For starters on my swing trades I screen fundamentally sound companies and then concentrate on price support and resistance as the primary technical indicators. After I find something of interest I will apply some other indicators to disprove a theory, or back it up. As a rule of thumb I always wait for a trade to come to me, and never go chasing after it without any exit strategy in place.
Taking a quick look at our trade in TSM you will see where and why I felt like the risk/reward was in my favor if I could get in on a pullback just above the 9.10 -9.15 range. In mid April TSM report much better than expected earnings (Confirming that fundamentally the company was OK) and gapped up from the $9 range to $12 in a matter of a few days. I had the stock on my watch list prior to this move and was actually thinking of initiating a short position knowing that in this environment the market will fill a gap just as fast as it was created! However, I decided that the risk reward of that trade was 50/50 and therefore I would wait for a better long or short entry in the future. After some range bound low volume trading, the stock sold off in mid June to a level where the support levels setup up for a good trade.
Looking at support levels I recognized that if I could get an entry at a secondary support level just above $9, I could then place my stop just below primary support ( 200 Day Moving Average ) and only risk 8% on the trade. Other indicator supported the trade as the stochastic signaled a oversold condition, and volume spiked relative to the prior few weeks trading sessions, meaning there might be some sort of short term capitulation in the share price. Lastly, the TSM dividend was approaching 5% and this would provide further downward residence as it has in the past.
Therefore, I place my limit order to buy at $9.14 with a stop loss at 8.40. I am anticipating that TSM can rally to around the 10.70 level before it meets resistance from the 50 DMA. Hence, my initial target is just below that at 10.65. Stay tuned as I may adjust my stop loss upward to lock some profits depending upon general market conditions.