Continuing Review:(ARST) and (TNDM)

The next stock on my list for review this year was my first purchase of (ARST) on 4/15, followed by addon buys on 4/20.

One interesting note about this trade is that I did not buy the stock on the actual day it cleared a new high on a bounce off the 10 wma - I purchased it several days later after it consolidated gains from the big move. In fact, the stock traded down to $14 for about a week until the 10 dma caught up to it and it made it's next move to $16. Within another two weeks, I had my 20% gain and took profits. In this case that was exactly the right move, as (ARST) pulled all the way back to the mid-thirteens over the following couple of weeks.

So, what can I learn from a winning trade?

Well, for one thing on a closer look the stock never really touched the 10 wma line, I really bought it coming off the 21 dma. Because I bought at a new high instead of near this moving average, I'll look back on this purchase as lucky. In the future I would rather locate my purchases right around the moving average line with a tight stop. I would, in fact, not mind taking several runs at a stock with these tight stops around a moving average line. Three to four sell stops at 2% still keeps me within my 8% maximum loss threshold - it's not ideal but it shouldn't happen often.

Additionally, buying around the moving average should provide a better return if the stock can go on to new highs. I've seen good evidence that leading stocks can be purchased at the 21 dma and held until the stock dips back below this line. This method of gauging support would've allowed for healthy gains in most of this rally's leaders. In fact, as I've said before, I'm starting to view the moving averages as a better target for purchases than the pivot points outlined in the CAN SLIM system - they certainly seem to offer better support. The same is true for a 52 week high or all time high - I love to see a stock break above all prior resistance - this does not always occur with a cup with handle and other patterns.

So while I might've gotten a better price for (ARST), nonetheless it was a sound buy of a strong stock and I took profits at the correct time. This was a successful trade.

My purchase of (TNDM) on 4/17, on the other hand, ended up a 6% loss three days later.

This was a purchase from a bounce off the 50 dma. The stock never quite got to the 50 dma so I most likely could've purchased it crossing the 21 dma at about $23.25. If I'd purchased the stock this way and had my sell stop at 2% below the 21 dma, I would've stopped out with a slight profit. Obviously, if I can change my system so that my losers are profitable that is ideal.

Otherwise, (TNDM) is what I'd classify as a good loser. I bought it at the right time from a true buy point and it was a strong leader. I don't regret the buy as it was within my system.

As I'm thinking through this new method I'm remembering my intense need to be right. I think I need to cut myself off from the possibility of swinging at a stock several times around a moving average (even though I just said above that this could be acceptable). I'm too likely to flail about at some stock I am positive is the next (DELL).

Instead, I'm going to add another rule. If I stop out on a stock, I must take off five days before I can purchase that stock again. I should be able to remove this rule when I have more experience, but for now I think it's a good safety valve.

I also think that I should avoid buying off of a moving average once a stock has closed below it. At that point I'd like to watch for a base to form or for the stock to make a new high before I'll believe it's ready to move again.

I think that's all for now, I need to translate these thoughts into a list of buy rules that I can reference at any time - as I've shown I need to work off of a checklist to keep myself honest with my trading.