G Pattern and STEPS

[newk1]

For those of you unfamilar with eliteG and the infamous ' G pattern'...

Quote from eliteG...
====================
I came up with the G pattern when I was studying explosive penny stocks of the past.  This is what they had in common:

g1 stage:  A big upwards volume move.  Where volume stood out from the rest of the chart as price climbed strongly.  (no exact numbers..this is a visual pattern)

g2 stage:  A fallback of price and usually of volume that does not pierce the low of the start of G1.

g3 stage: broken into 2 parts

         g3a:  breakout is the break of the highest close or open, whichever is higher, of the
                 g1 stage.  This needs to show heavy volume as well.  Entry can be anywhere 
                 on breakout day but I recommend the breakout point(g-spot, g-trigger)

         g3b: after-breakout...the pattern on penny stocks generally runs a minimum of 100%
                from breakout
=========================

I just wanted those members not familiar with eliteG to understand the history a bit.  The G pattern has since been refined into STEPS...explained in the next post.

I believe Fous and eliteG are contemporaries.  I know fous from 3SOF and he won the trading award the first year I joined.  That is about the time I moved out of trading into a more long-term approach...which has not worked so well for me BTW (ahem, one of the reasons I am here).

I have to empathize with eliteG on the working while trading deal.  Trading is not such much hard work as it it is learning, diligence, awareness, patience, and protecting your capital.  A couple of overexposed trades gone bad can wreck your capital (Bill O'Neil is right BTW !!!).  That's one of the reasons pennies are so dangerous.  It is VERY difficult to trade while doing a day job, especially when it involves travel, meetings, etc... that keep you away from the market.  Those who are in the situation will understand...  Family, a day job, home, leaves very little time for market study.  Fous is one of my filters (no offense) and one to learn from.  I am here to hit and run...one can make several times the black fees with just one or two good trades a year.  I hope to do it more often than that.   I figure if I make just 5-10 times the black fee, it will be well worth it.  I believe Se7en has done it in the past month.

Kent

[newk1]

This is from AussieTrader at 3SOF...
========================
With full credit to EliteG  who first documented and identified the G Pattern Breakout. I have put my own spin on this pattern and developed a trading system which I'll share here.
Over time I'll document trades I have using the rules. Also anyone finding a stock that fits STEPS feel free to share it here 
So here you go:


STEPS is an acronym for Short Term Explosive Penny Stock

This is a volume reliant pattern, no indicators, moving averages, oscillators required to identify trades. Although the biggest returns and subsequently risks will come from the .PK .OB and sub $5 stocks the pattern is technically a variant of a bull continuation / breakout and applies to all stocks (although higher priced mainstream stocks will not show the type of explosive continuation that this setup aims to catch). The idea behind the pattern is to gain safe entry to (without chasing) and profitably exit from (without hanging on too long) stocks that have exploded upwards (usually on some form of fundamental shifting news). Importantly this is not buying the momo stock as it makes its first move, it is identifying and buying into effectively the 2nd move (following consolidation / pullback).

Step 1:  The Trigger: A big upwards volume backed move.  Volume MUST stand out from the rest of the chart, as price climbs strongly.  No exact numbers apply here, this is a visual pattern, but this move should be anywhere from 1 to 5 days. The scan is for stocks less than $5, volume & price explosion, daily volume > 100K (check $ value for liquidity especially if it is a sub penny as this will be more important than the actual volume number as you want to ensure tradability). The very best set ups do not have much historical overhead supply. Create a watch list of stocks passing the Trigger. The aim now being to watch the pullback and calculate entry points.

Step 2:  The Pullback: A pullback of price, and usually of volume that does not pierce the low of the start of Step 1. Pullback MUST last at least 2 days to ensure pattern validation.

Step 3 Entry #1: The STEPS pullback entry should be on the day following reversal confirmation. You can afford to be careful on entry here; there is no need to dive in because the pullback has to confirm and then start reversal. So, watch for candles that give confirmation e.g. an inside day, a morning doji star, bullish harami etc. You can also use an ascending trend line in conjunction with confirmatory candles to help guide entry. (remember though, entry is conditional on at least 2 days of pullback having occurred and the low of the initial breakout having not been pierced).
Entry #2: The STEPS Breakout entry point is the new break of the highest close or open (whichever is higher) of Step 1.  This needs to show heavy volume as well, the best trades will likely have bigger volume here than in step 1.  Entry can be anywhere on breakout day but recommend a buy stop at the breakout point itself. Also recommend setting buy stop entry once you have identified your stock (prior to pullback entry) in case it breaks out without you executing pullback entry.
Step 4:    The Run: The pattern on true penny stocks (those ridiculous $0.00x types) displaying the above conditions can run 100%+ from the breakout point. In extreme cases, this can happen in 1 session, but normally over 2 to 5 sessions.

Entry: ½ position on pullback and ½ on breakout (Step 3 entries)
Initial Stop: For pullback entry just below low of the day prior to entry. For breakout entry just below the low of the entry day (move the pullback stop to that point also once both positions are filled).
Exit:  Following the breakout, there are several exits that can be used. Sell if set to close below half way point of previous day’s candle, or (if you are more eod) sell next day open if this occurs. Sell ½ on double or during the day of 3rd white candle following breakout (whichever comes first) or on open next day for eod traders. Your aim is to be closing all positions above the original breakout high (the STEPS breakout entry). Again an aggressive ascending support line can be employed after the breakout and used as an exit signal if it breaks. Expect to close trade within 1 to 10 sessions.

[mysher]

Looking for a current visual example.  Would this be an example of Step 1 and Step 2, waiting for Step 3?

[eliteG]

Hi mysher,

You bring up an excellent point.  This pattern discussion is missing many examples.. I'll see if I can help.

About NNVC - I agree that it is following a g-pattern.  There are some things that make a g-pattern more ideal though.. and in my opinion safer.

1.  Volume burst, sustained and completely obvious from rest of chart
2.  Flat historical action when compared to current price movement (best when this price is blue sky or 3-5 yr high)
3.  The most important component to me is the lessening of volume on the pullback.  Tiny volume (less than 50% at least) after huge price volume gain while maintaining flat movement is by itself one of the most clear bullish indicators out there.. imho.

I think NNVC also provides for another neat technical trick.  If the next few day show a close within the upper shadow (red candle day) I would be a buyer even with low volume.  Closes within or above a shadow after strong price move are strong signs even on lowish volume.  While I don't think the chart can run more than 100% since the longer trend (200ma) is downward I do find the recent upward slope followed by a burst is usually in need of some continuation.

[2centsheep]

wonderful work guys, esp kudos to eliteG!--the originator of gpattern analysis.

now I have the following chart for your insights.

It is Fous's Pick QBIK. it had quite a day today, touched 2.59 as low...
but do you think this could be a gpattern candidate?

[eliteG]

example charts from my original research

[eliteG]

and then?
3 orders of wonton soup

[eliteG]

and then?
um fortune cookies too

[eliteG]

and then?
no thats it
and then?

[eliteG]

no and then.. thats all i want
and then?

[eliteG]

and nothing else, I'm done
and then?

[eliteG]

<a href="http://www.youtube.com/v/WYwDV-7uDyc" target="_blank">http://www.youtube.com/v/WYwDV-7uDyc</a>

[eliteG]

and then? and then? and then?