Don’t buy a stock just because you like the way it looks. Instead, make a plan. Here’s mine on E Trade (ETFC) (August 07, 2018)
TXN
I want to look at Texas Instruments ( NASDAQ: TXN ) today and this is why: One of the scans that I use is one that detects stocks that some of the criteria are that they have to be pretty close to a 52-week high. They don’t have to be at a 52-week high but just pretty close to it. And then I want to see the stock trading above the 50-day moving average and also in a fairly tight volatility squeeze.
Right now on the S&P 500 I have 48 stocks that fit this category, they don’t all look like this but this is the type of pattern that I am looking for: A stock that is up and then whether it is this type of zigzaggy thing or just kind of a nice gentle progression downward, I want to see some type of a base and then look for a bit of a tight consolidation here and then I buy the stock; right?
Actually, no, I don’t buy the stock. I watch it. I wait. If I happen to see it at just the right time, then that is fine, maybe I’ll buy the stock. But one thing I am aware of when I am working on finding trades is just because I happen to see a stock chart that looks promising, that is not enough reason for me to say, “Oh okay, Boom! I’ll buy it right now.” There are very few good solid entries on any given stock, I don’t care what stock it is. You can’t just assume that just because you see a stock that you like that it is just time to buy it. Maybe you should have been there yesterday; maybe it is not going to set up for a week. So don’t just look at a chart and say, “Oh okay, great. I’ll buy this.”
Here’s the way I would trade a stock like Texas Instruments ( NASDAQ: TXN ); I’ll use TC2000 tools here so I can keep these on the chart. I am seeing this stock in this kind of a, what I call kind of a “pinch and pop” here. It is trading in a sideways range, kind of a symmetrical triangle. So what I am looking for, as a buy signal, is a breakout above this level. If it doesn’t break out then aren’t I glad that I didn’t buy the stock. So I don’t mind waiting for a few ways or however long it takes. I don’t mind waiting for a while before I buy the stock because I am not just looking to get my “jollies” by getting involved in a stock. I want to make money on the thing so I want it to show me that there is a money making opportunity and right now I just see a potential money making opportunity, which isn’t quite the same.
If the stock instead of breaking out because the market has been pretty strong but maybe the market is going to rest, if the stock instead were to pull back, well then I will be, (1) glad that I didn’t buy it here because then I would be losing a few bucks. But (2) I would be looking for some rebound off of this support line. And so I could buy it at $112.00, something like that, and then have a stop down here as opposed to buying it right up here at resistance. And then where am I going to put my stop? I still kind of have to put my stop down here, which, by the way, isn’t that bad but it is just not precise trading.
So as I look at this stock right now, what I want to be doing is, I want to watch this stock. If it breaks out to the upside then I can buy it with confidence. If instead, it pulls back to the bottom of the channel then I can start taking a small position with a very tight stop. So just buying Texas Instruments ( NASDAQ: TXN ) right now, you might make money but you might not. I need a little better definition of risk of maybe, maybe not.
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