Re: [CANSLIM] CSTR CVH Failed breakouts Post Analysis

From: Fanus <fanus13@yahoo.com>
Subject: Re: [CANSLIM] CSTR CVH Failed breakouts Post Analysis
Date: Tue, 3 Sep 2002 21:29:28 -0700 (PDT)
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Top of Thread: Re: [CANSLIM] CSTR CVH Failed breakouts Post Analysis RWElmer@aol.com
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Good post, except one thing.  Your calculation assume
you risk 7% of your entire equity. The 7% loss is per
position, not on your entire equity.  Depending on
your money management, a 7% loss might only equate to
a 1, or 2% loss on your entire equity. So, a string of
5 losses might only put you back between 5 and 10%.

- - Fanus

- --- James Bond <james_bond_3rd@yahoo.com> wrote:
> CSTR presents an interesting example of the
> importance
> of intraday charts. There is no clue of impending
> trouble on the daily chart until the stock broke
> down.
> The intraday chart, however, telegraphed the bad
> news
> well in advance.
> 
> Like many other people, I too cannot follow the
> market
> during the day and have to check charts during the
> evening. When I have a position open, I check the
> chart every night with no exception.
> 
> On Thursday, Aug 22, when this rally was still
> advancing, I was surprised that evening to see many
> bearish charts among the leading stocks. For
> example,
> FCN had a deterioting relative strength, CCR made a
> new high but its relative strength lagged, DORL
> gapped
> to a new high but saw no progress in daily price
> (distribution), and PIXR had formed an evening star
> candlestick pattern. If one or two stocks were
> acting
> poorly it probably wouldn't have bothered me so
> much.
> When most of the leading stocks were showing signs
> of
> weakness the market was in trouble. At that time I
> was
> long CCR, CSTR, DORL, NUTR, and PIXR. My first
> decision was to sell CCR, DORL and PIXR at the open
> next morning, and but to keep CSTR and NUTR.
> 
> I changed my mind when I looked at the intraday
> chart
> for CSTR. On the daily chart, CSTR had formed an
> impeccible CwH base, with pp at 31.22. The breakout
> was on very good volume, and reached a high of 34.2.
> Because of a little overhead resistance (as
> mentioned
> by others), it was expected to form a second handle
> before breaking out to new highs. This was also
> noted
> by the issue of IBD the day after its breakout. It
> consolidated between 32 and 34 the next 5 days, with
> nothing extraordinary shown on the daily chart. I
> was
> several times tempted to add shares when it pulled
> to
> low 32's but thougt better of it. My plan was to add
> to my position when it broke out of the second
> handle.
> I wasn't even thinking about selling it before I
> looked at the intraday chart.
> 
> I was alarmed by the intraday chart. On the intraday
> chart, the consolidation between 32 and 34 showed up
> as a five day CwH formation, with the appropriate
> volume actions (large volume on left and right
> sides,
> dryups on bottom and in handle). Handle high was
> 33.76
> which was the intraday high on Thursday. Everything
> was great except for the last hour or so of
> Thursday.
> Some heavy selling came in and broke the handle
> formation (little did I know that the Off Wall
> Street
> report was issued to its clients on that Thursday).
> WON told us that heavy selling in handle was a sign
> of
> trouble, and a good short can be entered when the
> handle low was broken as the volume picked up. Of
> course he was refering to daily charts. Intraday
> charts work the same way except its validity is much
> shorter in duration. If the market were healthy, I
> probably would have expected CSTR to pullback and
> test
> the pp and a decision could be made after the test.
> But with the other leading stocks weakening, there
> was
> no question at that point that CSTR was going to
> break
> below its pivot point. So I decided to sell it the
> next morning along with the others for a small
> profit.
> 
> I was kicking myself a few days later when CSTR
> barely
> dipped below the pp and then rallied past my sell
> price. But that lasted only one day. Thank goodness
> the intraday chart gave me the only clue there was.
> 
> As far as CVH was concerned, I ruled it out as a buy
> candidate early on. There were several issues with
> CVH. First was the lack of confirming strength in
> the
> group - although the group ranking was high, other
> stocks in the group either didn't have a proper base
> (SIE), or had a wide and loose base (MME). I avoid
> groups like this. Second CVH was overowned by
> institutions - over 90% of ownership. WON's rule was
> less than 50% institutional ownership. Third was a
> non-CANSLIM issue: CVH was being investigated for
> overcharging government. Although it was an old
> issue,
> as long as it remained unresolved, there could
> always
> be surprises.
> 
> One final note. I don't think taking a 7% loss on
> every losing trade is ok. If one takes a 7% loss in
> a
> string of 5 trades (a finite probability), that's a
> third of capital lost - too much for any trading
> method, considering how hard it is to have a 50%
> return (the amount needed to come back). My
> understanding of it is that WON didn't intend 7% to
> be
> where you place the stop order. Instead it's the
> maximum allowable loss for a single trade. Usually
> it
> should take a screwup to have a 7% loss. If one buys
> a
> stock correctly, a 2-3% loss is achievable if the
> stock fails. Sometimes one can even exit with a
> small
> profit if the chart is read correctly.
> 
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