Sunday, September 18, 2011

Finding Buy Points and Pyramiding

I thought I would share an email response that I sent to a fellow trader yesterday that was asking me about buy points on CSH, JOSB, SGI, WYNN, CHKP, and CPHD. In going over those buy points I elaborated some as I tend to do. So I give you a little TCM,LLC commentary drawing heavily on the teachings of William J. O'neil & Jesse Livermore.


CSH 60.37 was the buy point. Close of 60.54 can be a level to watch as it was the close above the buy point. 61.69 will be the next level to watch. However, anytime you identify the PROPER buy point on a pattern you should calculate out 5% from it in this way. 60.37 x 1.02 = 61.57 this is an add on spot. 60.37 x 1.04 = 62.78 add on spot. And then 60.37 x 1.05 = 63.38 this is where it's 5% extended from the buy point and you should be finished with your buying operations. This is O'neil's pyramiding method ie: Winners average up! So any buy point you ever id, first things first, go calculate 2%, 4%, and 5% past the buy point. The way it works is you determine what you will invest in the name you've identified a proper pattern in. Go 50% of capital at the buy point. Then if it's acting right you will then add the other 30% of capital at the 2% extended spot. If it then continues to act right you will then add the remaining 20% of capital at the 4% extended spot. When it's 5% extended you are then done buying and you then sit on your hands watching it closely for signs of stalling, distribution, abnormal behavior, etc. All the time making sure it continues to act right. The bulk of proper bases will break out and run 20% before building a new base. This is why you lock in gains at 20%. In bear markets that should be adjusted lower to perhaps 10-15%. Anyway, this is all in O'neil's book (Chapter 11 of the 4th edition page 257-259.) And my buy points are a bit higher because you always add +.10 to the high where you identify the buy point, so as to make sure it can clear that high with conviction.

JOSB - double bottom with handle 52.96 handle buy point & 54.47 buy point.

SGI - 15.83 - 23.51 is a Fibonacci box as I call it because 15.83 is the 23.6% level from high to low from 2006 high to 2009 low. 23.51 is the 38.2% level. I have 16.99 as an early buy point and 17.81 as the buy point. I also note that it needs more accumulation on the weekly. I'm looking at all weekly charts to find the buy points. The patterns stand out clearer on weekly charts, and you want to be looking at volume with a 10 week moving average making sure there is accumulation and not distribution up the right side of the base.

WYNN - 157.79 handle buy point (153.50 close from 8/30 a level to watch) 172.68 is the buy point for new highs.

CHKP - 58.09 / 61.56 bp

CPHD - 37.93 8/29 close of 36.23 is of interest. 41.08 buy point with 40.77 close from 7/22 possibly being an early trigger on that buy point.

Set your alerts for these prices on the bid. I do that because they will only fire off if someone bids at the buy point. The majority of the time the volume will come with that immediately. However, many times it won't; so you have to be Johnny on the spot critiquing the price action and volume making sure it's going to act properly. Put your money on the ones that act right. And be quick to avoid the ones that don't act right. Acting right is Price action that is surging coupled with volume that is surging. Accept nothing less.