Go to Jeff Salisbury LWGate Home Page.From: Chris Dempsey <cdempsey@houston.oilfield.slb.com>
Subject: RE: [CANSLIM] breakouts - return to base
Date: Mon, 10 Dec 2001 12:22:28 -0600
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Katherine, David, and All others interested
I remember reading that WON says 40% of breakouts return to the base. I
believe it is more than that. I'm not sure that it is 75%, but it might be.
For that reason WON states in his book you must take some profits when they
hit 20%. On one of the IBD tapes they state to profits in 1/2 of positions
reaching 25%. These are because of the high rate of pull backs. If you don't
do this then you are forced to use the rule, don't let a winner turn into a
loser.
SCUR appears to be an example of a stock returning/nearly returning to the
base.
-----Original Message-----
From: owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com]On Behalf Of
camelot.homes@charter.net
Sent: Monday, December 10, 2001 9:49 AM
To: canslim@lists.xmission.com
Subject: Re: [CANSLIM] low volume breakouts
hi katherine , thank you so much for this very good information! when
bulkowski states that stocks retrace back to the b/o piont 75% of the time
is he talking about high or low volume breakouts? and where is the best
place to get a copy of his book? david
----- Original Message -----
From: Katherine Malm
To: canslim@lists.xmission.com
Sent: Monday, December 10, 2001 5:10 AM
Subject: Re: [CANSLIM] low volume breakouts
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 -----
From: camelot.homes@charter.net
To: canslim@xmission.com
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
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<DIV><FONT face=Arial color=#0000ff size=2><SPAN
class=619121018-10122001>Katherine, David, and All others
interested</SPAN></FONT></DIV>
<DIV><FONT face=Arial color=#0000ff size=2><SPAN
class=619121018-10122001></SPAN></FONT> </DIV>
<DIV><FONT face=Arial color=#0000ff size=2><SPAN class=619121018-10122001>I
remember reading that WON says 40% of breakouts return to the base. I believe it
is more than that. I'm not sure that it is 75%, but it might be. For that reason
WON states in his book you must take some profits when they hit 20%. On one of
the IBD tapes they state to profits in 1/2 of positions reaching 25%. These are
because of the high rate of pull backs. If you don't do this then you are forced
to use the rule, don't let a winner turn into a loser. </SPAN></FONT></DIV>
<DIV><FONT face=Arial color=#0000ff size=2><SPAN
class=619121018-10122001></SPAN></FONT> </DIV>
<DIV><FONT face=Arial color=#0000ff size=2><SPAN class=619121018-10122001>SCUR
appears to be an example of a stock returning/nearly returning to the
base.</SPAN></FONT></DIV>
<BLOCKQUOTE dir=ltr style="MARGIN-RIGHT: 0px">
<DIV class=OutlookMessageHeader dir=ltr align=left><FONT face=Tahoma
size=2>-----Original Message-----<BR><B>From:</B>
owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com]<B>On Behalf Of
</B>camelot.homes@charter.net<BR><B>Sent:</B> Monday, December 10, 2001 9:49
AM<BR><B>To:</B> canslim@lists.xmission.com<BR><B>Subject:</B> Re: [CANSLIM]
low volume breakouts<BR><BR></FONT></DIV>
<DIV><FONT face=Arial size=2>hi katherine , thank you so much for this very
good information! when bulkowski states that stocks retrace back to the b/o
piont 75% of the time is he talking about high or low volume breakouts? and
where is the best place to get a copy of his book? david</FONT></DIV>
<BLOCKQUOTE dir=ltr
style="PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
<DIV style="FONT: 10pt arial">----- Original Message ----- </DIV>
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black"><B>From:</B>
<A title=kmalm@earthlink.net href="mailto:kmalm@earthlink.net">Katherine
Malm</A> </DIV>
<DIV style="FONT: 10pt arial"><B>To:</B> <A title=canslim@lists.xmission.com
href="mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>
</DIV>
<DIV style="FONT: 10pt arial"><B>Sent:</B> Monday, December 10, 2001 5:10
AM</DIV>
<DIV style="FONT: 10pt arial"><B>Subject:</B> Re: [CANSLIM] low volume
breakouts</DIV>
<DIV><BR></DIV>
<DIV><FONT face=Arial size=2>Hi David,</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>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).</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>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.</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>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!)</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2>Katherine</FONT></DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV><FONT face=Arial size=2></FONT> </DIV>
<DIV>----- Original Message ----- </DIV>
<BLOCKQUOTE dir=ltr
style="PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black"><B>From:</B>
<A title=camelot.homes@charter.net
href="mailto:camelot.homes@charter.net">camelot.homes@charter.net</A>
</DIV>
<DIV style="FONT: 10pt arial"><B>To:</B> <A title=canslim@xmission.com
href="mailto:canslim@xmission.com">canslim@xmission.com</A> </DIV>
<DIV style="FONT: 10pt arial"><B>Sent:</B> Sunday, December 09, 2001 5:44
PM</DIV>
<DIV style="FONT: 10pt arial"><B>Subject:</B> [CANSLIM] low volume
breakouts</DIV>
<DIV><BR></DIV>
<DIV><FONT face=Arial size=2>how often does a low volume breakout
succeed past the pivot point versus a high volume breakout
past the pivot point?
david</FONT></DIV></BLOCKQUOTE></BLOCKQUOTE></BLOCKQUOTE></BODY></HTML>
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Next Article (by Date): Re: [CANSLIM] Whither EPIQ? Kent Norman
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