Strategy Session: Finding Consolidation Breakouts

Question from IM Support today:

Subscriber: (3:47:59 PM): do you have any scans for setups that have like a 30 day high, then consolidates for about 5 days and then breaks out of that consolidation?

Some of the details of his request are changed to protect his idea. The tricky part of this request is the 30-day high requirement before the real pattern he's looking for happens. My solution forces all the stocks in the strategy to be a minimal amount above the 20-day moving average.

The Strategy: "5-Day Consolidation Breakouts Above the 20-day SMA - Long on the Dip"

The Odds Maker Results
The Odds Maker provided this analysis as of the close on March 23rd 2007:

48 / 109 = 44.04% up $0.01 in 120 minutes; Average winner = $0.1626, Average loser = $-0.0537, Net winnings = $5.0671, Best = $0.70, Worst = $-0.23; Casino Factor = 99.18%

What do these results mean? What's nice is the approximately 3 to 1 ratio between the average winner and average loser - this can allow for items not modeled in The Odds Maker like commissions, slippage, etc. Our 2x2 Decision Box will let you decide just how good these results are.

How It's Modeled

The full set-up consists of 1 alert:

"25% pullback from highs" - Buying on a small retracement or breather can serve as a good entry point. The Odds Maker tells me what the average loss for the strategy is so I don't stay with a loser. I combine that with the individual stock's natural volatility ("Volume Weighted Volatility") found in our Stock Research Center and then I have my stock-specific statistically proven stop-loss target.

The alert occurs only after passing the following filters:

"Max Position in Year Range" - Set at the 45th percentile, this just tested well using The Odds Maker. I can't explain why.

"Min Up from 20 Day SMA"

"Min Consolidation" - Set at 5 days

"Min Position in Consolidation" - Set at the 95th percentile of the range