Inquiring minds have repeatedly asked me what criteria a stock chart should possess to produce an effective long strategy. The question stumped me when I was first asked it, because I didn’t want to overwhelm those who asked with an answer full of technical jargon; I wanted my answer to be informative yet simple. That is when I came across Intuitive Surgical, Inc. (NASDAQ:ISRG) stock and I knew I had the answer I was looking for. Long strategies based on stock charts that are beautiful, healthy, and precise are the easiest to.
From 2007 onward, ISRG stock has been confined to a large but orderly price channel. The beauty here is that a break of the lower trend line would be reason to step aside. It would clearly signal that the current trend has ended.
It also acts as a tool for traders who want to trade the channel. When the share price hits the upper trend, a trader can sell or short ISRG stock as it signals an exhaustion of the current move. When shares hit the lower trend, a trader can buy or cover ISRG stock, as it signals an exhaustion of the current move.
The long-term trend has been dominated by impulse waves (highlighted in green in the chart) and consolidation waves (highlighted in pink). Healthy stock charts look like a staircase from the step-up pattern that this creates. ISRG stock is clearly healthy, as it is currently making new all-time highs within an impulse wave.
The final piece of the puzzle is precision.
If we focus on 2009 and 2014, you will notice that each consolidation wave always returns to test a previous area of resistance from which an impulse wave began. The precision of the trend allows us to be completely systematic in our trading rules.
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