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Breakout or Reversal

I would like to do a scan after the market closes to find an entry point for stocks that have just started a major breakout or reversal. My basic specs are [TYPE = STOCK] AND [OPTIONABLE IS TRUE] AND [CLOSE >= 50]. I've tried coding different indicators but thus far have not found the magic combination. Does anyone have a suggestion for the "best" combination? Thank you.

Best Answer

  • markdmarkd mod
    edited June 20 Accepted Answer
    It helps to decide on the time frame for the breakout. If you think about, on a one minute chart, a tick above the previous bar's high is a breakout.

    Of course, in any time frame, when you see that first new price you don't know if you are looking at a breakout with "legs" enough to justify the term breakout, but that's where every breakout starts.

    So, to find candidates for a good run, you will probably have better odds with stocks that are not breaking out for the first time after a long decline. That would have worked pretty well from the pandemic bottom back in Feb of last year, but most of the time stocks have to go through a period of accumulation before really heading up. So, you want something that implies a longer term trend is in place.

    Three months of trending may be a good place to start, but 6 months or a year might be better. It will vary. So you could start by looking for a close above a three month rising price channel:

    // price channel is rising
    and [Upper Price Chan(63) > 64 days ago Upper Price Chan(63)]

    // price has been below the price channel for some time (channel is flat)
    and [1 day ago Upper Price Chan(63) = 21 days ago Upper Price Chan(63)]

    // and today price closed above the channel
    and [close > 1 day ago Upper Price Chan(63)]

    Any scan will turn up some dogs - erratic or volatile stocks, or stocks at the end of their run instead of the beginning or middle. To reduce those, you could look for "confirming" indicators. A rising long term cumulative volume indicator is a reasonable choice - you want it to be above its long term moving average. That shows the stock is still being bought on balance. You could use OBV or one of the various accumulation/distribution indicators. Sometimes stocks will continue up in price even as the cumulative volume indicator turns down. That probably means sellers are using higher prices to close out. It's not necessarily fatal, but its less promising. You might still buy a breakout, but the stock probably has shorter legs.

    I like Force as a cumulative volume indicator, with custom parameters:

    // the Force MA is rising
    and [sma(251, Force(251)) > 63 days ago sma(251, Force(251))]

    // Force is above its MA
    and [Force(251) > sma(251, Force(251))]

    You could try other things as well - a rising SCTR is another reasonable choice:

    and [SCTR > 63 days ago SCTR] // check the syntax on this.

    You might also want some minimum SCTR:

    and [SCTR > 70]

    I wouldn't go too high on the SCTR - stocks often do best just before they do badly.

    For reversals to the down side - something similar with price channels, except using the lower price channels, and Force falling and below the falling moving average. But I think you would need a real bear market for that, except in special situations.

    Also note you will get more or fewer candidates in either direction as the market changes. In general, getting more candidates is better; it means the market as a whole is moving in your direction. Candidates from scans with few results are less likely to be successful - they are more likely to be special situations moving according to their specific circumstances and may have to fight the general market direction. Use the calendar tool to select a variety of past dates to check this out.

Answers

  • Thank you very much. You have definitely give me something with which to work.
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