Monster Stock Trader: The Interview

Tim Bourquin: Hello, everybody. Welcome back to another show of TraderInterviews.com. As usual, the idea of all of these interviews is just to give you something to think about in your own trading, maybe ways of looking at the markets that other traders do. And you hearing about them, hopefully we'll trigger some ideas in your own head about things that you can apply to your own strategy that you have. Our guest today, he goes by a moniker called "Monster Stock Trader." I came across him from his blog. He's got some really interesting ideas that he's putting up there about trading, so I wanted to get his take on this. So thanks for joining me on the phone today.

Monster Stock Trader: Thank you for having me.

Tim Bourquin: All right. So, I always start with the same question and it seems to work out pretty well. How do you define yourself as a trader, a swing trader, day trader, technician, fundamentalist? How do you kind of classify yourself?

Monster Stock Trader: I really try not to classify myself, but if I had to, it's more of a position trader. You know, it's a mix between a long-term holder and a swing trader. I like to look for big trends in the market and then take advantage of those trends. And sometimes, those trends can be a few weeks long or even 12 to 18 months long. Like that's...

Tim Bourquin: Okay. So...

Monster Stock Trader: Go ahead.

Tim Bourquin: So it just sounds like you kind of just go with what the market is telling you at that time.

Monster Stock Trader: Exactly.

Tim Bourquin: All right. Is there any specific type of stock that you like to trade?

Monster Stock Trader: I certainly like younger innovative companies, but there are certainly opportunities where larger cap companies are becoming more innovative. I like those. I like to see a lot of innovation, a lot of new products, new services, and what is coming with that would be growth. So I do look for growth in sales, growth in earnings, certainly supporting the fundamental side. And then I do like to see technicals come into play, tight chart patterns. I like to see cup with handles, double bottoms. So I do trade more like with the fundamental and technical view. I like a blended approach.

Tim Bourquin: All right, interesting. I'm hearing more and more traders I guess these days that are realizing that incorporating some of the those fundamentals of the company first and then going to the technicals to see which ones are setting up that way is a good way to go. So, is this the way your kind of trader from the beginning or did you find this right next as you went along?

Monster Stock Trader: I was lucky enough to get handed a "How to Make Money in Stocks" by William O'Neil in January of 2001. So I've always had the approach of using that blended approach of fundamentals with technicals. So I've always had that background and I've never known any other way. So that's that's how I've always approached it and I continue to approach it that way.

Tim Bourquin: All right, let's talk about some of those patterns you mentioned. You just talked about the cup and handle and the double bottom. Are there others that you've worked that you kind of used on a regular basis that you find that set up good opportunities?

Monster Stock Trader: Yeah. Actually one I used in February was Baidu. It's called square box. It's more of the Darvas type box situation where the stock breaks out of a pattern and then sort of just stalls out but stays within a tight trading range. It does not sell off on huge volume. It does not it sort of stays real quiet then all of a sudden, it breaks above the box high with volume. I certainly like that pattern a lot simply because sometimes the stock will break out, the market is actually not ready for stocks to break out or being in a healthy environment like it was back in the end of January. So as it was as the market was turning lower, Baidu actually was forming the square box. And as soon as the market had a follow-through day, Baidu actually broke out and it was a great pattern of trade 'cause after that, Baidu went from about 472 and then I ended up selling out about 700. So it was a good swing of a couple of hundred points.

Tim Bourquin: Wow!

Monster Stock Trader: So I think that's a really good pattern that I like to use now. I'm seeing a lot of square boxes. I'm actually seeing a lot of cup with handles right now so or cup, actually cup bases that I would love to see handles form. I'm starting to see those show up now. They're still early but I am seeing them. So certainly the square box and the cup with handle are my two favorite patterns simply because they yield the greatest runs.

Tim Bourquin: And I guess that being patient with your trades and kind of taking that longer-term outlook is the reason you can capitalize on a couple of hundred points at one time. Have you tried to do the kind of intraday day trading thing and just found it wasn't for you? What made you kind of settle on this timeframe?

