Ask Colin

What is your buy order is usually based on?. Today (20 July 2001)I am actually very doubtful on executing buy order for Pasminco Ltd, the stocks for this company have broken out my resistance trend line but I am quite worried that Pasminco might be insolvent. In this case, what is your opinion for Pasminco, should I buy the stocks once the breakout occurs or I should also considering on its fundamental analysis as well?

I can not give you any specific advice on Pasminco, because I am not a licensed adviser. However, I wonder why you are interested in Pasminco. The stock has been a disaster for shareholders. It is in a savage downtrend. These are the kinds of stocks that self-destruct - see my article in Shares magazine this month (August 2001). I suggest you seek advice from a competent and licensed adviser before buying such a stock.

My buy orders are based on my three entry signals. The first is a breakout from a broad trading range. The second is a correction from the breakout highs. The third is a new high in the trend. However, this method is not suitable for everyone and needs to be related to the rest of your trading plan.

You mention a resistance trend line. I assume you mean a downtrend line. I have some difficulty attaching the adjectives resistance and support to trend lines, because they are different concepts. A trend line measures speed of price change. Resistance is where buying was arrested by the emergence of sellers. resistance levels are formed at price levels horizontally across the chart. The idea that they occur at differing levels along a trend line is pure nonsense.

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