03-08-2007, 11:28 PM
Today in our daily live Real-Time Trading Applications class someone asked about a setup in a stock called Digital Recorders Inc. (TBUS).
While I have never had any personal luck trading very cheaply priced stocks-- and in no way do I want to seem to be endorsing this setup-- I did promise to update and post better charts from what we talked about earlier. This trade setup could very well work out but I felt because the stop loss could get picked off and then someday the trade logic could work out. That is the tricky thing trading cheaply priced stocks who have very low volume. The only way I have ever had lock trading these types of setups would be to apply my own more liberal stock, located more out of the way, below a better defined support level. In addition, one other thing I said that makes these kinds of setups where we have an initial very strong breakout then a prolonged pullback, you never know how long it takes for that thing to come to life again. I could not think of that stock example at the time we talked about this behavior, but I will be including an sample of what I am talking about in the chart at the very bottom of this post, TZOO. A while back that stock had a very similar breakout type rally, only to drift back to support, but never return the original buy energy it looked like it might be building. TZOO continues to range trade in a basing triangular complex correction type pattern that still looks like it could work out someday but the complexity makes a short term initial breakout pullback buy now look like a very long term complex buy and hold strategy is the only way to work out of that stock if originally buying the first leg. That was the point I wanted to make with the TBUS setup. While TBUS technically looks like a good quality Risk/Reward setup in a cheaply priced stock, you would have to consider adjusting the DT trade stop loss to improve your odds with this setup, and you would also have to be psychologically be willing to stay in this trade for a couple years or longer, tying up risk capital for an extended period of time, once you get into what may on the surface appear like a pretty easy trade setup on the surface. My experience tells me if you can do those two things your odds of someday making money on this stock will improve greatly. I took a trade a few years ago similar to this in a stock called Pearsons (PSO)-- long story, don't ask-- where I bought a little over 200 shares around $13 only to see that nice setup eventually work to as low as around $8. When I got in it I knew it would be a long-term commitment at the time so I never sold it. It took 4 to 5 years but I am finally making money once again on this stock and it looks like if finally is slowly trending back up. I still have no plans to sell and someday long in the future I may get the kind of reward from this kind of commitment to justify my patience. In no way do I want to discourage someone from taking the TBUS current buy setups. If you know this stocks fundamentals and you really have a conviction to do so, this is how people can make fortunes in the stock market over the long-run. I just wanted to point out a couple other specific issues you deal with when considering buying a very cheaply priced stock. Our program is primarily designed to identify trending stocks with a swing trade pullback strategy to get into that trade. Here we are trying to pick a bottom. There is nothing wrong with this kind of a strategy, so long as you are willing to work through the unique issues this type of trade may present. This is not a "fast money" type of trade setup. Finally, don't every invest in this kind of stock setup no matter how cheap it may seem if you cannot afford to tie up your money for years, or even be willing to lose all your money. Use only risk capital that you can afford to live without under worst case scenario conditions. I spent a lot of time working on this charts below to try and figure out ideas to help the person who asked about these setups in our class today. I hope they help. The TZOO example is at the bottom here and it shows how much longer it has taken since I first thought it was ready to take off again and it has yet done so. It technically is basing out very well and has potential still, but I am still waiting. You have to be willing to wait on TBUS in a similar manner on a worst case scenario. I don't want to discourage you, just help you see the potential issues you may encounter with this kind of trade. In the TBUS Daily chart I combined the current SD and PA room trade setups to show you one way to bracket two similar trades into possibly a more practical trade idea. For example, the PA buy trigger is a little bit out of the way and might be a better way to trade this thing. If TBUS trades lower those buy triggers will shift lower and adjust with the new data. The better stop currently is the SD one, but it still is a hair too close and vulnerable to premature picking off. But the combination with additional technical supports defined seems to give a more healthier perspective if really interested in trading this current TBUS setup ideas.
While I have never had any personal luck trading very cheaply priced stocks-- and in no way do I want to seem to be endorsing this setup-- I did promise to update and post better charts from what we talked about earlier. This trade setup could very well work out but I felt because the stop loss could get picked off and then someday the trade logic could work out. That is the tricky thing trading cheaply priced stocks who have very low volume. The only way I have ever had lock trading these types of setups would be to apply my own more liberal stock, located more out of the way, below a better defined support level. In addition, one other thing I said that makes these kinds of setups where we have an initial very strong breakout then a prolonged pullback, you never know how long it takes for that thing to come to life again. I could not think of that stock example at the time we talked about this behavior, but I will be including an sample of what I am talking about in the chart at the very bottom of this post, TZOO. A while back that stock had a very similar breakout type rally, only to drift back to support, but never return the original buy energy it looked like it might be building. TZOO continues to range trade in a basing triangular complex correction type pattern that still looks like it could work out someday but the complexity makes a short term initial breakout pullback buy now look like a very long term complex buy and hold strategy is the only way to work out of that stock if originally buying the first leg. That was the point I wanted to make with the TBUS setup. While TBUS technically looks like a good quality Risk/Reward setup in a cheaply priced stock, you would have to consider adjusting the DT trade stop loss to improve your odds with this setup, and you would also have to be psychologically be willing to stay in this trade for a couple years or longer, tying up risk capital for an extended period of time, once you get into what may on the surface appear like a pretty easy trade setup on the surface. My experience tells me if you can do those two things your odds of someday making money on this stock will improve greatly. I took a trade a few years ago similar to this in a stock called Pearsons (PSO)-- long story, don't ask-- where I bought a little over 200 shares around $13 only to see that nice setup eventually work to as low as around $8. When I got in it I knew it would be a long-term commitment at the time so I never sold it. It took 4 to 5 years but I am finally making money once again on this stock and it looks like if finally is slowly trending back up. I still have no plans to sell and someday long in the future I may get the kind of reward from this kind of commitment to justify my patience. In no way do I want to discourage someone from taking the TBUS current buy setups. If you know this stocks fundamentals and you really have a conviction to do so, this is how people can make fortunes in the stock market over the long-run. I just wanted to point out a couple other specific issues you deal with when considering buying a very cheaply priced stock. Our program is primarily designed to identify trending stocks with a swing trade pullback strategy to get into that trade. Here we are trying to pick a bottom. There is nothing wrong with this kind of a strategy, so long as you are willing to work through the unique issues this type of trade may present. This is not a "fast money" type of trade setup. Finally, don't every invest in this kind of stock setup no matter how cheap it may seem if you cannot afford to tie up your money for years, or even be willing to lose all your money. Use only risk capital that you can afford to live without under worst case scenario conditions. I spent a lot of time working on this charts below to try and figure out ideas to help the person who asked about these setups in our class today. I hope they help. The TZOO example is at the bottom here and it shows how much longer it has taken since I first thought it was ready to take off again and it has yet done so. It technically is basing out very well and has potential still, but I am still waiting. You have to be willing to wait on TBUS in a similar manner on a worst case scenario. I don't want to discourage you, just help you see the potential issues you may encounter with this kind of trade. In the TBUS Daily chart I combined the current SD and PA room trade setups to show you one way to bracket two similar trades into possibly a more practical trade idea. For example, the PA buy trigger is a little bit out of the way and might be a better way to trade this thing. If TBUS trades lower those buy triggers will shift lower and adjust with the new data. The better stop currently is the SD one, but it still is a hair too close and vulnerable to premature picking off. But the combination with additional technical supports defined seems to give a more healthier perspective if really interested in trading this current TBUS setup ideas.