The Top Down Approach
A few people were asking me about my process, or in other words, how do I find - and select - a particular stock, like TransEnterix ($TRXC), which I posted on social media (Twitter, StockTwits, TradingView, etc.).
First, you can see from the U.S. ranking blog post here, that at the time of posting this chart, Health Care was (and still is) an outperforming sector compared to its benchmark, in this case, the S&P500. Drilling down into the Health Care sector, I am looking for leading industries, i.e. industries outperforming their respective sector. One of the strongest being the Medical Devices industry, within which, you guessed it, $TRXC is one of the component and presented itself with a nice (bullish) chart pattern.
This top down process of stock selection is nothing new... it's actually an old and known process... even traders/investors focused on fundamentals are using it (with fundamental values instead of technical). I do prefer the technically based approach as it is relying directly on price action and price is what matters!
Now, could I be wrong on the above analysis of $TRXC? Of course! The price could u-turn and be categorized as a false breakout, which falls more under trading and risk management rather than technical analysis and stock selection, therefore I will keep those for another post down the road.
If you are interested in the process behind such analysis and stock selection, as well as, the concept of asymmetrical reward versus risk in trading, you can listen to my interview here, plus watch 30 other speakers, talk about their best practices, strategies and workflow.