Tuesday, September 20, 2005

Strategy Session: Modeling a Breakout

Time to focus on examples of strategies and how they are modeled in Trade-Ideas. The purpose of this entry is to not only learn a potentially new method of viewing the market, but to understand the thought process in creating a set-up that you can use to develop on your own.

The Strategy
The preconfigured alert window, "3 Day Breakouts on High Relative Volume," finds stocks crossing above their previous 3 day high for the first time on high relative volume.

Who Could Benefit
Our Momentum and Swing traders use this alert window setting as a starting point.

How It's Modeled
This alert window uses one key alert called, "Crossed daily highs resistance" set specifically to 3 days, to generate interesting trade ideas.

This window also has several preset filters. To isolate stocks moving up on strong volume we set the high relative volume filter to 1.3 which only shows stocks trading 30% above their normal volume activity at the time of the breakout. Additionally we set a Min Up from the Close filter to 10 cents to make sure the stock is positive at the time of the alert.

The best method we know of getting a good set-up in Trade-Ideas is to think of what the pattern looks like, then find the filters in Trade-Ideas that create that pattern over time (days, weeks, etc.) and then choose the alerts that identify when the target is in play. As an exercise you should try to model what a 3 day breakdown looks like and check your settings against the one we have on our website.

More explanations of other strategies can be found here. Click on the Help link.


Anonymous said...

I'm probably overlooking something, but how could a stock be making a new 3 day high and

a. not be positive for the day, and
b. not be in the top 1% of it's range for the day?


D TradeIdeas said...
This comment has been removed by a blog administrator.
D TradeIdeas said...

Thanks to Richard for helping us out with a modification to this set-up. He pointed out a redundant filter that wasn't necessary (i.e., the set-up yields the same results with out it). Here is our IM conversation about it:

chudxyz: did you see the comment i left on your post about setting up a breakout scan?
chudxyz: on the tradeideas blog.
chudxyz: just a question i had about the breakout scan and filters you mentioned
D TradeIdeas: Yes
D TradeIdeas: there are alot of ways a stock could be making a 3 day high and not be positive for the day
D TradeIdeas: sorry - hold on
D TradeIdeas: thanks - and you know you are right. This strategy needs to be corrected (and will) - the previous day in range filter is just redundant
D TradeIdeas: but the other filters help shape the pattern you're looking for
D TradeIdeas: Thank you for the heads up
D TradeIdeas: this is what it will look like: Revised Set-Up
chudxyz: ok. glad to know i wasn't going crazy.
D TradeIdeas: No, no and thanks again. It is a more regular occurance these days that our customers know the tool better than we do!

Michael said...

BTW, the first 3 links in this article are bad -- they have an extra "http://" tacked on the front of them.

D TradeIdeas said...

Thank you for the heads up.