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Trading breakouts with stage analysis
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Trading breakouts with stage analysis

  #31 (permalink)
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$NYA200R

The $NYA200R - NYSE Percent of Stocks Above 200 Day Moving Average joined the other three breadth charts I follow that I mentioned in my previous post and gave a risk on signal today, by breaking out above the 30% level. So all my breadth charts are giving me the green light to trade on the long side for first time since April.

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However, this journal is about testing Stan Weinstein's breakout system; and using my reference charts guide earlier in the thread I can see that the S&P 500 is currently still in Stage 4B - Late in downtrend. Much too soon to consider buying. Or possibly a very early Stage 1A - Start of a base. Needs much more time. So, no long term trades for me still at the moment using the system, but I will be getting on the long side with some short term trades and intraday trades as the breadth charts suggest making some risk on plays. However, I'm going to keep that separate from this journal so I don't go off course with it.

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  #32 (permalink)
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breakout trades

E- mini has moved from 1050 to 1250 and targets for year end by most analysts is 1300. I am wondering once final stage is confirmed, your plan is to go long on pullbacks? and if it's true what is line in the sand for pullback in terms of level for bullish set up to stay intact. I am assuming once set up is confirmed , your position will be for swing trade.

I do not trade E-mini, SPX or indices but do trade crude oil futures as i find it to be more suitable for breakouts etc using ACD method of Mark Fisher.

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  #33 (permalink)
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mfbreakout View Post
E- mini has moved from 1050 to 1250 and targets for year end by most analysts is 1300. I am wondering once final stage is confirmed, your plan is to go long on pullbacks? and if it's true what is line in the sand for pullback in terms of level for bullish set up to stay intact. I am assuming once set up is confirmed , your position will be for swing trade.

I do not trade E-mini, SPX or indices but do trade crude oil futures as i find it to be more suitable for breakouts etc using ACD method of Mark Fisher.

The method is based on 4 main stages. Stage 1 is the base, Stage 2 is the uptrend, Stage 3 is the topping area, and Stage 4 is the downtrend. This then starts again at Stage 1. So the aim is buy long term positions on the first breakout into Stage 2, and shorter term positions on continuation breakouts during Stage 2 or on a breakout of a failed Stage 3 top. Or the reverse when your are shorting. Here's the link to the Stage 1B examples earlier in my journal which show the kind of pattern I'm looking to buy a breakout from:

https://futures.io/trading-journals/13774-trading-breakouts-stage-analysis-2.html#post160603

Looking at the SPX at the moment, it has too much resistance immediately above it, so the move into Stage 1 will probably be limited by that resistance between 1270 and 1350 for now. A Stage 2 breakout probably won't occur until it works through some of that resistance. So a move up into it and then a pullback and then a breakout above that high would possibly be my entry point. However, the NDX looks more promising to me at the moment because it has nearly overcome it's resistance, so has clear sky for some price discovery.

I bought Mark Fisher's book by the way. Thanks for the recommendation. It is quite interesting.

"Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill" – Reminiscences of a Stock Operator.

Last edited by isatrader; October 25th, 2011 at 06:35 AM.
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  #34 (permalink)
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Gold Trade

As I've said in my previous posts the breadth indicators have encouraged me to make some short term trades, but there's not much that meets the requirements of the system currently as I need to wait for the stock market to stabilize into Stage 1 on the weekly chart before buying any early Stage 2 individual stock breakouts. However there are some commodities which look tradable, so I chose Gold for my first trade in a while today and got back into it after yesterdays breakout above the daily Stage 4b range into early Stage 1a. I think any advance will probably be limited by the resistance above 1800, so I'll be tightening up my stop fairly quickly.

I initially set my limit order around the daily pivot at 1686, so as to get in on a retest of the breakout area. However, the price didn't reach it and turned around fairly sharply at the open of US futures trading, so I changed the limit order to 1725.1 above the earlier high to get in on the next breakout instead if it reached it. It was filled two hours into the US session so will see how it goes.

