Breakouts - Finding a New Strong Trend

During sideways periods, markets are building up energy for when the breakout finally occurs. This build up in energy will be transferred across into a powerful trend. This week I will demonstrate one of the Hilites in the Starter Pack Pro Software that will help you pick up when a breakout may be on the cards. The ‘New High’ Hilite will identify a bar that has broken the high of the previous ‘X’ number of days. You can apply the ‘New High’ Hilite only when you have chart open. The default setting for the Hilite has ‘X’ set at 10 days. This setting is a little low for a major breakout and a value of around 50 days would be more appropriate.

The first thing we will do is set up a new scan to run through the stocks in our database searching for a breakout. Select the ‘Scan’ Icon and from the list of options click on ‘New’. The first item to add is the ‘New High’ Hilite. Click on ‘Add’ and then under ‘Scanner Type’ select ‘Chart’, then from the list of ‘Available Items’ select ‘New High’ and click on ‘Add>>’. In the next window change the settings for ‘Number of Days Previous’ to 50. See the two screen shots below.

Now that we have added the first criteria for the scan we need to add a volume filter to reduce the number of stocks identified with low liquidity. For this example I have set a second criteria to look for stocks where volume was greater than 400,000 for the day. To recap on how to add this volume criterion, review the article on scanning in Trading Tutors Newsletter Issue # 29. Finally we need to ensure that only stocks in the database are being scanned. Click on ‘Select’ next to the ‘Search Group’ field and remove all but Stocks from the list.

You’re final set up for the ‘Scan’ should look like the screen shot below. Click on ‘Start’ and the Software will take care of the rest.

In Chart 1 I have the daily chart of BHP covering the last two years. During this time there have been three breakouts on the upside identified using the ‘New High’ Hilite with a setting of 50 days. The key to using this Hilite would be to be sure to take any ABC trades in the direction of the identified breakout.

Two out of the three areas where the Software identified the breakout, the ABC Trading results in the direction of the breakout provided excellent results. The times where the trend failed to eventuate you either did not get any ABC trades in that direction or as always, your stops kept you safe. Remember ABC Trading will perform best when you have a strong trend. So the ability to identify a market that may be about to break into a strong trend using this scan is a valuable asset. Get in and try this scan and also review your favourite stocks with the addition of this Hilite and check the results for yourself.

Until next week......

Noel Campbell