Go to Jeff Salisbury LWGate Home Page.From: "Katherine Malm" <kmalm@earthlink.net>
Subject: Re: [CANSLIM] breakouts - return to base
Date: Mon, 10 Dec 2001 19:00:14 -0600
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David,
I think it depends on your investment strategy. If you are intentionally =
playing a short term trend, small profits 5-20% might be ok. On the =
other hand, the goal of moving into the intermediate time frame is to =
find the right combination of fundamentals and technicals so the ride =
can be far greater. A good ride in a good market could easily get you =
far more than 5-20%. It's not uncommon to get nice 50-60% returns in a =
few months. That's why you want to really understand price/volume action =
so that you can determine if the stock remains healthy in its upward =
intermediate term advance. Small pullbacks here and there mean little =
over this time frame. It's repeated high volume pull backs =
(distribution) that are problematic. One of the things that always stuck =
with me from Nicholas Darvas' book "How I made $2 million in the Stock =
Market" was the simple phrase "I have no reason to sell a stock that's =
rising." In other words, skipping town too early could very well lower =
your overall investment return.
If your strategy is a swing strategy of 1-10 days or so, a consistent =
5-10% return on each position would certainly garner a high return =
overall. But the entries are based on pricing patterns and the =
candidates mined from stocks with enough volatility to move swiftly in a =
few days. Very different strategy than CANSLIM.
Katherine
----- Original Message -----=20
From: camelot.homes@charter.net=20
To: canslim@lists.xmission.com=20
Sent: Monday, December 10, 2001 6:24 PM
Subject: Re: [CANSLIM] breakouts - return to base
katherine and chris, sorry i have been away. i always wonder if the =
most likely breakout will rise 5 to 20%-is it better to take those small =
profits on alot of stocks, then wait longer for possible bigger profits? =
david
----- Original Message -----=20
From: Katherine Malm=20
To: canslim@lists.xmission.com=20
Sent: Monday, December 10, 2001 12:40 PM
Subject: Re: [CANSLIM] breakouts - return to base
Chris,
Just a clarification. The 75% return rate is a pullback within the =
first 12 days (this is the average for the study). Bulkowski states =
that none take longer than 30 days. After that, it goes beyond throwback =
and falls into "normal price action" territory.
With regard to the WON 20% rule and profit taking. Bulkowski gives =
some statistics that I think throw some light. He says that 47% of =
stocks reach a high after breakout in less than 3 months. 35% take =
longer than 6 months. Most likely rise? 10-20%. Average rise? 38%. His =
frequency distribution shows that the longer it takes to reach the peak, =
the larger the average gain.
So think about what that means in terms of WON sell guidelines.=20
(1) If the stock rises 20% in less than 8 weeks, suggests you hold =
on through the first correction
(2) Once it reaches 25% (and I'm assuming he then means, if it takes =
longer than 8 weeks to do that), THEN suggests taking some profits.
But I also look for accumulation/distribution during these rises to =
assess whether the uptrend is persistent enough to carry the stock =
further than the 25%.
In that context, makes a lot more sense!
