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Trading breakouts with stage analysis
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Trading breakouts with stage analysis

  #21 (permalink)
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mfbreakout View Post
Thanks for your posts. You may want to look into Mark Fisher book " The Logical Trader". Paul Tudor Jones calls him the best pit trader ever. After 2 years of loosing money I became profitable 9 months ago after reading Mr. Fisher book.

His method is a breakout method. I also ordered Weinstien's book. Do you know of any other book which talks about breakout method preferably written recently to accommodate changes in the market place.

Thanks,

Thanks for the the recommendation mfbreakout. That's one I haven't read, so I'll get myself a copy.

As for other books on trading breakouts. I haven't found anything else that's good on the subject so far. However, you might want to look at Point & Figure charting as it is by nature a breakout method and the best book I've read on that is Point & Figure charting by Tom Dorsey which I think is excellent. Here's a link to the Google books extract: Point and figure charting: the ... - Thomas J. Dorsey - Google Books

Cheers
isatrader

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  #22 (permalink)
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Stage 3 - examples

Stage 3 - The Top Area. Start to reduce positions.

Key
(+) Outstanding pattern in that Stage.
(–) Unexciting pattern in that Stage.

Attached Thumbnails
Trading breakouts with stage analysis-aa_2-25-05.png   Trading breakouts with stage analysis-aep_2-25-05.png   Trading breakouts with stage analysis-cmi_2-25-05.png   Trading breakouts with stage analysis-fii_2-25-05.png   Trading breakouts with stage analysis-gas_2-25-05.png   Trading breakouts with stage analysis-mi_2-25-05.png   Trading breakouts with stage analysis-pg_2-25-05.png   Trading breakouts with stage analysis-pgr_2-25-05.png   Trading breakouts with stage analysis-ph_2-25-05.png   Trading breakouts with stage analysis-ups_2-25-05.png  

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Stage 3B - examples


Stage 3B - Has become increasingly toppy. Use rallies for at least partial selling.

Key
(+) Outstanding pattern in that Stage.
(–) Unexciting pattern in that Stage.

Attached Thumbnails
Trading breakouts with stage analysis-adp_2-25-05.png   Trading breakouts with stage analysis-bk_2-25-05.png   Trading breakouts with stage analysis-bsx_2-25-05.png   Trading breakouts with stage analysis-ca_2-25-05.png   Trading breakouts with stage analysis-cma_2-25-05.png   Trading breakouts with stage analysis-dov_2-25-05.png   Trading breakouts with stage analysis-itw_2-25-05.png   Trading breakouts with stage analysis-jpm_2-25-05.png  
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Stage 4A - examples

Stage 4A - Stock has entered Downtrend Stage. Close out remaining positions.

Key
(+) Outstanding pattern in that Stage.
(–) Unexciting pattern in that Stage.

Attached Thumbnails
Trading breakouts with stage analysis-afl_2-25-05.png   Trading breakouts with stage analysis-apol_2-25-05.png   Trading breakouts with stage analysis-bby_2-25-05.png   Trading breakouts with stage analysis-r_2-25-05.png   Trading breakouts with stage analysis-yhoo_2-25-05.png  
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Stage 4 - examples

Stage 4 - The Declining Stage. Avoid on the long side.

Key
(+) Outstanding pattern in that Stage.
(–) Unexciting pattern in that Stage.

Attached Thumbnails
Trading breakouts with stage analysis-altr_2-25-05.png   Trading breakouts with stage analysis-bbby_2-25-05.png   Trading breakouts with stage analysis-bmc_2-25-05.png   Trading breakouts with stage analysis-csc_2-25-05.png   Trading breakouts with stage analysis-csco_2-25-05.png   Trading breakouts with stage analysis-hban_2-25-05.png   Trading breakouts with stage analysis-igt_2-25-05.png   Trading breakouts with stage analysis-ip_2-25-05.png   Trading breakouts with stage analysis-lxk_2-25-05.png   Trading breakouts with stage analysis-mdp_2-25-05.png  

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  #26 (permalink)
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Stage 4B - examples

Stage 4B - Late in downtrend. Much too soon to consider buying.

Key
(+) Outstanding pattern in that Stage.
(–) Unexciting pattern in that Stage.

Attached Thumbnails
Trading breakouts with stage analysis-adi_2-25-05.png   Trading breakouts with stage analysis-fitb_2-25-05.png   Trading breakouts with stage analysis-intu_2-25-05.png   Trading breakouts with stage analysis-jdsu_2-25-05.png   Trading breakouts with stage analysis-lly_2-25-05.png   Trading breakouts with stage analysis-mrk_2-25-05.png   Trading breakouts with stage analysis-myl_2-25-05.png   Trading breakouts with stage analysis-nwl_2-25-05.png   Trading breakouts with stage analysis-nyt_2-25-05.png  
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  #27 (permalink)
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Working through the stage examples

Finally, I've managed to get through all the stage examples as you've probably noticed above. I really think it's been a worthwhile exercise though, as I can already see that I was identifying some of the stages wrongly, particularly mistaking the move from Stage 1 to Stage 2 too soon, which I can now see was actually moving into Stage 1B and even Stage 1 still in some cases.