Trade

Gold CFD
Direction: Long
Order Type: Limit

Entry: 1725.14 (0.04 slippage)

Stop loss: 1549
Target: 1920

Percentage Risk: -10.21% (-5.75% ATR Adjusted)
Potential Reward: 11.30% (6.36% ATR Adjusted)

Risk Ratio: 1.11

ATR (200 Day): 30.64 (1.78%)
ATR (52 Week): 65.51 (3.80%)

ATR Targets:
1x ATR: 1755.78
1.5x ATR: 1771.10
2x ATR: 1786.42
2.5x ATR: 1801.74

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  #35 (permalink)
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Silver Entry

My limit order in Silver was triggered on the breakout above 34.11 earlier today. Here's the trade details:

Trade

Silver CFD
Direction: Long
Order Type: Limit

Entry: 34.113 (0.03 slippage)

Stop loss: 30.905
Target: 38.16

Percentage Risk: -9.40% (-1.98% ATR Adjusted)
Potential Reward: 11.86% (2.50% ATR Adjusted)

Risk Ratio: 1.26

ATR (200 Day): 1.6188 (4.75%)
ATR (52 Week): 3.4429 (10.09%)

ATR Targets:
-1x ATR: 32.49
1x ATR: 35.73
1.5x ATR: 36.54
2x ATR: 37.35
2.5x ATR: 38.16

Entry reason
Silver is in Stage 4 on the weekly chart, but has broken out into Stage 1a on daily chart today. So I've taken the breakout using a limit order for a short term trade with a target at the previous breakdown level around $36.50 to $38. The P&F chart showed the $34 level was significant so I placed my order a bit above it to make sure I wasn't caught by a false breakout. Below is the charts.

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"Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill" – Reminiscences of a Stock Operator.
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  #36 (permalink)
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NDX Entry

My limit order in the Nasdaq 100 Index was triggered earlier when it broke above 2395.1

Trade

US NDAQ 100 (CFD)
Direction: Long
Order Type: Limit

Entry: 2395.2 (0.1 slippage)

Stop loss: 1949
Target: 3000

Percentage Risk: -18.63% (-10.85% ATR Adjusted)
Potential Reward: 25.25% (14.71% ATR Adjusted)

Risk Ratio: 1.36

ATR (200 Day): 41.12 (1.72%)
ATR (52 Week): 91.14 (3.81%)

ATR Targets:
-1x ATR: 2354.08
1x ATR: 2436.32
1.5x ATR: 2456.88
2x ATR: 2477.44
2.5x ATR: 2498

Entry reason
The Nasdaq 100 has the least resistance of the major indexes to work through and is close to breaking out above this years highs. This is a medium term position so I've given it a fair bit of room with the stop loss and adjusted the margin to 50% to reduce effects of the leverage and financing costs. Below is the charts:

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  #37 (permalink)
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Spectra Energy - Entry

Trade

Spectra Energy (NYSE:SE)
Direction: Long
Order Type: Market

Entry: 29.3

Stop loss: 25.29
Target: 46.5

Percentage Risk: -13.69% (-7.16% ATR Adjusted)
Potential Reward: 58.70% (30.71% ATR Adjusted)

Risk Ratio: 4.29

ATR (200 Day): 0.56 (1.91%)
ATR (52 Week): 1.20 (4.10%)

ATR Targets:
-1x ATR: 28.74
1x ATR: 29.86
1.5x ATR: 30.14
2x ATR: 30.42
2.5x ATR: 30.70

Entry reason
SE (Spectra Energy) caught my eye when was scanning the weekly charts for possible breakout candidates. It made a four year high yesterday, and made a possible Stage 2 breakout. So I checked the monthly chart and there's virgin territory above $30 for some price discovery.

Relative strength versus the S&P 500 has been strong for the last two years and SE has outperformed the market by around 30%. Volume on the other hand is mediocre at the moment, so needs to pick if it's breaks higher or I'll have tighten my stop loss quickly in case of a false breakout. But we did get a new weekly closing high and the pullback today closed on the breakout level, so that's a positive sign I think.

