In these interview notes you’ll learn how Jay has been studying charts and trading for the longest time, improving his skills and developing an edge using Canslim methods and analysis. He’s got some words of wisdom for those traders thinking about trading full time, for a living as well.
Jay’s on Twitter so if you like this content make sure to follow him over there, he’s a great guy and he shares honest chart analysis following the Canslim investment strategy. Twitter serves as his trading journal, it’s all very open and I’m sure he would answer your questions if you have one.
For a concise version of these notes, click here.
Finding IBD/CANSLIM
Jay found Investors Business Daily through an advert on CNBC, he bought the IBD newspaper and later, William O Neil’s book “How to make money in stocks” and he became hooked on the Canslim trading system.
Despite his deep interest in trading, he didn’t have the funds to start immediately. He started working and continued to learn about Canslim strategies through reading, and eventually speaking with clients about his stock ideas (he was working as a stock broker).
He always envisioned trading full time as a possibility. It took around 20 years to reach that long term goal, but he made it.
Advice for young traders, Focus on Financial Literacy First
Adopt a minimalist lifestyle to keep expenses low and focus as much as possible on trading.
Pay off all your debt first before getting started trading.
Also, make a plan for your retirement, don’t put all your eggs in one basket. Make contributions to a retirement account alongside your trading account.
Doing these three things will alleviate a significant amount of stress associated with trading.
Following this approach himself, Jay spent 12-13 years maxing out his retirement contributions while casually trading on he side, then after the 2007-2008 crash, his income dropped by 50% but he was still focused on learning to trade and did just that.
“How to make money in stocks” by William O’Neil
Jay recommends a number of books but the main one, the first one he ever read and has re-read numerous times is “How to make money in stocks” — It’s a key resource on learning how to trade and it’s the best introduction to growth stocks, fundamental and technical analysis.
Developing a personal strategy is crucial for success in the stock market, HTMMIS is not just about identifying patterns like cup and handle formations or buying pivots, but rather, it’s about understanding the underlying mechanics of the market and making use of the lessons to create your own trading strategy.
Reading this book repeatedly and applying its concepts to real-world trading, you can develop your own unique style and approach to the market. It’s essential to adapt the knowledge gained from this book to your own needs and risk tolerance, blindly following the strategies presented can be detrimental to your financial well-being.
He found charts fascinating and followed up with about 10-15 other trading books that he cycled through again and again to extract as much information as possible.
Always learning something new from old books is a sign you are growing.
Rereading concepts and rules is crucial since memory fades over time. This repetition helps embed the knowledge into your trading system and strengthens your chart-reading abilities over time.
Other books
Jesse Livermore’s book “Reminiscence of a Stock Operator” is a highly recommended read for stock traders, with its lessons still applicable today.
“Monster Stocks” by John Boik is another notable book that provides valuable insights into stock trading.
Gerald Loeb’s books, and “The Perfect Stock”, offer interesting perspectives on stock trading, with “The Perfect Stock” featuring a notable example of the stock Taser.
“Trade Like a O’Neil Disciple” by Gil Morales and Chris Kacher has had a significant influence on the development of different entry points and strategies in stock trading.
Ultimately, the goal is to develop a personalized strategy with lessons from these books that takes into account individual risk tolerance and market understanding, rather than simply following a set of predetermined rules.
Emotional Preparedness for trading
For some individuals, especially younger ones, you may not be emotionally ready to trade. You might be caught up in a gamblers mindset where you YOLO into stocks without concern to your risk and overall account.
Get rid of this mindset.
It’ll only set you back and the swings in your account will be damaging to your mental health. Emotional preparedness is crucial for trading.
If you’ve had a string of losing trades or know you have a gambler’s mindset, taking a break from trading can be beneficial for personal growth and development. This pause allows you to reassess your approach and prioritize risk management.
With maturity, the importance of losing money and risk management becomes more apparent, and it’s essential to prioritize both of these aspects into your trading.
Sharing knowledge and experiences is always a good thing, make an account on Twitter, it can be a valuable way to connect with like-minded people and be part of a big trading community.
Developing your trading style
Developing your own personal trading strategy is crucial, it allows you to work with your strengths and weaknesses and risk tolerance. It gives you trading super powers as you can avoid what doesn’t work and lean into what you’re good at, maximising your potential.
Understanding your own psyche and limitations is also essential in determining the best approach, whether that’s long-term investing, swing trading or position trading.
And each stock has its own personality — you will have to adapt your strategies to suit the specific stock you are trading. You can develop your trading system over time, it has to involve trading rules as a guide for your decisions. This is essential.
Your rules are there so you avoid trying to pick bottoms and tops in the market. A rule to create and follow weekly routines is also important, this helps you to analyse the market, find new ideas, set up a game plan for he following week.
Growth 250
Jay uses MarketSmith, now called MarketSurge. It offers a simple and comprehensive platform for traders, although it may not be affordable for new traders at $150 per month. MarketSurge’s Growth 250 feature is particularly useful, a valuable resource as it combines the best fundamental stocks out there with that are outperforming the general market.
The weekly process involves using MS’s Growth 250 feature to analyse the market and prepare for the upcoming trading week. Jay is monitoring it regularly with separate tabs for different categories including new additions which are reviews every weekend. Also stocks at new highs and those with big earnings growth and reviewed as well.
Technical analysis is used 100% of the time to confirm stocks deserve to be on the watchlist, stocks without explosive revenue or earnings are rarely traded.
The more entry confirmations a stock has, the more likely it will be considered for trading.
This means the moving averages have to be trending well, indicating an uptrend or the start of one emerging, earnings and sales are accelerating quarter over quarter, showing fundamental growth behind the stock.
