Making Money in a Range Bound Market

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Screen for the biggest gainers that meet other criteria, choose the entry point and hang on for a short and bumpy ride.

Note – If you are in a hurry and want to “cut to the chase,” skip to the end for the “Actual Screen.” Otherwise, read on for more details on how my personalized top gainers screen evolved. 

Historical and Current Perspective

As an active market watcher since 2001 and passively before that, I know there are always opportunities. Even in this current market that is way over-priced, there are opportunities everywhere. You just need a strategy.

With so much cash on the sidelines, it is apparent that “buy and hold” is not a very good strategy for most people. This is not a time to “invest,” for “trade for success.”  My model of building wealth is trading, not investing.

There is a record amount of cash on the sidelines because the historic bull market is topping out. Everyone knows it. Everyone sees it so the real question is, how to make money in a market that just drifts sideways while it waits for the “big correction.”

One “Crisis” after Another

While we are on the subject, it is very interesting to watch market analysts try to create one crisis after another.  Most recently it was the “Falling Price of Oil Crisis” and then it was the “European Debit Crisis,” as the pundits and media try to shake people out or draw people in.

I am absolutely convinced that anyone who talks about the market has an incredibly big axe to grind and they are trying to move money into and out of positions where they have a strong vested interest.

It’s been interesting to watch how they explain some of the most recent market activity. On days when the market goes down a bit, it is because the situation in Greece is not likely to be resolved and on days when it moves up a bit, there is “optimism” over resolution of the “debt crisis” - hogwash I say!

The “debt crisis” and the “oil crisis” were priced into the market months ago and the movement is nothing more than knee jerk reactions caused by market makers and traders trying to make a buck when the market does not want to go any higher right now.

So, understanding that “investing” in a market like this is fool hardy at best, how do we add to our wealth portfolio or money tree? Swing Trading of course!

Swing Trading Refined – Crystal Ball with a Rear View Mirror?

As always, the first step in swing trading is finding good targets. We then need to do a little research into the company and historical charts to accurately predict what may happen over the next few days.

We can call this a “blended approach to swing trading” because most technical traders ignore the company behind the stock and most value investors pay little attention to current short term price fluctuations. Maybe it’s a “crystal ball with a rear view mirror?”

For now at least, my definition of swing trading is “more than a few days, and less than a few weeks.” 

I can’t watch the market closely enough to be a serious day trader now do I have the required capital to do it right trading on “teenies” (make a little bit of money on small moves and large positions).

On the other hand, I prefer not to tie up my limited capital in a stock that has not moved in 30 days.  I want stocks that can give me a 2 % ROI within 30 days.  I came very close with my lasts move into Staples and should have sold out but got greedy and hung on for a couple more points. Alas, the fear and greed conundrum at its finest!

While on the subject of fear and greed, I suggest we add a couple more emotions to what moves the market – boredom and a compelling need for action. These last two are what really moves a stale market!

Finding the Stocks to Trade

So with this blended approach in hand, what exactly are we looking for?

As always, we want:

  • Something with decent volume (over 1 million shares trading hands per day so we can get out when necessary)
  • “Real” companies (avoid start-ups, penny stocks, etc. and go for mid-caps and large caps),
  • Price ranging from $10 - $50 just because it fits my style, and of course,
  • We are looking for some level of volatility – hence the “gainers” idea

One way to spot these companies generically is by watching the daily gainers and losers, but unfortunately they don’t screen out the “avoid with a ten foot pole” companies that are simply “pump and dumps.”

I obviously speak from experience on this one, so prefer to screen for my own gainers – why would you ever want to chase losers? I tried to catch a few falling knives last time around but am definitely staying away from these guys in my current attempt to restore the portfolio.  

The Actual Screen – Pick the Targets

Proper timing and careful selection are the key to swing trading. Here’s a good way to find stocks that deserve further research using my favorite screener (finviz):

  • Up 2% or more in daily trading (last Friday)
  • Average over 1 million shares
  • Price between $10 and $50
  • Large Cap and Mid Cap Only

This yields the following ten stocks sorted by highest percent change – This is my version of the Top Ten Gainers, and ones that I personally would take a chance on:

  • JD – JD.Com Inc.
  • PAGP – Plains Group Holdings
  • SCHW – Charles Schwab
  • RF – Regions Financial Corp.
  • CLR – Continental Resources,
  • VIPS – Vishop Holdings
  • FITB - Fifth Third Bank
  • BAC – Bank of America
  • KEY- KeyCorp
  • BRFS – BRF S.A.

I will pick two on Monday and “put my money where my mouth is” and then report results.  I will only enter if the pattern sets up in a way that fits my strategy.  One thing to remember, you never “have to” buy or sell. 

For some reason, we often think that unless we are actively trading, we are not working. We get bored and just because we want some action, we enter a position that does not fit pre-established criteria. This is definitely a “bad idea,” and we would be well served to avoid these emotions just as much as we need to control our fear and greed emotions.

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