I am a chartered market technician with 20 years of experience managing money.

In that time, I’ve found that trend following is the basis for profit, no matter the investment system.

When I became the chief investment strategist of Profitable Trading’s Alpha Trader service, I started employing my technical models to help determine which stocks were ripe for picking.

#-ad_banner-#The main way I do this is by determining a stock’s Alpha Score. In a nutshell, every stock has one, and it can range from 0 to 200 — the higher the score, the better. It is based on two proven indicators — one technical and one fundamental — and it provides a way to rank every stock in the market from best to worst.

But finding the best Alpha Score stocks to recommend isn’t as easy as simply hitting a button and sending out a list of the three-to-five stocks at the top of the list.

Each week, I start out with dozens of securities that meet the system’s criteria.

From there, I narrow down the list to a handful of stocks primed to deliver winning results.

I like to think of the system as a tree that grows delicious fruit: While every fruit the tree produces will be large, sweet and juicy at some point in its life, it’s not all ready to eat at the same time.

Some pieces will be hard and crisp, not quite ready to pick. Others may be starting to bruise and wrinkle, past their prime. Still others will be fresh and sweet, perfectly ripe.

I use my analysis to look at this tree and pick the fruit that is ready to eat right now.

My Alpha Trader sweet spot is the intersection of the strongest Alpha Score with the best technical risk-to-reward setup. Adding these technical filters cuts my list from dozens to the handful of selections I recommend.

My favorite technical trend-following model is the basic uptrend, which is simply a series of higher price highs and higher price lows. I know this sounds like a simple concept, and that’s because it is. But it’s also a concept that has stood the test of time.

Centene (NYSE: CNC), one of our best-performing open trades — up 81% in less than eight months — provides a very clear illustration of what I’m talking about.

One of the ways to spot an uptrend is to look for a stock creating new all-time highs. These price points are critically important because they confirm the stock’s primary uptrend.

For example, tech giant Microsoft (Nasdaq: MSFT) went from a split-adjusted low of $0.18 per share at its IPO to nearly $54 at its 1999 peak, creating an uptrend with nearly 5,400 new all-time highs during its multi-decade move.

Knowing When To Buy
So what is the right new all-time high to buy? It’s the first all-time high after a longer-term consolidation of sideways price movement.

Longer-term consolidations build powerful launch pads for very strong, persistent uptrends. Generally, the longer the consolidation, the more powerful and entrenched the uptrend that follows it.

You can see this in CNC’s price chart above. Notice the sideways consolidation that lasted for more than six months. During that time, the stock was building power. In late April, shares finally broke the upper trend line, signaling a change. This new all-time high confirmed the primary uptrend, and from that point on, the stock hasn’t looked back.

Longer-term consolidation breakouts are very important because Alpha Trader is a longer-term system. Its rules to exit a position are slow. This slowness requires big trends to make big profits. And as we’ve seen in the example above, big trends derive their power from longer-term consolidation breakouts.

Notice how little time either stock gave investors to buy the first new all-time high. Both failed to give any pullbacks to their breakout prices. They just zoomed higher.
Investors had to pay up to own the stock. Anyone waiting on the sidelines for that first pullback continued to do just that — wait.

This is a key characteristic of great stocks. By definition, the strongest ones are in extreme demand. They are the hardest to buy, offer little opportunity to do so and never look back once they break out.

These are the stocks I hunt for in Alpha Trader.

Of course, not every stock that follows this pattern works out. This is the nature of investing and exactly why we have rules in place to cut our losses.

But our Alpha Score system is aligned with correct trend-following principles and backed by a number of studies that helped develop this winning, quantitative system. We have the ability to execute this process consistently, and it’s been successful at capturing stocks that undergo very large price trends. If you’re interested in learning more about this system, I’ve put together a free report you can view here.