News Spotlight:  One of the primary elements of our criteria is a company or Industry that has recent news that is in the "Spotlight".  Naturally, spotlighted news is heavily discussed in the main stream financial media, therefore, millions of investors around the world are aware of the company's stock activity for that day.  In most cases, a stock that is "Spotlighted" in today's news may appear on our Cambridge Focus List.  This news may be positive (a possible long position) or negative (a possible short position). 

Some examples of company news in the "Spotlight" may include the following:

• Earnings Announcements (expected or released)
• Mergers & Acquisitions
• Analyst Upgrade or Downgrade
• Employee Lay-Offs or Corporate Restructuring
• Resignation or the Appointment of Officers
• Corporate Buy-Backs
• Stock Split / Reverse Spit
• Company Product Approval or Disapproval
• Company or Industry related Catastrophes
  * In some cases, an idea for a stock may earn a Star even though the news is unrelated to that particular stock.  For example, if oil prices drop significantly, this may be an opportunity to take a long position on stock in the airline industry.

Liquidity: Any stock with plentiful liquidity will most likely be awarded a Star for meeting this criteria.  However, there have been times when a stock is seriously deficient in liquidity and will be discarded even though it may have been awarded 6 Stars for meeting all the other elements of our criteria.   The lack of liquidity in a stock can make it very difficult to exit a position at a reasonable price. 

As a general guideline, we seek to trade only stocks which average a minimum of 1,000,000 shares per day of volume over the previous 30 days and/or stocks in the news which do not satisfy the first volume requirement, but have traded 2,000,000 shares on the given day when they come to our attention.

Therefore, it is extremely necessary to evaluate the stocks "Liquidity Factor" BEFORE taking a position for the following two reasons. 

Reason 1:   Plentiful liquidity is absolutely necessary for you to capture your "unrealized gain" when you isolate a winning trade.  In some cases, a considerable "Unrealized Gain" can be eaten away as the liquidity on the other side of your trade runs thin.  In this case, the price on the other side of your trade will change significantly against you as you scale out of your position.  As a result, your unrealized gain disappears and you may break even or possibly lose money on this trade that was once a winner.

Reason 2:   The second reason takes place when there is absolutely no liquidity and can result in serious damages to you trading account.   A complete lack a liquidity may result in you being "held  hostage" in a position for an entire day and possibly over night in some cases.  Considering our model which dictates being flat at day's end, we do not want to be trapped in a position and accept horrendous fills when we exit. Therefore, we have un written guidelines of acceptable liquidity.

More information about measuring and evaluating a stock's liquidity is explained in our Video Tutorials.

• HOD Pattern - We may take a Long Position when a chosen stock penetrates through its High Of Day. If a stock is trading at or near its intra-day high, we tend to buy the stock at or just above the day's high, particularly if the stock has traded at or near the high of the day for an extended period of time (usually 10 minutes minimum).
• LOD Pattern - We may take a Short Position when a chosen stock penetrates through its Low Of Day. If a stock is trading at or near its intra-day low, we tend to short the stock at or just below the day's low, particularly if the stock has traded at or near the low of the day for an extended period of time (usually 10 minutes minimum).
• Price Unchanged Pattern (UNCH) - We may take a Long or Short position when a stock penetrates through its prior day's official closing price (documented at 4pm EST) known as the "Price Unchanged." If a stock is trading at or near its previous day's close for a 10 minute minimum after having been down much of the day particularly on a piece of news perceived as being negative to a general investor/trader, we tend to enter the stock once the stock ticks above unchanged (i.e. the previous day's close). If a stock is trading at or near its previous day's close for a 10 minute minimum after having been up much of the day particularly on a piece of news perceived as being positive to a general investor/trader, we tend to enter the stock once the stock ticks below unchanged (i.e. the previous day's close).
• Size Pattern - We may take a Long or Short or Long position when we see a large block of stock in a Level II box that influences the trading price of that stock. Occasionally, a large block of stock (50,000 shares or more) is displayed on the Level II market maker screens. We look to buy the tail end of a diminishing block of stock for sale and/or short sell the tail end of a diminishing block of stock for purchase, particularly in coordination with the aforementioned HOD, LOD, and UNCH criteria
• Negative Through Positive - We may take a Long Position if a stock is down on the day and abruptly goes positive with all other (Level II) factors in place.  (more on level 2)
• Positive Through Negative - We may take a Short Position if a stock is up on the day and abruptly goes negative with all other (Level II) factors in place.  (more on level 2)

Stagnation:  All of the patterns mentioned above must have the appropriate amount of "Stagnation". Trading ranges which establish some degree of price history create a more defined level of safety for entering and exiting a position. If a stock trades in a certain tight range, the highs and lows of said range tend to create support and resistance. We use these levels to calculate risk particularly in determining where we can exit if the trade is not acting in coordination with how we think it should perform. Thus, the longer the time duration and the smaller the price derivation are near an entry point of interest, the higher the likelihood the trade should be entered. As a general rule, we seek at least 10 minutes of a stock trading within a 0.5% price range based on the overall price of the stock near the entry point of interest (more on stagnation).  (more on stagnation)

Potential:  We try to refrain from trades that do not have the ability to make a significant move.   A general rule of thumb that we use is the "20 cent rule". This rule dictates that if we cannot make 20 cents with relative ease, we do nothing. Throughout our extensive trading experience, we have found that the low potential trades deliver close to flat results and may result in losses after transaction costs and fees are calculated.