Review of highchartpatterns.com

As first mentioned here, I recently followed highchartpatterns.com’s service for their 3 week trial. Here is my review. It’s going to be pretty positive… I’m going to subscribe for a while and see how it goes. If you are only attracted to negativity, there is a section of criticism at the bottom that you can just skip to. :-)

Performance

How did they do? Let’s break it down:
From June 13th to July 14th:

• 21 Trades Triggered
• 3 Profitable by 1% to 2% of the entry price
• 13 Profitable by 2% or more of entry price
• 5 Stopped out at 1% of entry price

If you are like me, then your first two impressions are “wow, that’s fewer trades than I expected” and “wow, that’s pretty good performance.” Well, you probably would have done even better if you were actively trading. You see, their performance numbers are collected mechanically so that there can be no question about them. In actual trading, there are cases where the stock technically hits the target for trade entry, but market conditions are such that you should stay away. Also, there was at least one case I can remember when a trade was stopped out, but later set up again and was profitable. In cases like that, only the loss is recorded.

The other thing interesting about their performance is that none of their trades were flat. That is, so far, when their picks trigger, they are either stopped out or profitable by at least 1%.

Trading Style

Their methodology is pretty straightforward, and across three weeks of newsletters, you get a pretty good feel for how it works (you can see an example newsletter on their website, as well as information about how they go about trades). They look for setups on daily charts, and identify patterns that have developed over the last 30 to 90 days or so. When there are good chances that some key resistance or support may be broken the next day, they flag it as a candidate in their daily email.

The setups they like to trade are not very complicated. Simple support/resistance, trendlines, and cups + handles cover the majority of their picks. Not a lot of other indicators usually come into play, though sometimes a moving average is involved. This is a topic for another entry, but between books and my own experience, I’m rapidly coming to the conclusion that technical indicators are useless. There’s some great material in Jack Schwager’s books on this topic. But, I digress…

You can see from the performance numbers above that they definitely do not overtrade. There were several days when their email had no picks. What’s interesting about that, to me, is that I can go spot several charts that look similar to the ones they pick on those days. Clearly they use other factors to refine their selections down. I suspect a big one is what I can only call “street buzz.” In their newsletters you get hints of this when they say stuff like “we know a lot of traders are going to be watching this one tomorrow” and the like. That’s probably also part of the reason none of their triggered trades have been flat so far; they are good at identifying (and waiting for) stocks that have enough eyes on them to move.

They seemed to be selecting more long candidates than short. I asked about this, and they confirmed it: “We prefer longs as shorts are a bit trickier to trade within our system, especially with the 1% stop.”

In addition to their primary stock picks, they also have a secondary list of potential candidates, in which they have less confidence. Many days, stocks from this set perform quite well, but they are not considered in the group’s performance history. And, I would suggest that beginners beware the secondary list… by definition it’s trickier! A good exercise may be to compare the charts from the primary and secondary lists, and see if you can identify any factors that separate the two lists (though in some cases it may come down to non-chart factors again).

Because all their setups are on daily charts, you can daytrade the breakout day, or try to trade the bigger move as a swing trade. All performance numbers are based on daytrades.

Commentary

I think the service’s commentary is very good for beginning traders. The day of the pick shows them chart patterns in action, and the next day has a thorough review of what went right or wrong with the trades. It describes whether they took the trades in question themselves, and why. This is exactly the kind of information a beginning trader needs to internalize in order to apply judgement and beat the mechanical performance numbers.

Even though I am not a beginner, I still enjoyed reading their analysis and getting to know what factors they incorporate into their thought process. For instance, they watch the strength of the stock relative to the market, whereas I usually watch the strength of the stock’s sector. What are the advantages and disadvantages of both methods? I can investigate things like that and perhaps adjust my trading style in the process.

They have also started a blog at this location, where they comment further on their trades and methodology for free.

Criticism

I find their standard 1% stop to be somewhat arbitrary for use in actual trading. I look at it as a necessary evil of the type of service they offer. They can’t give stops based on the daily charts, as that would cause daytraders to buy too few shares (if they are managing their risk!). It’s nice that 1% gives us an unambiguous way to measure their performance, but I suggest traders use the intraday information in front of them to choose stops at entry time. You can most likely eek out better performance that way, if you know what you are doing.

One thing that turned me off of Jim Cramer’s paid services was that there’s so much free Cramer content. When you whittle away the duplication, you find out that there’s not much behind the paid curtain that you can’t at least infer from the free content. With the advent of their blog, Highchartpatterns also gives away lots of information about their trades and methodology for free. It’s a double-edged sword, as it can drive interest in the paid service, but at the same time it devalues that service a little. Certainly the daily picks are the primary thing you are paying for, so maybe I shouldn’t care so much…

They are a new service, so they don’t have a published track record except for the month they’ve been in operation. You could say they’ve compensated for that with the $30 price tag. That’s much cheaper than the other services I have tried so far. They are also very friendly and quick to respond to email. So the newness has it’s benefits as well.

Summary

There’s only one month of performance to go on, but that month was very good, in my view. They offer a three week trial that doesn’t require your credit card to enter. They clearly want people to understand their methodology, which most paid services don’t make any attempt to explain beyond surface details. I made enough money the first day I followed their picks to subscribe for another month, so I plan to do so.

I didn’t find another place to mention it, so I’ll point out here that a percent of all their profits go to charity, and you can even suggest charities to benefit.