Katherine
----- Original Message -----=20
From: Chris Dempsey=20
To: canslim@lists.xmission.com=20
Sent: Monday, December 10, 2001 12:22 PM
Subject: RE: [CANSLIM] breakouts - return to base
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.=20
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 -----=20
From: Katherine Malm=20
To: canslim@lists.xmission.com=20
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 -----=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
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<DIV><FONT face=3DArial size=3D2>David,</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>I think it depends on your investment =
strategy. If=20
you are intentionally playing a short term trend, small profits 5-20% =
might be=20
ok. On the other hand, the goal of moving into the intermediate time =
frame is to=20
find the right combination of fundamentals and technicals so the ride =
can be far=20
greater. A good ride in a good market could easily get you far more than =
5-20%.=20
It's not uncommon to get nice 50-60% returns in a few months. That's why =
you=20
want to really understand price/volume action so that you can determine =
if the=20
stock remains healthy in its upward intermediate term advance. Small =
pullbacks=20
here and there mean little over this time frame. It's repeated high =
volume pull=20
backs (distribution) that are problematic. One of the things that always =
stuck=20
with me from Nicholas Darvas' book "How I made $2 million in the Stock =
Market"=20
was the simple phrase "I have no reason to sell a stock that's rising." =
In other=20
words, skipping town too early could very well lower your overall =
investment=20
return.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>If your strategy is a swing strategy of =
1-10 days=20
or so, a consistent 5-10% return on each position would certainly garner =
a high=20
return overall. But the entries are based on pricing patterns and the =
candidates=20
mined from stocks with enough volatility to move swiftly in a few days. =
Very=20
different strategy than CANSLIM.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Katherine</FONT></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 style=3D"FONT: 10pt arial">----- Original Message ----- </DIV>
<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@lists.xmission.com=20
=
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Monday, December 10, 2001 =
6:24=20
PM</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Subject:</B> Re: [CANSLIM] =
breakouts - return=20
to base</DIV>
<DIV><BR></DIV>
<DIV><FONT face=3DArial size=3D2>katherine and chris, sorry i have =
been away. i=20
always wonder if the most likely breakout will rise 5 to 20%-is =
it better=20
to take those small profits on alot of stocks, then wait longer for =
possible=20
bigger profits? david</FONT></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 style=3D"FONT: 10pt arial">----- Original Message ----- </DIV>
<DIV=20
style=3D"BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: =
black"><B>From:</B>=20
<A title=3Dkmalm@earthlink.net =
href=3D"mailto:kmalm@earthlink.net">Katherine=20
Malm</A> </DIV>
<DIV style=3D"FONT: 10pt arial"><B>To:</B> <A =
title=3Dcanslim@lists.xmission.com=20
=
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
=20
</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Monday, December 10, =
2001 12:40=20
PM</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Subject:</B> Re: [CANSLIM] =
breakouts -=20
return to base</DIV>
<DIV><BR></DIV>
<DIV><FONT face=3DArial size=3D2>Chris,</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Just a clarification. The 75% =
return rate is a=20
pullback within the first 12 days (this is the average for the =
study).=20
Bulkowski states that none take longer than 30 days. After =
that, it=20
goes beyond throwback and falls into "normal price action"=20
territory.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>With regard to the WON 20% rule and =
profit=20
taking. Bulkowski gives some statistics that I think throw some =
light. He=20
says that 47% of stocks reach a high after breakout in less than 3 =
months.=20
35% take longer than 6 months. Most likely rise? 10-20%. Average =
rise? 38%.=20
His frequency distribution shows that the longer it takes to reach =
the peak,=20
the larger the average gain.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>So think about what that means in =
terms of WON=20
sell guidelines. </FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>(1) If the stock rises 20% in less =
than 8=20
weeks, suggests you hold on through the first =
correction</FONT></DIV>
<DIV><FONT face=3DArial size=3D2>(2) Once it reaches 25% (and I'm =
assuming he=20
then means, if it takes longer than 8 weeks to do that), THEN=20
suggests taking some profits.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>But I also look for =
accumulation/distribution=20
during these rises to assess whether the uptrend is persistent =
enough to=20
carry the stock further than the 25%.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>In that context, makes a lot more=20
sense!</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Katherine</FONT></DIV>
<DIV> </DIV>
<DIV> </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=3Dcdempsey@houston.oilfield.slb.com=20
href=3D"mailto:cdempsey@houston.oilfield.slb.com">Chris =