Monster Stock Trader: You know, it's certainly with your personality. My personality certainly is an in and out, in and out type of guy. I find it frustrating to trade like that. I just my attention span simply can't withstand the in and outs of day trading. So, I learned quickly that doing that wasn't really something that would yield me success. So I took it upon myself not to get sucked up within trying to catch the bottom or trying to maximize my entry point. I try to keep it as simple as possible. I don't try to get it right on the pivot point or get it within a few like points of the pivot. I just go with it, and if I missed by one or two percentage points, I'm not going to worry about it because I'm trying to catch a large trend. I'm not trying to grab one or two points here and there. So to me, an entry point is sort of flexible. I don't have to get it right at that or I'm not upset if I if the pivot is $70 and I get it at $71, I'm not going to cry about that. It's okay for me to miss a point here because I get 30 points, what's that one point.

Tim Bourquin: Right, good. Well, how about on the downside? At what point would you decide, "Nah, not a good idea, time to get out?"

Monster Stock Trader: Usually, lots of times, I can notice right away that a stock is not acting right. But most of the time, it's between 5 and 8% I get out. I try to keep as tighter stops as I can. Usually, for example, if the Baidu box break out, it immediately went higher. Even though it pulled back within a little bit, it would pull back at the beginning of the day but it would finish strong. That's why I like to see if for stocks not finishing strong, it pulls back at the end of the day, it's trending weak. Then I know that it's something that I might want to cut back on. So, usually I get out between 5 and 8%.

Tim Bourquin: Okay. Are you trading full time yet or just part time?

Monster Stock Trader: It's sort of a I like to think that me being a father is full time. So yes, trading is a fulltime endeavor.

Tim Bourquin: Okay, got it. Good. It sounds like you've been able to take some time to kind of learn how to do this. Was there anything that you did or a course you took or you said the book that you read? But anything else you did that kind of really took your knowledge of this and confidence of trading into the next level?

Monster Stock Trader: It's actually good. Executing it is executing your strategy, whatever it is, and mine happened to be the CAN-SLIM type method. You have to get out there and execute it, and you have to execute it within the rules. You can't in order to I always believe the agile method of becoming a master. There's three different levels, one being you execute the strategy as it's laid out to you, and then as you are able to master that level, you move up to the next level where you start tweaking the rules as you see where you might be having an opportunity. And if those work out, you incorporate it into your into your strategy. And the third level is implementing those little tweaks that you have to the methods you are using. It's just able to do it. You have to go out and execute it. You have to put real money on the line. You have to have the skin in the game. Otherwise, the real emotion you have is tough to deal with sometimes. Especially, I like to hold between four to eight stocks, and I might be margined up 200% and you have a gap lower, and you're down maybe 1 or 2%. For someone on paper, that might be okay. But for someone with a real skin in the game, that might shake him up a bit. So it's really getting your skin in the game and really trying to execute your strategy. That's how I learned how to become successful.

Tim Bourquin: What platform, trading platform, charting, that sort of thing do you use?

Monster Stock Trader: So, I use the Daily Graphs package. I actually like their new beta products coming out. I don't know when it's supposed to come out but it's marketsmith.com. I use the daily charts. I use TeleChart as well as Interactive Brokers.

Tim Bourquin: Okay. So MarketSmith is who has the daily chart package that you use you said?

Monster Stock Trader: Yeah, it's a new product that they're beta testing right now and I'm able to it's just a great little platform to keep notes, to do have all your screens for your stocks and your chart all in one platform, whereas right now, with Daily Graphs, you have to go three different for different programs just to get the information you want. This new product puts it all together.

Tim Bourquin: All right. And with Interactive Brokers, I imagine they have some charting as well. I know they do. How come not just how come just not that? What does it have outside of Interactive Brokers?

Monster Stock Trader: Just the you know, I like how the Daily Graphs is laid out. I have my fundamentals right in front of me. I have the chart in front of me. It just brings it all together. So I don't really use Interactive Brokers very much for charting. It's mostly TeleChart and Daily Graphs.

Tim Bourquin: Talk about how you filter stocks if you do that or how you kind of your opportunities. If you could just kind of take me through a regular day and get up in the morning, you turn your computers on, and what do you do to kind of find opportunities?

