoY growth above 20%. These map to the C and A in CAN SLIM and are the most basic filter.

If a company's EPS YoY growth slips from 30% to 10% over two straight quarters, that is a warning sign even before the price reacts. Fundamentals are the rearview mirror, but the market is the leading indicator.

Technicals (a healthy chart)

RS Rating of 80 or above, ideally 90 or above. This matters more than anything written in the books. A name with low RS goes nowhere no matter how good the chart looks. Price above the 50-day moving average, the 10-day above the 20-day, and no more than 15 to 20% off the 52-week high. These rules screen out most names in a downtrend, and only what is left earns the right to talk about a setup.

Institutional (big money is buying)

Fund ownership rising over the last few quarters, and better still a respected long-term fund stepping in. Seeing big money like Fidelity, Capital Group, or Janus adding in the 13F filings matters more than any analyst rating.

Market regime (the M in CAN SLIM)

The market in a Confirmed Uptrend, with no recent cluster of distribution days. Plenty of people skip this one, but 75% of stocks move with the market. In a bear market even the best setup wins only about 30% of the time, while in a bull market a mediocre setup still makes money.

The screener I run every week, the whole set in the open:

• Price above $10
• Average Daily Range above 4%
• RS Rating above 90
• Price above the 50-day EMA
• 10-day EMA above the 20-day EMA
• More than 70% above the 52-week low

Running that leaves roughly 50 to 80 names, then three passes over the charts. The first pass cuts the ugly ones, the ones that just dove, and the ones that have clearly already run, leaving about 30. The second pass flags names with a clean base, whether a cup with handle, a flat base, or a VCP, and this pass cuts that in half. The third pass watches for the 10EMA just crossing above the 20EMA, or a base about to finish its contraction, leaving 10 to 15 names for the main watchlist.

The screener narrows the field, it does not pick the stock. The real work starts after the watchlist is built. From there the daily job is simple: check whether these names gave a setup today. If not, keep waiting and look again tomorrow.

What a VCP is

VCP is the Volatility Contraction Pattern Minervini described, the classic way a leading stock rests in the middle of an advance. The stock runs first, say 30% or more, then starts to pull back. The first pullback is 25 to 35%, then it consolidates for a while. It pushes up again in a smaller wave, and the second pullback narrows to 15 to 20%. There may be a third, narrowing further to 5 to 10%. Each pullback is shallower than the last, shorter in time, and lighter in volume. Drawn out, it is a tightening wedge, like a spring being compressed layer by layer.

Three contractions at once is what makes it a real VCP

Many people think a VCP is just price contraction, which is only the surface. A VCP that actually works is three things happening at once. Price contraction: each pullback gets shallower. Volume contraction: by the end of the contraction, volume runs clearly below the 50-day average, sometimes with several straight extremely quiet days, meaning the sellers are exhausted. Volatility contraction: the daily range keeps shrinking, with 3 to 5 straight days of closes moving less than 1%, the candles packed tightly together.

When all three contractions show up together, supply has dried up and it takes one buy signal to set it off. This is the highest-probability entry.

Pivot Point: the price that pulls the trigger

At the tail end of the contraction, the high of the consolidation range is the pivot point, and in practice you usually take pivot plus 10 cents as the real breakout trigger. Two hard conditions for the buy: price clears the pivot, and breakout-day volume runs 40 to 50% or more above the 50-day average. Both have to be met to count as a breakout, since price without volume is a false breakout and most likely fails.

The buy zone runs from the pivot to within 5% above it. Past 5%, do not chase, wait for the next base or pocket pivot. The cost of chasing is a compressed stop, which makes the risk-reward no longer worth it.

Pocket Pivot: an early entry before the base is formed

Sometimes a name has not formed a complete VCP yet but is already trading very strong, and that is when a pocket pivot is the earlier entry. The definition is simple: an up day whose volume is greater than the volume of every down day over the prior 10 trading days. In plain terms, buying suddenly overwhelms all the recent selling, the sign of institutions quietly building a position.