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High Growth Stock Purchase - Case Study: True Religion (TRLG)

Aug 17, 2007
As a highly rated stock both in terms of fundamentals and technicals, True Religion (TRLG), the high end denim jeans retailer, recently surfaced as a top buy candidate in my database of high growth stocks.

As I do with all stocks that appear at the top of my database screens, I pulled up the chart of TRLG in order to get a better read on the health of the stock and to see if there may be a better buy point than what could be had by purchasing at the formal break out (.10 above the high of the handle formation). In this case, the chart looked good with a surge in price and volume in the right side of the base followed by healthy consolidation. The stock consolidated into a bullish triangle continuation pattern where prices converge to a point (forming a triangle) in conjunction with a dry up in trading volume. It's called a continuation pattern because typically the end of the convergence leads to a continuation in the direction of the previous movement (in this case up!!). Of course these patterns aren't ALWAYS successful, but more often than not they are. In the chart of TRLG below (link to image in about author section) you can see today's "continuation" out of this bullish pattern, offering a better buy point then the formal pivot of 17.70.

Once I've located the stock in the SelfInvestors.com database, looked over the chart and determined where an entry point might be, I'll set a real time alert around 1% below the potential buy price. In this case I figured the stock would initially break out of this pattern around 16, so this is where I set my alert. Once I'm alerted to the price, I know the stock may be on the verge of the move I've been waiting for, so I'll begin to watch it closely in real time and have the order information entered, so that all I have to do is click submit once the price is met.

I make buy and sell decisions by looking at a real time intraday 5 minute chart. Below you'll see today's intraday chart of TRLG and the buy point around 16.30 (link to image in about author section).

Yes, bases work on the intraday charts too! See the breakout from the cup base with handle today at around 2:30PM EST? I never make a purchase if a stock has run up in the first half hour to hour of trading and will often wait for the stock to clear the high of the first hour of trading. What the run up early this morning did was trigger my alert at 16, indicating this was one to watch closely throughout the day. Since I now had my high of the day I could set another alert just below that so that I'm not watching it all day (usually I have much better things to do!). I set another alert at 16.20, which it triggered at 1:30PM EST.. and at that point it was time to watch closely for a breakout above the high of the day, which it finally did. I had the order ready and pulled the trigger on the buy.

Hopefully I haven't made this sound more complicated than it is! Do yourself a favor and subscribe to a real time charting service with real time alerts (your broker or trading platform may include this), but a separate program may be best. Esignal and TCNet are popular real time charting systems. I'd also recommend investing in another monitor so you don't have to minimize windows left and right. You can just throw in another video card into your existing computer and pick up a very good CRT monitor for cheap these days. The more computers and monitors, the better! Good Luck!
About the Author
Tate Dwinnell is founder of SelfInvestors.com, ETF Central and an award winning blog.

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http://www.selfinvestors.com/trlgstudy.htm
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