Sunday, December 18, 2011

Stock of the Week: December 18th, 2011

Starting on Sundays, I'll post my stock picks of the week and see how successful I am based on the techniques taught at and some tips I picked up at Rock Star Day

I want to try to keep this realistic. Most traders suggest you start off with $2500 but since I don't and won't have that much disposable income any time in the near future, I'm going to attemp an initial investment of $500 (not real money). So that I don't lose too much money and maximize the revenue I will have to use stocks that are at a low price - i.e. anything under $5. This is really high risk trading. The income can get really high really quick, but you can also lose money real quick. So my exit strategy is to put a mental stop on a 7% loss of total capital. This equates to a total loss of $35. Typical online trading companies charge about $10 per trade. So, with purchase and sale trade commissions, we're already at a loss of $20. This means that I can only really let the price of the stock drop for a total loss of $15 and anything more than a $20 gain is a profit. But I want to follow Craig's trailing stop exit strategy.

The amount of shares to buy depends on the price of the stock, and the exit price depends on the number of shares purchased.


This chart isn't a dream chart but the price has dropped into the TAZ and if you look at the volume there's a huge spike with a hammer style - almost doji type candlestick. This can signify a turn around in price. It's on a clear up trend. I have two main concerns with this chart. The first is that it may be at the end of this trend. My assumption is that it is either right in the middle of the second wave or its finishing up the third wave heading into the fourth according to Craig's four wave trend cycle.

However, what makes me think it's in the middle of the 2nd is that if we now look at Elliott Wave theory, the first up spike can be wave 1 of the 5 motive wave model. The first time it drops back into the TAZ in November, I would label as wave 2. Going back up into the middle of November is wave 3 and right now, we should be at the bottom of wave 4. It can't go any lower than what it is right now, otherwise it can't be considered the 4th wave in the Elliott pattern. The next move then should be wave 5 which will bring us up further before we start the down trend of corrective waves A, B and C.

My second concern is that the Williams %R is clearly showing that it's not oversold, but I'm canceling that out with the fact that there was a pretty significant spike in volume.

Now, I'm going to buy in first thing Monday morning and hopefully get in at the quoted price $3.07. If I have to pay a $10 commission, I can only use $490 on the actual purchase. This puts my total shares at 159 shares. If I don't want to lose more than $15 then my exit price will be $2.97. That's a 10 cent loss per share. Not a lot of room for error. Hopefully it will pay off. I'll post the results next week.

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