Re: [CANSLIM] Breakouts

From: "Tom Worley" <stkguru@bellsouth.net>
Subject: Re: [CANSLIM] Breakouts
Date: Thu, 27 Jun 2002 23:02:23 -0400

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Hi Michael,

I will try to give you at least a partial answer.

First, when I buy a partial position initially, then add to it one or two
times, I always try to deal in average price per share rather than price of
each piece.

Second, once I am up 15%, I normally mentally shift from protecting against
a large loss of capital into protecting profits, and try thereafter to
maintain approx a 15% trailing stop (hence your example of an initial 30%
gain, with such a stop I would be out with about a 15% gain if it falls
back).

Third, I generally apply a 10% limit over the pivot rather than a 5% limit.
In today's highly volatile market (where "M" is telling you not to play
anyway), a 5% upper limit from the pivot may make more sense due the
numerous failed b/o.

In practice, I am not as disciplined as this all sounds, since I only buy
small and micro cap stocks, I am investing for one or two years out, or
more, many / most of my stocks are thinly traded, and most are low priced.
As a result, I usually give them much more freedom to roam around. I also
have more risk (understand pain) tolerance than the normal, and a heavy
workload also means I am currently not paying anywhere as near the attention
as I should. I am also fatally bullish, and almost always fully invested in
virtually any "M", so that's about half a dozen major CANSLIM rule
violations right there.

- ----- Original Message -----
From: <michael_niemotka@baxter.com>
To: <canslim@lists.xmission.com>
Sent: Thursday, June 27, 2002 9:59 AM
Subject: [CANSLIM] Breakouts


All,

I have  just finished reading the 24 Essential Rules, and am starting on
the 3rd edition of How to make money... and I have a couple of question
regarding breakouts and adding shares to a position.

1. WON talks about only purchasing 1/2 of your position at the breakout,
and then if the stock moves up 2-3% you can add a bit more, etc. But the
part that confuses me is : what is the stock breaks out, and rises 6% on
the breakout. Then by the overextended rule, you would not want to buy
more, since it is more than 5% over the pivot price.  Would you end up
waiting for the stock to go thru a pullback, and then buy more?

It seems to me, that one of the trickiest parts to using this system is
being able to determine if a stock is pulling back in a normal fashion, or
if it is headed down.

2. If you buy at the first breakout, and the stock rises, lets say 15%, and
then starts to go into a new cwh , that might consolidate 20-30%, would you
end up watching the charts and sell out and lock in profits, then buy back
in at the next breakout? what about the case where the stock is up 30% from
the first breakout. Do you end up riding it down to 0% gain,  (not selling
because it is not a 7-8% loss) and hang on for the long term?

TIA

Mike

Mike Niemotka , PE
Sr. Principal Engineer
Baxter Healthcare Corporation
Route 120 & Wilson Road
Round Lake, IL 60073
Tel (847) 270-4075
Fax (847) 270-4525
michael_niemotka@baxter.com



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