Believe me, with all the varying factors that you have to contend with in trading stocks, you at least want to have your best players on the field. Why would you want anything less than your top quarterback in the Superbowl? The same thing applies to stocks. Does the company have successive quarters of earnings increases? How does the company stack up to others in terms of its “relative strength,” or price stability? Is the company in a strong industry group? Is the stock under accumulation by mutual fund companies?
Then I look at the stock’s chart. Here’s where things start to get exciting, because breakout stocks form certain time-tested patterns just before breaking out. “Time-tested” does not mean foolproof, but from a cup-with-handle, double-bottom, flat base, or other types of chart patterns, you can begin to discern the telltale signs of pent up demand. The stock may drift sideways, or slightly downward as if it is disinterested in going any higher. Meanwhile,