From G Pattern to STEPS

[AussieTrader]

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.

Example Stocks:

STEPS entry on SKNN would currently have pullback position around $1.40 to $1.45. With a breakout buy stop ready around $1.72. There is an active thread on SKNN here http://www.3stocksonfire.org/trading/index.php?topic=7501.0

STEPS entry on ZVUE would have got your pullback entry around $5 and breakout entry just above $6.

STEPS has triggered ORD as a watch (this is an ASX stock not U.S), but no entry yet, because on 3rd down day bearish candles were formed indicating further pullback likely. An ascending support line has been used to help identify possible reversal

[rickjust]

thanks aussie,
great work. i wanted to get into sknn on friday but i thought i would wait for a break above , with volume, the 170's level to lower my risk of a possible brekdown of the chart.
will be watching monday.
thanks again,
maxi

[422fwhp]

Applaud again...I think I've read this 10 times now 

Appreciate the post!  It really helps the novice.  Some of these pics I've made lately combined with Terliso's 3 Magic Lines method (LOL..new name T3ML) have had great results...and some charts get me all excited and it seems the perfect, almost obvious money maker...and I've got no funds available.

[422fwhp]

Would GOAM be a canditate?

Just missed the T3ML entry but could be a G-pattern play with a "steps" entry plan?

LOL...I think that actually makes sense.

[AussieTrader]

Would GOAM be a canditate?

Just missed the T3ML entry but could be a G-pattern play with a "steps" entry plan?

LOL...I think that actually makes sense.

Yeh, it makes sense For sure it fits the bill. Huge volume upsurge that sticks out from the chart. In 2nd day of pullback phase now on real low (relative) volume.

It's on my list.

[OneStockMind]

Always interested in things that can make big money...

How about BANY?

[AussieTrader]

Always interested in things that can make big money...
How about BANY?

Hey OneStock, love the volume signal that BANY has given and the pattern has been playing out for sure (that is if you biought on the initial pullback around $0.004 you could have exited with around 100% gain 3 or 4 sessions later. Seems though that the $0.008 to $0.01 area is significant resistance (for now) which coincides with the 200 day moving average (so no aurprise it is a sticky point). Also see that in Feb through April BANY ran from similar levels to $0.04, so it can deliver those returns we are trying to catch

One to keep on watch I think, as a break of the $0.01 area on continued super volume would be a tremendous buy signal. Friday was a high volume rejection of the breakout with a negative red candle suggesting further pullback likley, so be careful.

Thanks for sharing.

[AussieTrader]

I have a couple of edits to make to my STEPS trading rules. I haven't finalised them yet, but I realised I didn't have a breakout failure exit rule e.g. If I don't get filled on the breakout and it fails what is the exit plan (for the pullback position already held). How long do I give it to breakout if it hangs around at the breakout point.
Also rules for Entry #1 will now read  'The STEPS pullback entry should be on the day of or the day following reversal confirmation'
I'll finish the edits in my original STEPS rules post over the coming days.

[AussieTrader]

I couldn't have asked for a better trade set up than SKNN for the first example of a STEPS trade.

See the attached chart below and the SKNN thread here http://www.3stocksonfire.org/trading/index.php?topic=7501.0

If you have any STEPS candidates (in the Trigger phase) share and discuss them here.

Good TRading

[usedcasting]

Hi Aussietrader, nice thread. What do you think of IBCX as a contender for stage one completion.
I'm hoping this thing can grow some legs.

uc.

[AussieTrader]

Hi Aussietrader, nice thread. What do you think of IBCX as a contender for stage one completion.
I'm hoping this thing can grow some legs.

Well UC I bought 2 days back and posted as such in the IBCX thread. I hope it will get legs too.

I have a couple of stocks on watch, the charts are attached. BFLY (in the trigger phase) Got a huge spike on big volume, they have a Nasdaq letter regarding compliance of >$1 stock price, so I am sure there is a lot of 'work' going on to boost the share price and sustain it above that level. The other is MVIS (which is in STEP 2 pullback) quite a long pullback, but looks good on strong support. Volume on the trigger stage was impressive. I am considering entry on MVIS and watching BFLY.

[AussieTrader]

I opened a position in MVIS. There is a thread active http://www.3stocksonfire.org/trading/index.php?topic=4160.0

[422fwhp]

I own MVIS as well as WBTO.

...I think WBTO needs more volume...couple of retrace days then BOOM like SKNN....maybe...

[AussieTrader]

I own MVIS as well as WBTO.
...I think WBTO needs more volume...couple of retrace days then BOOM like SKNN....maybe...

Hmmm, I'm liking that WBTO chart, let me delve a bit deeper.....

First things first though, I am looking to enter BFLY today, I will merge all the BFLY threads and post full reasoning on the combined thread later today. Meanwhile here be the chart (which I will finish annotating in the BFLY thread):

[422fwhp]

Hmmm, I'm liking that WBTO chart, let me delve a bit deeper.....

Lemme help....India search engine and hopefully a takeover target by the likes of GOOG or YHOO.  The news below sparked the recent vol.spike and run:

Web2Corp's (WBTO) ByIndia.com Ranked #1 in Growth for Indian Search Engines by Alexa.com
Monday December 4, 1:24 pm ET 
New Indian Social Networking Site Rapidly Overtaking Competitors


ORLANDO, Fla.--(BUSINESS WIRE)--Web2Corp's (OTCBB:WBTO - News) ByIndia.com has established itself as a growth leader among Indian search engines, outperforming any other site by more than 300% in the 30 days since it was re-launched as a web portal and social networking site. With double the reach of former #3-ranked Guruji.com and almost two thirds the traffic of long-established #2-ranked portal 123India.com, ByIndia.com is quickly becoming the Indian web portal of choice. Over the same 30 days, traffic is up 700% and the site has jumped up 68,000 pages in the ranking, according to Internet traffic ranking site Alexa.com.

......................

Hit another 52wk high today...I never know when to take profits.