Go to Jeff Salisbury LWGate Home Page.From: "Katherine Malm" <kmalm@earthlink.net>
Subject: Re: [CANSLIM] low volume breakouts
Date: Mon, 10 Dec 2001 05:10:04 -0600
Next Article (by Date): Re: [CANSLIM] PECS & "Rubberband Sell Rule" "Katherine Malm"
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This is a multi-part message in MIME format. - ------=_NextPart_000_064A_01C18138.EDB1F8E0 Content-Type: text/plain; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable Hi David, The question you ask is a good one. Demanding controlled study proof of = a guideline like this is important, as it makes an underlying assumption = about technical patterns which may or may not trigger a buy. I pulled = out my "Encyclopedia of Chart Patterns" by Thomas Bulkowski to answer = this question. In this book, the author does statistical studies on = chart formation and there is an entire chapter devoted to the C&H. = (pp.135-152). Before I state the author's conclusions, a general overview of WON's = theory as to why volume should be high on the breakout. That is, you are = looking for the point at which demand so outweighs supply that the price = moves up and onward. In my own personal experience, low volume breakouts = seem to fall back more often than not. But these are "odds" not = specifics. SONC is a good example from recent discussions on the list. = Take a look at the daily chart from 10/3 to now. You can see that SONC = tried very hard on several days to break out of its consolidation, but = fell back and eventually gapped down. The low volume B/O's don't always = mean the stock will fail, just that it's not yet ready to move on. I = like to have the odds in my favor, so I'm always willing to wait until = there's proof of the pudding. Back to Bulkowski. In the C&H formation, the failure rate is 26%. If you = wait for an upside breakout, the failure rate falls to 10%. Stocks = retrace back to the B/O point 75% of the time (average time 12 days). = Waiting for the throwback increases the success rate another 1%. Typical = B/O volume is 180% above the prior day and stays high for the following = week. Interestingly, he says removing the high volume B/O criteria does = hurt performance, but only minimally. This is an excellent chapter on = C&H and, based on the statistical evidence, the author makes other = conclusions that lead to particular trading tactics. There are several = additional criteria that WON would require of a stock forming a C&H and = then breaking out, such as rising RS, high group RS, underlying = fundamental characteristics, etc. that are not included in the author's = study. My own conclusions, anecdotally, are that if these other criteria = are met AND you get a high volume B/O, the odds are in your favor. (No = statistical studies to back that up, however!) Katherine - ----- Original Message -----=20 From: camelot.homes@charter.net=20 To: canslim@xmission.com=20 Sent: Sunday, December 09, 2001 5:44 PM Subject: [CANSLIM] low volume breakouts how often does a low volume breakout succeed past the pivot point = versus a high volume breakout past the pivot point? david - ------=_NextPart_000_064A_01C18138.EDB1F8E0 Content-Type: text/html; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable <!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN"> <HTML><HEAD> <META http-equiv=3DContent-Type content=3D"text/html; = charset=3Diso-8859-1"> <META content=3D"MSHTML 5.50.4611.1300" name=3DGENERATOR> <STYLE></STYLE> </HEAD> <BODY bgColor=3D#ffffff> <DIV><FONT face=3DArial size=3D2>Hi David,</FONT></DIV> <DIV><FONT face=3DArial size=3D2></FONT> </DIV> <DIV><FONT face=3DArial size=3D2>The question you ask is a good one. = Demanding=20 controlled study proof of a guideline like this is important, as it = makes an=20 underlying assumption about technical patterns which may or may not = trigger a=20 buy. I pulled out my "Encyclopedia of Chart Patterns" by Thomas = Bulkowski to=20 answer this question. In this book, the author does statistical studies = on chart=20 formation and there is an entire chapter devoted to the C&H.=20 (pp.135-152).</FONT></DIV> <DIV><FONT face=3DArial size=3D2></FONT> </DIV> <DIV><FONT face=3DArial size=3D2>Before I state the author's = conclusions, a general=20 overview of WON's theory as to why volume should be high on the = breakout. That=20 is, you are looking for the point at which demand so outweighs supply = that the=20 price moves up and onward. In my own personal experience, low volume = breakouts=20 seem to fall back more often than not. But these are "odds" not = specifics. SONC=20 is a good example from recent discussions on the list. Take a look = at the=20 daily chart from 10/3 to now. You can see that SONC tried very hard on = several=20 days to break out of its consolidation, but fell back and eventually = gapped=20 down. The low volume B/O's don't always mean the stock will fail, just = that it's=20 not yet ready to move on. I like to have the odds in my favor, so I'm = always=20 willing to wait until there's proof of the pudding.</FONT></DIV> <DIV><FONT face=3DArial size=3D2></FONT> </DIV> <DIV><FONT face=3DArial size=3D2>Back to Bulkowski. In the C&H = formation, the=20 failure rate is 26%. If you wait for an upside breakout, the failure = rate falls=20 to 10%. Stocks retrace back to the B/O point 75% of the time (average = time 12=20 days). Waiting for the throwback increases the success rate another 1%. = Typical=20 B/O volume is 180% above the prior day and stays high for the following = week.=20 Interestingly, he says removing the high volume B/O criteria does hurt=20 performance, but only minimally. This is an excellent chapter on C&H = and,=20 based on the statistical evidence, the author makes other = conclusions that=20 lead to particular trading tactics. There are several additional = criteria that=20 WON would require of a stock forming a C&H and then breaking out, = such as=20 rising RS, high group RS, underlying fundamental characteristics, etc. = that are=20 not included in the author's study. My own conclusions, anecdotally, are = that if=20 these other criteria are met AND you get a high volume B/O, the odds are = in your=20 favor. (No statistical studies to back that up, however!)</FONT></DIV> <DIV><FONT face=3DArial size=3D2></FONT> </DIV> <DIV><FONT face=3DArial size=3D2>Katherine</FONT></DIV> <DIV><FONT face=3DArial size=3D2></FONT> </DIV> <DIV><FONT face=3DArial size=3D2></FONT> </DIV> <DIV>----- Original Message ----- </DIV> <BLOCKQUOTE dir=3Dltr=20 style=3D"PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; = BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px"> <DIV=20 style=3D"BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: = black"><B>From:</B>=20 <A title=3Dcamelot.homes@charter.net=20 = href=3D"mailto:camelot.homes@charter.net">camelot.homes@charter.net</A> = </DIV> <DIV style=3D"FONT: 10pt arial"><B>To:</B> <A = title=3Dcanslim@xmission.com=20 href=3D"mailto:canslim@xmission.com">canslim@xmission.com</A> </DIV> <DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Sunday, December 09, 2001 = 5:44=20 PM</DIV> <DIV style=3D"FONT: 10pt arial"><B>Subject:</B> [CANSLIM] low volume=20 breakouts</DIV> <DIV><BR></DIV> <DIV><FONT face=3DArial size=3D2>how often does a low volume breakout=20 succeed past the pivot point versus a high volume breakout = past=20 the pivot point? david</FONT></DIV></BLOCKQUOTE></BODY></HTML> - ------=_NextPart_000_064A_01C18138.EDB1F8E0-- - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". 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