Monster Stock Trader: So usually, my work starts at night. I like to have my family time, and then once everyone is settled in and I get down, I started running screens and those screens start with Daily Graphs. I like to run I have ten different screens that I run. I have a tight screen, a loose screen, a young company screen. So I start with those that look for, like I have mentioned before, a strong growth in sales, earnings, return on equity. And I take those and then I run them through my charts. You know, I make notes on the ones that I do like. I try to make notes on the patterns I'm seeing within the stock, the pattern itself. And then what I do is after I get a list of perhaps 10 to 20, I then I always read up on their new stories within IBD, IBD right stories, or I try to get research reports. I try to look at those to see if that story, that innovative story is really there that's driving the growth, or if it's just cost cutting. I want to see a product or service that's really going to drive an industry forward. And generally, to find that out, you got to go out and research it with articles and whatnot. And then after that, I really look for I take the stocks and then I actually will go look at the indexes. My two favorite indexes are the NASDAQ and the Russell 2000 as they are I believe they are the other leading indexes so I like to look at those as my primary indexes, and then my secondary would be the S&P 500 and the NYSE Composite.

Tim Bourquin: And is that just to see if the stocks are in line with what the overall market is doing?

Monster Stock Trader: Yeah. So I want to be so how I really view the world is the indexes are made up of individual stocks so I wanted to see how the individual stocks are doing first. And if they are performing well, then I'll go look at the indexes and see what the indexes are looking and like, for example, right now, the markets will have the real loose, not real tight, but there have been a lot of stocks starting to set up looking a lot better forming their tight patterns, and then now, seeing the markets sort of round out here and hopefully trade tight. So, I really want to see what the individual stocks are doing first and then I go to the indexes because those indexes are made up of the stocks.

Tim Bourquin: Well, you mentioned the tight screen and the loose screen. Define those terms for us if you would. Tell me what you mean by that.

Monster Stock Trader: So, as far as a tight screen would be higher growth. So for example, it would be like sales growth over 100%, earnings growth over 100%. A loose screen would be something that has growth anywhere between 10 and 20% over and these are over prior quarters. So anything, any growth that's 10 and 20% over the prior growth I have on the loose screen, as well as relative strength line which a ranking that Daily Graphs gets to use. A loose would be something like a 70 rank, whereas a tight would be 90.

Tim Bourquin: All right. So this is interesting. You know, we interview mostly intraday traders. You have a little bit longer timeframe so it's a little bit different, which I like 'cause I like to interview all kinds of different traders. But how much time do you have to spend actually in front of a screen each day kind of to execute your strategy?

Monster Stock Trader: Well, it's usually between three to four hours a night to get through all of my screens and to look up some reports, but I can also get that done that day too. I have a specific list. I have a watch list. I have specific points I'm looking for within the chart. So if a price confirms my conviction, I then go ahead and execute the trade. So you do have to be in front of the screen all day long or at least nearby in order to execute that trade. But there are times where I'm simply doing nothing intraday. I don't have if the market is not healthy, I don't like what I'm seeing, I'll stake in cash and just perhaps take a little break, take a vacation. The best time to take a vacation is when the market is not healthy. Shorting stuff, shorting is a very difficult art to master, so sometimes it's just best that you needed to walk away from your computer screen and take a break. There are plenty of opportunities in the market and you really need to be able to sit back, take a break, and rejuvenate yourself in order to really become a master.

Tim Bourquin: Yeah. I have talked to a couple of people that have tried the opposite of CAN-SLIM, in other words, finding all the weak companies that don't match the criteria on the long side and trying to short those. It doesn't they haven't seemed to have as greater luck with that as they have with the long side for whatever reason. I don't know. Have you tried to kind of flip CAN-SLIM on its side and upside down and see if it works for shorting?

Monster Stock Trader: Well actually, usually the greatest winners turn the greatest shorts. It's just you have to pick them on the right time and you have to know what market cycle you're in. Right now, believe it or now, we're still on a bull market coming off of the March 2009 low, and usually, the time to short stocks for a longer period of time is after that run is over and you go after the stocks that made the biggest runs. So it's sort of difficult to try to flip CAN-SLIM on a tad when you don't have the right market conditions.

