I pick stocks based on a system that I’ve created over the years called EAGLE. The EAGLE system works whether I’m swing trading or day trading. Now, this system has evolved from a lot of different places. Some of my biggest influences have been traders like O’Neil, Minervini, Darvas, Livermore, and Van Tharp. And over the years, I have accumulated knowledge from all these great traders, from different trading books, and from various seminars that I’ve attended.
And based on all professional traders that I’ve seen, nobody is trying to be a clone of anybody else. Everybody is taking a little bit from here, a little bit from there, and eventually, they come up with their own thing.
So they’re modeling success from others, but they’re not trying to be a carbon copy of success of anybody. That’s something that took me a while to figure out on my own but helped me create the EAGLE system.
What Does EAGLE Stand For?
EAGLE is an acronym, and it stands for the five things that stocks have that made extraordinary runs. I’m talking about 500% or 1000% or more in a brief time period. Stocks that had the kind of qualities I’m looking for are like Zoom, Teladoc, and Amazon. They all have made this list.
Here are the FIVE Ways You Can Pick Winning Stocks using the EAGLE system:
E= EXTRAORDINARY EARNINGS
The first E in EAGLE stands for extraordinary earnings, sales, and/or projections. So I want at least one of those to be present in the stocks that I’m going to trade.
So what are extraordinary earnings? It will be at least 25% or more, quarter over quarter. And if it’s accelerating quarter over quarter over quarter, even better.
Then I look at the sales. I want sales to be 25% or more, quarter over quarter. The more, the better. But it needs to have one or the other. It doesn’t necessarily need to have both. If it has both fantastic, but if it has one, good enough.
Now let’s say it doesn’t have any earnings or sales, then I ask myself: Are there projections that are more than 25%? If the projections are entirely off the charts, then that’ll be something I would be interested in.
Take a look at any of the biotech stocks. Biotechs tend not to have any earnings or sales because they’re still in the developmental stages, but they have these extraordinary runs. I’ll rarely be in those kinds of stocks, but I’d want to be open to that kind of possibility.
The A in EAGLE is for aim. You want to aim for high probability, high reward to low-risk set-up. So what does that mean? Historically, stocks have set up in different base patterns. How do those base patterns form? It’s all based on psychology. You can see hope, fear, greed, all these things manifest themselves right on the chart, right before your eyes.
There are a few ways you can pick up on what the mind of the market is on a particular stock. You need to become aware of what the price consolidations look like and the timing of them and where they’re forming in relation to the chart’s historical price action. You can then be able to capitalize on it tremendously. Again, whether you are a swing trader or a day trader, this strategy applies.
Therefore, I’ll look for these consolidations, and I’ll wait for it to tighten up. Then I will get in where I could get in real close to my entry point and my exit point. The exit point where I’m placing that stop loss is even more important than the entry point because I think of that first stop loss. That’s the floor. So if I am standing on a floor, I want that floor to be really sturdy. If there are not multiple layers of support right there, then it’s kind of like standing on wet cardboard. It’s just a bad idea.
But you want your floor to have multiple levels of support so that way it’s nice and firm. And if it does break through, then yeah, there’s no question you don’t want to be in that trade anymore. And you want the potential where if you do have a very tight entry point and exit point, then it doesn’t take that much to have high multiple trades – where that you could hit a 4R, 5R, even more, R return where you’re risking a dollar, and you’re making potentially $4, $5, $6 off of that one trade.
Then the G in EAGLE is for growth. I want there to be something growing in this stock. I want the industry to be growing. I want there to be some product that’s growing, and maybe a new sector is growing. Like I mentioned earlier, Zoom, Teladoc, Amazon, all of them created something extraordinary, and that’s why their share prices took off.
The L in EAGLE is for leadership, which means I want the stock to be a leader in the market, so the relative strength is going to be very important. I’m looking at relevant strength versus the S&P 500.
I also want it to be a leader among its peers. So I’ll take a look at all the stocks within its industry group and see how it fares among the other stocks. Are the stocks outperforming? Are they underperforming? I want to be in the leader.
And the last E in EAGLE is the most important. It stands for the overall environment. I want to be trading with the market. If the market is in a strong bullish uptrend, then I want to be buying stocks that are in a strong bullish uptrend. If the market is in a bear market and everything’s falling, then I want to be shorting stocks.
It’s a lot easier to trade with the overall market than against it. If you’re trading against the market, you’re kind of like that salmon that’s trying to swim upstream, and that ultimately gets eaten by the bear. You don’t want that to be you. You want to be swimming with the market, and it makes your life a whole lot easier.
Learn to Soar with EAGLE
The EAGLE system of choosing winning stocks can work for you! So start soaring today!
If you’d like me to dive deeper into this subject, or if you have any questions, leave a comment below. Also, if you are looking for additional guidance check out my coaching page and see if 1 on 1 coaching is right for you.
Here’s the full video I made about How to Pick Winning Stocks
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Michael Lamothe founded MARA in 2018, and his mission is to help traders succeed in the market by focusing on mindset. Michael has helped thousands of traders through his methodology. He is an international speaker, presenting at AAII, Stocktoberfest, Benzinga’s Global Fintech Awards, and more! He’s also been featured on NASDAQ Live.