Good analysis, KK. Sometimes indicators give conflicting signals and one has to determine which carry more weight. I am no master at TA, but I tend to follow ADX, MACD, stochastics, and volume. In the case of a trending stock like IFLO, the oscillators (MACD, stochastics) are not very useful. That leaves me with ADX and volume and the chart itself. ADX has been mirroring the stock's positive trend. The large volume spike on Friday with little movement seemed like accumulation to me (at least it was not very negative) and the money flow indicator was positive. But overall, these indicators were not giving me a strong buy.
Then there's the chart pattern. I tend to give more weight to patterns which have demonstrated significance like ascending triangles and double bottoms (I forgot to mention the double bottom while it was in the trading range). In this case, the patterns are clear and indicate strong support at 3.5 and an impending breakout. That and knowledge of the company's fundamentals help give me more confidence in making the call.
But KK brings up another good point about the entry. It would've been best to enter at the 3.5 support rather than to enter at or near the 4.25 resistance. Once the double bottom formed, that would've been the best time to enter. So now there are two ways to play the potential breakout. The first is to enter during the consolidation between now and the expected breakout. And the second is to wait for confirmation of the breakout and enter when the stock has broken resistance with convincing volume. This can be accomplished by placing a stop buy at 4 3/8 or higher.
The risk-reward ratio for the first action is as KK had stated. The second action has lower risk, but gives up some potential gains (perhaps 1/4-1/2) since the entry comes after the breakout. Which is better is really a question of your trading style, and how much risk you are willing to take.
...tai |
