Wednesday, March 30, 2011

RAX Breaks Out Today

RAX had a solid breakout today on almost double its average volume.  I mentioned RAX on Monday as a potential buy candidate.

Before considering RAX as a long opportunity I first evaluated the potential for the market to resume its uptrend and how leading stocks have performed during the recent correction.  Since my overall view has been that once the correction was over the market would resume its uptrend, and since leading stocks have held up well during this correction, I concluded that it was worth my time to scan for buy candidates.  I found RAX featured in IBD last week.

Looking at its chart I noticed several characteristics that were very positive.  These are noted on the chart.  I don't take the time to label charts this way for myself.  After years of scanning charts, these features just stand out to me after a few seconds.  If it looks right I may investigate further.  I liked the look of RAX's chart so I studied it for about a minute, decided on an entry point and placed an order to buy with a stop limit entry at 39.75, which was filled yesterday.

One thing I know I used to be guilty of, and I imagine that others are as well, is trying to force fit a particular view on the chart.  The fact is that there many positive characteristics that a winning stock could possess that would make it a worthwhile trade.  The key is to have more than just one or two.  In this case we have at least 7.  One that I didn't show is that it formed a long squeeze setup as well.  If there are enough technical qualifiers, and if the market is in or near to confirming a positive trend, and if the stock has good fundamentals,  and if I have capital to take the trade, then I take the trade.  If there are several candidates to choose from, then I rank them mentally and choose the ones that I like the best.

I believe it was Van Tharp that demonstrated that one could actually make money with a 3 ATR trailing stop loss and random entries without consideration of technical or fundamental conditions.  If that is true and we see a number of other positive reasons to take a trade, there should really be no reason to hesitate.  That is truly about as much as anyone can do.

No comments: