Yesterday I alerted premium members of SelfInvestors.com to a breakout in True Religion (TRLG), the rapidly growing high end jeans manufacturer.  The following is a follow up I report I sent to members last night to highlight the process that went into tracking the stock and making the purchase.  I wanted to share it on the blog as well because I think it illustrates well when it’s OK to purchase before the "formal" pivot point. 

"I wanted to write up a short report on the process that went into locating True Religion (TRLG) as a buy candidate and ultimately pulling the trigger on a trade.  As is the case with nearly all purchases in the Model Portfolio, TRLG has been listed atop the Breakout Watch screen for several days.  Believe it or not, I actually use this system I’ve been building over the past couple years! .. and it has been a key part of my research process, enabling me to pinpoint the best opportunities in the market each day very quickly.  I know that it can do the same for you too.  With the addition of the email alert system to SelfInvestors.com, you don’t even need to log in to track the best candidates in the Breakout Watch screen.  If you are a premium member, you may sign up to have this email delivered to your inbox.

As I do with all stocks that appear in the screens, I pulled up the chart of TRLG in order to get a better read on the health of the stock and to see if there may be a better buy point than what could be had by purchasing at the formal pivot point (.10 above the high of the handle formation).  In this case, the chart looked good with a surge in price and volume in the right side of the base followed by healthy consolidation.  The stock consolidated into a bullish triangle continuation pattern where prices converge to a point (forming a triangle) in conjuction with a dry up in trading volume.  It’s called a continuation pattern because typically the end of the convergence leads to a continuation in the direction of the previous movement (in this case up!!).  Of course these patterns aren’t ALWAYS successful, but more often than not they are.  In the chart of TRLG below you can see today’s "continuation" out of this bullish pattern, offering a better buy point then the formal pivot of 17.70.

Once I’ve located the stock in the SelfInvestors database, looked over the chart and determined where an entry point might be, I’ll set a real time alert around 1% below the potential buy price.  In this case I figured the stock would intially break out of this pattern around 16, so this is where I set my alert.  Once I’m alerted to the price, I know the stock may be on the verge of the move I’ve been waiting for, so I’ll begin to watch it closely in real time and have the order information inputed, so that all I have to do is click submit once the price is met.

I make buy and sell decisions by looking at a real time intraday 5 minute chart.  Below youi’ll see today’s intraday chart of TRLG and the buy point around 16.30.  Yes, bases work on the intraday charts too!  See the breakout from the cup base with handle today at around 2:30PM EST?  I never make a purchase if a stock has run up in the first half hour to hour of trading and will often wait for the stock to clear the high of the first hour of trading.  What the runup early this morning did was trigger my alert at 16, indicating this was one to watch closely throughout  the day.  Since I now had my high of the day I could set another alert just below that so that I’m not watching it all day (usually I have much better things to do!).  I set another alert at 16.20, which it triggered at 1:30PM EST.. and at that point it was time to watch closely for a breakout above the high of the day, which it finally did.  I had the order ready and pulled the trigger on the buy.

Hopefully I haven’t made this sound more complicated than it is!  Do yourself a favor and subscribe to a real time charting service with real time alerts (your broker or trading platform may include this), but a separate program may be best.  Esignal and TCNet are popular real time charting systems.  I’d also recommend investing in another monitor so you’re not having to minimize windows left and right.  You can just throw in another video card into your existing computer and pick up a very good CRT monitor for cheap these days.  The more computers and monitors, the better!"

If you are new to investing and have any questions at all about this process please don’t hesitate to contact me at support@selfinvestors.com. I’d be happy to answer any questions you may have.  Or you can leave a comment below if you’d like.