Anatomy of a Trade Setup - Ardmore Shipping Co. (ASC)

Tonight, I wanted to focus on ASC, and what I'm looking for technically and fundamentally from a stock to make it into the portfolio.  To screen stocks and find trade setups, I use MarketSmith which is a William O'Neil+Co. product.  Once I find a setup, I then use other software which generates my initial stop and trailing stop values.  These are the blue and yellow lines which you see on the observation charts during the week.  Tonight, we'll focus on the daily and weekly MarketSmith charts.  Below is the weekly chart, which I use to first find setups that have been forming over several months to several years.

On July 10th, we added ASC to our watchlist based on several fundamental factors but most importantly it's technical pattern had developed.  In late April, ASC had a nice price move from 10 to the mid 12's.  From there it proceeded to consolidate for the the next 11 weeks, attempting to move higher but was pushed back on two separate occasions.  Each time it was pushed back it was able to make a higher low.  This type of price action set the stage for the breakout above 13.  From a fundamental standpoint, ASC has everything that I'm looking for in a possible trade candidate.  EPS, as well as, sales are rapidly expanding while the price had yet to move.  The U/D ratio was over 1 and the shares in the float are relatively small.  You'll also notice that fund ownership is low, but No. of funds continues to increase each quarter.  All of these items in combination with the weekly chart setup, made ASC a top candidate to trade.

I use the daily chart to pinpoint where an acceptable entry point would be.  Once I've determined where to enter the trade, the next step is to position size and determine a reasonable stop.  This, as well as, when to sell is based on the yellow and blue lines which track beneath the price of the stock (see last chart).  Like any trade, I never know which ones are going to be the biggest winners or the worst losers.  With ASC it's still way too early to know, but the point in showing these charts is to show the process required.  A process that has taken 15+ years to develop and is used day in and day out to find quality trades.

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