Tim Bourquin: You said you mentioned trying to have about four to eight stocks at any given time. Is that kind of where your comfort level is and how many positions you want to have on at the same time?

Monster Stock Trader: Yeah, it's a personal preference. You know, I like to I sort of like the Jesse Livermore plunger mentality and that's sort of what I like to do. I like to get into a focused basket of stocks. It's easy to shoot fish in the can than in the leg. So if I have four to eight stocks I can watch closely, it's just better comfort level for me.

Tim Bourquin: How about generally the size of positions that you put on? What's typical for you?

Monster Stock Trader: Well right now I entered a few today that would be at 5% of my total account value. So usually at starter position, I start at 5 to 10% depending on how the market is acting. Back in February, Baidu was at 20% position right out of the gate because it's one of those market leaders that has the volume and price that allows them to get that 20% level. But right now, I'm only going to use 5% as far as an entry position. That's I think a lot of it depends on how you like to look at the market. I like to be able to plunge. So a 5%, 10% position is quite normal for me to take. If not going anywhere, I'll go up to 50% on one position.

Tim Bourquin: Well, translate that into share size for me. How many shares would that be typically, like on a Baidu?

Monster Stock Trader: So well, on a Baidu now, you're talking you're probably talking between 500 and 1000 shares of Baidu, which is easily achievable for a 5% position. I mean, it's a lot of people think that using a $5 stock, you can buy so many more shares, but it's for me, the biggest runs come from stocks that are actually $30 and higher. So, like I mentioned, Baidu back in February have moved 230 points. You know, you buy a couple of hundred shares of Baidu and you're grabbing 200 points. It's a nice profit for a three months' run.

Tim Bourquin: Will you have trades that last a couple of hours or even just a couple of days?

Monster Stock Trader: If they don't act right, they get cuts. Usually, it takes more than a day to really cut a stock unless something disastrous happens. But usually within a day or two, you can see a stock that's not working. It happened a ton back in August and September and October of 2009 where you had breakouts just failing left and right but they would come back. So usually, what would end up happening is if it didn't continue to move higher or moved higher in light volume in which I was just going to cut it 'cause I like to see strength. I want to see my conviction confirmed. I want to know that my stock I'm holding is moving higher in volume as well as price. I don't want to see it moving lower in big volume.

Tim Bourquin: So were I imagine you probably had some positions on during that flash crash day in early May.

Monster Stock Trader: Actually, I was mostly in cash. I only had a few positions on that were I was going 15% or yeah, about 15% per invested and I just watched the flash crash happen, and I just for me, it was a 15-minute timeframe where stocks just got beat up and bounced snapped right back. It was an unbelievable time. But before that, you could sense that the market was it's started again wide and loose up top and we could not make a new high with volume. And after that, after seeing not the marketing a new high with volume and seeing some of the leaders like Green Mountain roll over, it was certainly in price line, it certainly was a signal to me to really reduce exposure to the market. So that flash crash really didn't affect me too much at all. And then I started working my way out of positions the following week. So, there was a flash crash that happened in 1962. A similar thing happened. Someone pulled their bids and there were no bids left, and the market when there isn't a bid to the market, it will fall. So, we weren't able to gain any strength from the upside after that flash crash so I just the market was unhealthy and needed a correction. We had a great three months' run and it just needed the markets need to correct sometimes.

Tim Bourquin: So you started to blog recently. Why start that and talk about why you put your thoughts upon that blog.

Monster Stock Trader: Essentially, starting the blog was to connect with other traders as well as to get my thoughts out into the blogosphere and to see if I could help anybody out with my own trading and see if any other traders out there would be able to use how I trade to better their trading. It's really a great thing that the internet is out there and to share information, whether good or bad. It's just great to get out there and share your thoughts, and hopefully someone actually likes the work that you're doing and picks up on it.

Tim Bourquin: Excellent. Well of course listeners, we'll link to Monster Stock Trader's blog and his Twitter account as well so you can follow him on there. Thanks very much for your time. I really appreciate you sharing some of your thoughts about how you look at the market and spending some time on the phone with me.

Monster Stock Trader: Great! I appreciate you having me on.

You can find his blog at www.MonsterStockTrader.com