My time frame on this is medium to long term, so I've only bought half the position like suggested in the rules of the system and will aim the buy the other half on the first pullback towards the breakout level.

Below is the charts:

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Below is the S&P 500 P&F chart (20 box size). The volume is starting to return as you can see at the bottom of the chart. The price by volume on the side of the chart shows that there's much less resistance above 1340. So that's my key level to watch.

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"Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill" – Reminiscences of a Stock Operator.
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  #38 (permalink)
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Uncovering Exceptional Winners

I've been re-reading Chapter 5 in Weinstein's book, and am particularly interested in the triple confirmation pattern as my aim is to focus on finding the exceptional winners. Below is the diagram taken from the book that illustrates the pattern I'm talking about:

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© Stan Weinstein, 1988

The formation produces some excellent winners apparently. But is not meant for short term trading, rather it's a method for aggressive investors to uncover potential big winners to ride for a major advance.

In addition to the basic requirement of the stock being above it's 30 week moving average it must have:
  1. Volume Signal (A on Chart) - This is vital! We want to see volume of even more than twice the average volume of the last 4 weeks, and additionally, the initial volume surge should be followed by several more weeks of heavy trading. Which indicates a sudden interest in the stock, as well as additional future demand. So impressive volume is the key ingredient.
  2. Relative strength (B on Chart) - this is very important for distinguishing good from great buys. The RS line must be in a certain position. It should either be in negative territory or hugging the zero line in a neutral manner. Then as the Stage 2 breakout occurs, the RS line should move decisively into positive territory. This is very important!
  3. Big move before the stock breaks out - i.e a 40% or more move before breaking out do the best in the months ahead. But this adds near term risk to the breakout, which is why it's strictly for investors rather than traders. So a 50% position size on the initial breakout.

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  #39 (permalink)
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El Paso - Limit Order

I think I've found one stock which meets the criteria for the triple confirmation pattern I described in the previous post. However, the range before the breakout was only 32%. So not quite the 40% or more he said became the biggest winners, but not too far off.

The stock is El Paso Energy (EP) - it had a Stage 2 continuation breakout two weeks ago on more than four times the average volume. The relative strength had been hugging the zero line and has decisively broken higher, outperforming the S&P 500 by 25% this month. The move before the breakout was 32% in two weeks, but it's up 56% now following the breakout. So I think this is a good triple confirmation pattern candidate and have put a limit order above the latest high at $26.01 at a 50% position size.

The main worry with this is that earnings are due out on Wednesday 2nd November, so that adds some near term risk to the buy if the limit order gets filled before then.

Here's the charts:

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"Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill" – Reminiscences of a Stock Operator.
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  #40 (permalink)
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Rolls Royce - Entry


Trade

Rolls Royce (RR.L)
Direction: Long
Order Type: Market

Entry: 712.95

Stop loss: 649
Target: 1030

Percentage Risk: -8.97% (-3.63% ATR Adjusted)
Potential Reward: 44.47% (17.99% ATR Adjusted)

Risk Ratio: 4.96

ATR (200 Day): 17.62 (2.47%)
ATR (52 Week): 43.90 (6.16%)

ATR Targets:
-1x ATR: 695.30
1x ATR: 730.60
1.5x ATR: 739.40
2x ATR: 748.20
2.5x ATR: 757.00

Entry reason
Rolls Royce (RR.L) has built up a very large Stage 3 consolidation range over the last 2 years, but it broke out above it two weeks ago on some improving volume. There's no resistance above it, so it's in a price discovery stage now. It's a stage 2 continuation buy, so I've bought my full position size and the point and figure chart gives a preliminary price objective of 1030, using a 10 box size, which would be a nice 44% gain. But it's currently pulling back in line with the market, so hopefully it will outperform if we get a year end rally.

Below are the charts:

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