Why Did I Reject Laurus Labs in Less than a Second ?

This is the latest chart of Laurus Labs.

Why ?

As you can see in the chart, it’s a daily time frame chart of Laurus Labs.

The price is trading above the 50-day simple moving average.

The 50-day is above the 150-day, and the 150-day is above the 200-day simple moving average.

So the stock is in a confirmed Stage 2 uptrend, which is why it shows up in my filtered list.

However, if you notice on this MarketSmith chart, there are three ranges given on the chart.

The blue range is the buying range, the green range is the selling range, and the red range is the stop-loss range.

These are ranges applicable to the weekly chart as per O Neil's system.

But they also show up on the daily timeframe chart.

If you observe closely, somewhere around the end of October, the stock entered the blue range again and started to move up.

Now it is moving towards the green range, which is the selling range.

This means the stock has already broken out from its weekly pivot point.

The ideal time to buy the stock is when it is in the blue range (provided all other criteria are met). That is the ideal entry.

For me, it's not just about technicals.

Its about 5 kinds of analysis:

1. Liquidity

2. Comparative

3. Technical

4. Fundamental

5. Market

One of the above reasons led me to reject the stock in October.

When I see a chart like this, it takes me less than a fraction of a second to reject it, because it is extended.

This is an extremely important point.

David Ryan, in one of his audio interviews, once said that when he started analyzing his mistakes, he realized that he was buying stocks that were well above the weekly pivot point, sometimes even 10% above the pivot.

When he recognized that he was repeatedly making this mistake, he corrected it.

And as we know, rest is history.

History has recorded him as a three-time U.S. Investing Champion.

So it does not make sense to buy a stock that is already extended from its buy point.

It has already completed a large part of its move from the buying range to the selling range.

If a stock is trading between the blue range and the green range, I don’t even take a second look at it.

In my view, for any professional trader, the skill to reject a stock is far more important than the skill to select a stock.

If I find myself taking some time to reject a stock, then that is the stock I should ideally be interested in.

Because, that stock is forcing me to think.

For such stocks, it makes sense to dig a little deeper.

But, when it comes to rejection, it should be a no-brainer.

As long as I am clear about my criteria, it should take only a few seconds to reject a stock.

"Clarity precedes mastery", as my mentor, Robin Sharma says in one of his video training programs.

The clearer I am about my criteria, the easier it becomes to reject stocks and stay away from them.

Laurus Labs is a very good example of this.

I would never buy a stock that is already extended.

That is a crucial lesson I learned from David Ryan.

It has saved me a lot of trouble and unnecessary headache.

Take this lesson and incorporate it into your system.

This will improve your odds of success and lower the overall risk in your portfolio.

Regards,

Rohit Musale, CFA

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