Good vs Bad Breakouts
- Thread starter toc
- Start date
Some breakouts you can smell coming a mile away. Friday was a perfect example. The trick is to get in before the break so you have a cushion if it fails. Around 1:30 you could see the test coming and had a great entry a few minutes later giving you a 20 pt. cushion. If it fails you still make a small profit. This is a gimme, imo.
Most certainly he 'predicts'. He predicts that it's going one way for a while and enters. He adds if things keep on moving as 'predicted'. He gets out if it doesn't move as 'predicted'.
You're right. It's all a matter of smelling things from a mile away and seeing them tests coming.
PS: Perhaps peterfigliozzi might agree that this is 'prediction' even in his vocabulary.
Market Direction. Early in bull phase there are many false breakouts but once a first leg correction happens, the breakouts are more reliable.
Most important is earning surprise lead breakouts. Typical they have very good success rate. There is lot of research on this and if you do backtesting you will find validity in same.
Industry relative strength. There is sweet spot in the relative strength score where lot of stocks breakout and then there is frenzied move for few months. The highest relative strength may not be the best indicator of that.
BUT... breakout of what? Let's take our beloved ES intraday. How often does it break out? 2 days out of 20 trading days in a month? I mean... And break out of what? Some pivot line or some other arbitrary line in the sand? So it breaks out... then what? You will trendfollow the breakout? To where? to 4:15? There's not really time for it to make a good classic trendfollowing run where you can trail your stops and go fishing in the between.
Your answers are helpful! Perhaps you would go another round with us and clarify two questions.
<i>Most important is earning surprise lead breakouts. Typical they have very good success rate. There is lot of research on this and if you do backtesting you will find validity in same.</i>
To read up on the kind research you mention, what would I be searching for? What kind of title/subject? Does anything specific come to mind? I could leapfrog from one article or book to the next once I got rolling.
<i>Industry relative strength. There is sweet spot in the relative strength score where lot of stocks breakout and then there is frenzied move for few months. The highest relative strength may not be the best indicator of that.</i>
Regarding the sweet spot in the relative strength score: You're referring to the realtive strength of the stock vs. its industry, is that correct? THat's where the sweetspot is? And then, subsequently, the RS of the industry vis a vis the market itself? A kind of RS within an RS? If you could elaborate on the RS aspect it would be EXTREMELY helpful.
Both of these areas (the latter in particular) have been knocking around in the back of my head for some time, but I haven't known how to proceed. You have a hunch, but you're not sure what comes next. Know what I mean?
TIA!
<i>Most important is earning surprise lead breakouts. Typical they have very good success rate. There is lot of research on this and if you do backtesting you will find validity in same.</i>
To read up on the kind research you mention, what would I be searching for? What kind of title/subject? Does anything specific come to mind? I could leapfrog from one article or book to the next once I got rolling.
<i>Industry relative strength. There is sweet spot in the relative strength score where lot of stocks breakout and then there is frenzied move for few months. The highest relative strength may not be the best indicator of that.</i>
Regarding the sweet spot in the relative strength score: You're referring to the realtive strength of the stock vs. its industry, is that correct? THat's where the sweetspot is? And then, subsequently, the RS of the industry vis a vis the market itself? A kind of RS within an RS? If you could elaborate on the RS aspect it would be EXTREMELY helpful.
Both of these areas (the latter in particular) have been knocking around in the back of my head for some time, but I haven't known how to proceed. You have a hunch, but you're not sure what comes next. Know what I mean?
TIA!
1 Do a google search on " earning surprise and stock price"
There are several research articles by academicians to try and understand why market reacts to earning surprise. Unless you are academic oriented the gist of it is there is a 30 to 90 day drift upwards or downwards after an earning surprise. The theory being earnings surprises are like cockroaches. You are likely to see more of them. The reaction to earning surprise on downside is more pronounced than reaction to upward surprise.
Several strategies like Investor Business Daily, Value Line and many other are based on this strategy.
On yahoo finance or Zacks , there are earning surprise data, you can test it to see how it works.
2 The relative strength of sector gets manifested much later in general few stocks move first and then others follow. So by the time people realise the sector relative strength has increased many of the best breakouts have already happened.
So as a rule it is much better to use individual stock level relative strength than sector strength.