Question (from Vernon K):

I am a preimum member and since I usually work during the day I come home to find your email about purchases in the SelfInvestor.com Featured Portfolio. I would like to follow along with some of these picks, but find that many of these stocks have risen from the optimal breakout point. I could place stop buy orders with my broker for the breakout stocks that haven’t been purchased yet, but that seems like over kill and I don’t have enough captial to buy them all. Are there any recommendations that you can give so I make the purchase closer to the breakout price since I would have 1 market day delay in the purchase? How far past the breakout price is safe for purchasing? Thanks.

My Answer:

It’s a great question. There are a few things that you can do.. 1. Placing a buy stop around the pivot point is not such a bad idea. .. the only problem with this is that you don’t have the luxury of avoiding a purchase if the buying volume is not there. Being able to watch the stock move in real time is a major advantage and often times you anticipate a large move in stock by looking at the volatility around the pivot point. Unfortunately, not many have the luxury of watching these breakouts in real time. If you use the buy stop and find that the stock is not breaking out successfully, you can always sell the next day. 2. If you have a cell phone that allows you to receive emails, you can receive these alerts as they happen and put in a call to your broker or make an online trade at a break in work or on your lunch break provided the stock is still within the 5% range. 3. Another strategy is avoiding the initial breakout altogether and waiting for a pullback to the buy point range (half of all stocks will come back the buy point before resuming their advance). If you take a look at the Breakouts area , all of the previous breakouts are listed. There are some good buys there (i have not had time to rank those yet, but plan to do so soon). Companies like Robert Half (RHI), Kensey (KNSY) I believe are still in a "buyable range" which is 5% from the breakpoint. Also, if you take a look at the recent additions to the portfolio, all are still in a buyable range. However, it’s important to buy as close to the pivot as possible. The reason for implementing the ranking system is to keep investors focused on the very best breakouts with just seconds a day… there are a ton of stocks out there and it only makes since to hold 5-10 at a time, so why not own the best. Since your capital is limited I would focus on only the best, which are generally stocks purchased for this portfolio. I am also considering adding a risk rank for each breakout stock to give investors another tool for buying what’s best for their circumstances. If there is anything else you’d like to see in this area, please let me know.