Breakout stocks

ratbhatt

I am trying to track trending stocks which have a zig zag/whipsaw uptrend. Something similar to this picture. So basically it has started with a low, then made a high, then again made a higher low, followed by higher high and then it has retraced by 50%. I would like to take a position there. Is there a way to create a scan like that? Its close to double top but not exactly double top. Looking for higher low and higher high setup.

markd

A stock in a strong up trend will have its long term MA (like the 200) rising and its medium term MA (like the 50) also rising and above the longer term MA. Not every stock that fits those two conditions will be ideal, but ideal stocks will meet those conditions. So your scan would need statements for 50 > 200, and 200 > x days ago 200 and 50 > x days ago 50.

To capture the retracements, it would be nice if you could scan for Fib retracements but you can't. There are a couple of substitutes. One is price channels. You have to pick lengths you think might work. You can experiment on the charts for this. Calendar based lengths are pretty good - 10, 21, 63, 251 (2 weeks, a month, a quarter, a year) - but there could be others that are better. Then you would scan for a low crossing the middle price channel, which is the 50 % level of the price range in the channel's time frame. The second is stochastics, using "1" as the second parameter, like Fast Stoch %K(21,1). Then you would scan for %K crossing below 50.

The difference between the two methods is really just that stochastics are calculated from the close, so if a low crosses below the 50% level, but closes above it, it won't show up in your scan.

Like any scan that is looking for a pattern rather than a straightforward signal, this scan will pick up things you don't want and it will miss things you would want if you could inspect the chart visually.

ratbhatt

Hello @markd , First off thanks a lot for your kind help. Secondly I apologize for not very clear with my ask. But let me share another chart here. What I wanted to know was if there is a way to scan for some pattern like this below. Low -> High -> Higher Low -> Higher high. Then a retracement. I am not so concerned with the retracement as even if i can scan for such pattern, I can do the rest by manually looking at it. Please help and advise.

http://stockcharts.com/c-sc/sc?s=ARSSINFRA.IN&p=W&b=5&g=0&i=p67288941397&a=515472104&r=1490815331931

ratbhatt

Hi @markd I think somebody asked a similar question which you answered here

http://scan.stockcharts.com/discussion/1058/scanning-for-higher-highs#latest

markd

Hi @ratbhatt , no, your question was clear. You want a scan that will pick up a pattern of higher highs and higher lows that is currently retracing.

I guess I didn't explicitly say so, I think the answer is no. If you spent enough time on it, possibly you could write something that would get some hits, but it would also miss many stocks that you would want to hit. That's because there is so much variation in price movement - how much price moves up in each leg and how long it takes, whether it ranges at the tops or on the way up, and the same issue on the down leg. The combinations are endless. So, scanning is always a trade-off between specificity and generality. Too specific and you get too few hits, too general and you get too many.

As I noted above, the two MA solution, even though it doesn't specify higher highs and lows, has to include stocks you want, because higher highs and lows will cause the MAs to rise, and it will get all that are available at the time the scan is run because it is general enough not to exclude any. The drawback is, it will also pick up stocks you don't want. In my opinion, that can't be helped. You can deal with the duds by deleting them in Candleglance view, leaving the better candidates for closer analysis. You might have to create a custom Candleglance style, although the default six month or one year views are probably adequate.

If you get too many hits, you can limit the scan in different ways - by market cap, by sector or by industry.

Also keep in mind that the graphic you included in your question is an ideal situation. They don't come along that often, and can be seen more often in retrospect than while they are developing. Relatively few stock actually trend for very long, so its common to have to discard maybe three quarters of a results list, unless the market itself is strongly trending. Also when stocks are trending, not every up leg (or even most up legs) will pull back as far as the previous high (the strongest stocks don't), while others will drop down below the previous high, or dawdle there, before advancing again. So, in general, there are fewer opportunities than the graphic suggests. A good test of this would be to put an industry list (say [group is sp100]) into Candleglance and look at the list in one-year view.

ratbhatt

Hi @markd , Many thanks for posting such insightful explanation. You are really awesome. I may ask you for your help to write the query if I need. Thanks again.