I think the additional A & B tags really help to define the stages more clearly, although there is some overlap between them and sometimes stages can be skipped when the stock has some momentum it seems. But I can now use the reference stocks to compare against current charts and get a clearer picture of what I need to do or not do as the case may be.

I think the market is still in Stage 4B (Late in downtrend). So I'm watching for either a Stage 4 continuation move to the downside or a sideways to up move into Stage 1A. Both of which seem possible at the moment, and don't allow any buying for long term positions; so I'm going to keep studying for the time being, so I can identify some A+ winners when the market next turns up.

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US 30 Year Treasuries Stage Analysis

I've had a terrible week as I broke my collar bone playing football last Sunday, and my girlfriends cat was put down yesterday as it had aggressive cancer. So a week of pain, no sleep, and a very sad day yesterday for us. It wasn't the cat in my avatar if you were wondering. That's my cat Illyana, and hopefully she's got many more years with me yet although she doesn't do a lot of exercise so I worry about her.

Anyway, as a follow up to my previous post on the US 30 Year Treasuries on the 28th Sept, I've gone back over my previous analysis and updated it now that I have a better understanding of the stages from my work on the stage examples. I was slightly wrong with my mark up of the Stage 3 breakdown into Stage 4 and I also identified the move into Stage 1B as the Stage 2 breakout which actually happened at the start of August. But that is the point of me doing this journal, as I want to get a proper understanding of the method so that I can test it as fairly and accurately as possible.

Ok, onto the charts. I've included the weekly and the daily chart as I think it's necessary to view multiple timescales to get the clearest picture possible. On the weekly chart, US 30 Year Treasuries look to still be in Stage 2 but are having the first major pullback since the breakout. A positive sign is that weekly volume has decreased during the pullback which is in the criteria for the method. However, the trend line support is 6% below at around 130 and last years high reached 131.15, so a pullback to there is possible IMO. Although treasuries are inversely correlated to the S&P 500, which is at -0.84 currently; a very strong negative correlation. So if the equities break down again next week, then we should see a further move to the upside by the Treasuries again based on that strong negative correlation.

The daily chart is showing some weakness and it looks like it's moving into Stage 3A as it has broken below the trend line and the moving average has turned down. Relative strength is weakening and cumulative volume has given an initial sell signal by breaking below it's moving average. I've marked where I believe the trader stop should have been positioned and moved up from my understanding of the method. So I think it would now be at point D which is just below 137.5 and very close to being breached.

I think this an important chart to follow if you trade stocks because of the inverse relationship to the stock market, so it is another way to get clues on what's going on in the market.

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Last edited by isatrader; October 15th, 2011 at 09:37 PM.
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Sorry to hear about the bad week. I'm an animal lover as well. I suggest after a short mourning period you consider rescuing or adopting another cat or dog or etc. It is always tough, they aren't a replacement but don't let that stop you from helping another animal in need.

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Breadth and the S&P 500


I've been keeping a close eye the breadth charts that I follow to try a see if the recent hope rally in the market has any legs to it. The signs are swaying towards the positive side as three of the four charts are now on buy signals, however, the lack of volume confirmation continues to hold me back.

The NYSE Bullish Percent Index ($BPNYA) is in a column of Xs in a good field position - 46.63% of stocks are now on P&F buy signals. So it's given a risk on signal by breaking above 30% and a double top buy signal this week. So it suggests a more risk on strategy currently.

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The Percent of Stocks Above 200 Day Moving Average ($NYA200R) is in a column of Xs, but it still needs another 4% of stocks to move back above their 200 day moving average to give a new buy signal above 30%. This is the only chart of the four not back on risk on mode yet. So I'll be watching it carefully this week.

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The Percent of Stocks Above 50 Day Moving Average ($NYA50R) has raced away over the last week or so but is getting near the higher end of the range. So is a bit short term overbought, but still has room to the upside.

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The slower SPY/TLT ratio has stayed on a buy signal, so suggests the bias has shifted back to equities from US Treasuries.

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The final chart is the S&P 500 P&F chart. The volume of the recent 10% bounce off the October bottom is still concerning me. However, the rules of the system state that it needs to be twice as much as the recent average volume, and it is roughly that, but it's hardly convincing.

Something that concerns me more is the fact that there is 8 months worth of resistance to work through as shown by the price by volume on the side of the chart. Which I've highlighted in blue. So between 1270 and 1350 there is a huge amount of resistance which needs to be overcome before any meaningful rally can occur. So this leads me to believe currently that any end of year rally will be contained by this supply. So I'm going to be looking to other markets like the Nasdaq 100 for a better return, which have less resistance to overcome.

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Last edited by isatrader; October 22nd, 2011 at 04:46 PM.
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