Many of the posts in this blog talk about active trading. Truth be told, I find investing much easier.
As an Active Trader, if I could make say $1000 a day, I could pay all of my bills and live a pretty good life. But what are the chances I could make $1000 a day, day in and day out without a big losing day to come along and set me back? Less than certain to be sure.
We don't want to hitch the wagon of our financial future to anything less than a highly reliable probability of a positive outcome over time. So we are led to the inevitable question, what does work? Probably a more relevant question is - What works for you? That's up to you to answer. Here's what works for me - after all, that's why you are reading this blog, right?
1) Excellent 5-year earnings history as measured by a 5-year earnings growth rate of greater than zero.
Anything less than zero is good and rates in the 10-20% are pretty common. Only a handful of stocks have 5-year earnings growth rates greater than 50% and one of them is TARO.
2) Reasonable valuation as measured by the PE or Price to Earnings Ratio. TARO has a PE of 16.
3) New all-time in price. Bingo for TARO.
4) Range Expansion - The High-Low for a given bar must be greater than those that came previously.
I got to thinking about this last one, and figured it might be a good criteria to add to my favorite scan New High, Low PE, High Growth. So I took a look around TC2000 and found the following built-in scan called Range Surge with the following built-in formula:
(H - L ) / (AVGH60 - AVGL60) >3
I ran that against the SP-500 and got only one hit, DG or Dollar General. Then I ran it against all 8000 US Stocks and got 85 hits, and TARO was among them. So should I add Range Surge to my list of criteria for breakout stocks?
I thought about it and decided against and here's why.
Range Surge is an excellent entry signal and often signals a huge change in the underlying prospects for the company. But there are many excellent stocks worth buying that are not necessarily having a range surge.
Range surge is instead a flag to alert you to the chance in prospects for a stock, and therefore it deserves to be run independent of the above criteria. If it happens to overlap (in the case of TARO), that's even better.
Range surge is also good for finding strong continuation candidates. You might look at a chart like TARO and say that's not a good entry point and you should wait for a pullback. I would tend to disagree because in my experience, I find that the best stocks take off and never look back.
Have a great trading week ahead and watch for Range Expansion.
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