Accelerating Revenue and Earnings
Accelerating revenue and earnings is a key factor to consider when looking for stocks to invest in, and when multiple indicators pop together, it’s a sign to get excited and add the stock to a focus list.
Jay maintains a watchlist with a screen of names, which is then narrowed down to a focus list of around 10 names, and the portfolio is typically concentrated with only 4-8 stocks at most. The goal is to own stocks in a nice uptrend and it’s a learning process to slowly build and build the portfolio.
He uses the MarketSmith app to screen charts all day long, and on weekends, weekly charts are reviewed to narrow down to daily charts and then sometimes to the hourly for confirmation.
During the day, the market is constantly monitored, but no specific alerts are set, as staring at the market all day is the preferred method, although this approach may not work for everyone and can lead to over-trading.
Learning how to trade the stock’s character
Following a small number of stocks closely allows for a deeper understanding of how they trade and develop a unique character, which is important for making informed trading decisions.
Every stock develops its own character, and understanding this character can help traders make better decisions and avoid losses. It’s essential to research and watch a stock for several days before buying it to understand its behaviour.
If a stock breaks its character, it can be a sign to get out of the trade without taking a loss or giving back profits.
Setting buy stops on specific stocks can help traders take advantage of potential breakouts. Having a buy stop in place can help you avoid missing out on potential gains too.
Three ways Jay buys
There are three or four different ways to buy stocks, including undercutting rallies, buying pullbacks, and buying breakouts in the right environment when breakouts are working.
Should you wait for volume or price to confirm a trade entry? When considering a stock, Jay’s approach is to follow price first and then volume, rather than waiting for volume to increase. This approach is used to avoid missing entry points, as waiting for volume can result in missed opportunities.
Trading FUTU and regaining losses
A common mistake made by traders is throwing good money after bad, getting emotionally attached to stocks, and failing to cut losses quickly.
This emotional attachment can lead to repeatedly buying the same stock, resulting in multiple losses. For example Jay traded FUTU and wound up with eight losses in a row, about 1-2% each, ultimately resulting in a 10% loss.
However, it’s possible to recover from such losses, as Jay recovered well with a 105% gain in a couple of weeks on the same stock, more than making up for the initial losses.
This is why effective risk management is crucial in trading, and it’s essential to remember that risk is inherent in this field.
Experience and Patience
Learning a new skill, such as Jiu Jitsu or trading, initially involves robotic and isolated movements or techniques that lack connection to the bigger picture.
Just like being a beginner in trading, you may focus solely on a specific stock or pattern, neglecting other market factors, such as volume, group performance, and overall market trends. With time and practice, trading techniques become instinctual, allowing for smoother decisions and reactions, the same applies to any new skill.
The desire for instant gratification can hinder progress in trading, leading to impulsive decisions and significant losses, as seen in the speaker’s personal experience. Many traders struggle with patience, often giving back gains due to over-trading and failing to observe and adapt to changing market conditions.
The importance of patience is highlighted by the need to wait for the right market conditions and pitches, rather than forcing trades and accumulating losses.
Determining Trading Conditions. Stocks First.
When it comes to determining trading conditions, jay prioritises stocks over the market, as the market’s performance can be skewed by mega-cap techs, it’s essential to observe underlying trends and patterns.
The market’s direction can impact stocks, but individual stocks can still perform well even when the market is declining. Watching individual stocks first and the market second can help you make more informed decisions, as stocks can provide early signs of strength or weakness.
A lot of times, the market and individual stocks move together, but it’s essential to identify underlying strength or weakness in the market, such as breakouts working or older names getting back above key moving averages.
Contrarian thinking can be beneficial in trading, as excessive negativity or positivity can indicate a potential reversal, and it’s essential to be patient and put in the work to develop a deep understanding of the markets.
The importance of patience and hard work in trading cannot be overstated, as it takes time and effort to develop a deep understanding of the markets and make informed trading decisions.
The goal is to help traders understand that successful trading requires dedication and effort, and it’s essential to be willing to put in the work to achieve success.
2020 – The worst thing to happen to new traders
The year 2020 was likely the worst thing that could have happened to many new traders, as they experienced instant success and now have unrealistic expectations about how trading works. This instant success led new traders to believe that trading is easier than it actually is, which is not the case.
To be a successful trader, you must be humble and confident, with a strong work ethic that involves constantly screening stocks, reading about the market, looking at charts, and watching indices. Successful traders also read books, follow other traders they admire, and learn from them.
Following experienced traders can be beneficial, as you can pick up new strategies and ideas that have been found through tens or hundreds of hours of experience and tinkering.
Be very careful who you listen to about stocks
It is crucial to be cautious about who you listen to regarding stock advice and only consider individuals who have achieved success or have a similar trading style.
It is essential to find traders who have achieved success with a style similar to yours, as this will make their advice more relevant and applicable.
Focusing on a select group of traders with similar styles can help maintain focus and avoid distractions. It’s essential to limit discussions to a small group, external opinions may not align with your own trading strategy.
Social media
When using social media, it’s essential to understand that most people are full of crap, and you shouldn’t care about what others are doing.
Follow your own process and make your own decisions.
If someone shares a stock, it’s crucial to make that stock your own by doing your own research and understanding where the person bought the stock, as blindly following can lead to losses.
Narrowing down the number of people you follow can be helpful, and it’s possible to find valuable information from people with different styles, but it’s crucial to make that information your own.
Doing your own research and making a plan is vital, and it’s recommended to do this on the weekend or the day before, rather than taking trades based on someone’s tweets during the day. Mark Minervini’s advice of “no audibles” is relevant, meaning that one should not take trades based on someone’s spontaneous advice without having a plan and being ready.
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