Dempsey</A> </DIV>
<DIV style=3D"FONT: 10pt arial"><B>To:</B> <A=20
title=3Dcanslim@lists.xmission.com=20
=
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
=20
</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Monday, December 10, =
2001 12:22=20
PM</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Subject:</B> RE: [CANSLIM] =
breakouts -=20
return to base</DIV>
<DIV><BR></DIV>
<DIV><FONT face=3DArial color=3D#0000ff size=3D2><SPAN=20
class=3D619121018-10122001>Katherine, David, and All others=20
interested</SPAN></FONT></DIV>
<DIV><FONT face=3DArial color=3D#0000ff size=3D2><SPAN=20
class=3D619121018-10122001></SPAN></FONT> </DIV>
<DIV><FONT face=3DArial color=3D#0000ff size=3D2><SPAN=20
class=3D619121018-10122001>I remember reading that WON says 40% of =
breakouts=20
return to the base. I believe it is more than that. I'm not sure =
that it=20
is 75%, but it might be. For that reason WON states in his book =
you must=20
take some profits when they hit 20%. On one of the IBD tapes they =
state to=20
profits in 1/2 of positions reaching 25%. These are because of the =
high=20
rate of pull backs. If you don't do this then you are forced to =
use the=20
rule, don't let a winner turn into a loser. </SPAN></FONT></DIV>
<DIV><FONT face=3DArial color=3D#0000ff size=3D2><SPAN=20
class=3D619121018-10122001></SPAN></FONT> </DIV>
<DIV><FONT face=3DArial color=3D#0000ff size=3D2><SPAN=20
class=3D619121018-10122001>SCUR appears to be an example of a =
stock=20
returning/nearly returning to the base.</SPAN></FONT></DIV>
<BLOCKQUOTE dir=3Dltr style=3D"MARGIN-RIGHT: 0px">
<DIV class=3DOutlookMessageHeader dir=3Dltr align=3Dleft><FONT =
face=3DTahoma=20
size=3D2>-----Original Message-----<BR><B>From:</B>=20
owner-canslim@lists.xmission.com=20
[mailto:owner-canslim@lists.xmission.com]<B>On Behalf Of=20
</B>camelot.homes@charter.net<BR><B>Sent:</B> Monday, December =
10, 2001=20
9:49 AM<BR><B>To:</B> =
canslim@lists.xmission.com<BR><B>Subject:</B> Re:=20
[CANSLIM] low volume breakouts<BR><BR></FONT></DIV>
<DIV><FONT face=3DArial size=3D2>hi katherine , thank you so =
much for this=20
very good information! when bulkowski states that stocks retrace =
back to=20
the b/o piont 75% of the time is he talking about high or low =
volume=20
breakouts? and where is the best place to get a copy of his =
book?=20
david</FONT></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 style=3D"FONT: 10pt arial">----- Original Message ----- =
</DIV>
<DIV=20
style=3D"BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: =
black"><B>From:</B>=20
<A title=3Dkmalm@earthlink.net=20
href=3D"mailto:kmalm@earthlink.net">Katherine Malm</A> </DIV>
<DIV style=3D"FONT: 10pt arial"><B>To:</B> <A=20
title=3Dcanslim@lists.xmission.com=20
=
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
=20
</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Monday, December =
10, 2001=20
5:10 AM</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Subject:</B> Re: [CANSLIM] =
low volume=20
breakouts</DIV>
<DIV><BR></DIV>
<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.=20
Demanding controlled study proof of a guideline like this is=20
important, as it makes an underlying assumption about =
technical=20
patterns which may or may not trigger a buy. I pulled out my=20
"Encyclopedia of Chart Patterns" by Thomas Bulkowski to answer =
this=20
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,=20
a general overview of WON's theory as to why volume should be =
high on=20
the breakout. That is, you are looking for the point at which =
demand=20
so outweighs supply that the price moves up and onward. In my =
own=20
personal experience, low volume breakouts seem to fall back =
more often=20
than not. But these are "odds" not specifics. SONC is a =
good=20
example from recent discussions on the list. Take a look at =
the daily=20
chart from 10/3 to now. You can see that SONC tried very hard =
on=20
several days to break out of its consolidation, but fell back =
and=20
eventually gapped down. The low volume B/O's don't always mean =
the=20
stock will fail, just that it's not yet ready to move on. I =
like to=20
have the odds in my favor, so I'm always willing to wait until =
there's=20
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=20
formation, the failure rate is 26%. If you wait for an upside=20
breakout, the failure rate falls to 10%. Stocks retrace back =
to the=20
B/O point 75% of the time (average time 12 days). Waiting for =
the=20
throwback increases the success rate another 1%. Typical B/O =
volume is=20
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=20
C&H and, based on the statistical evidence, the =
author makes=20
other conclusions that lead to particular trading tactics. =
There are=20
several additional criteria that WON would require of a stock =
forming=20
a C&H and then breaking out, such as rising RS, high group =
RS,=20
underlying fundamental characteristics, etc. that are not =
included in=20
the author's study. My own conclusions, anecdotally, are that =
if these=20
other criteria are met AND you get a high volume B/O, the odds =
are in=20
your favor. (No statistical studies to back that up,=20
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>=20
</DIV>
<DIV style=3D"FONT: 10pt arial"><B>To:</B> <A=20
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=20
5:44 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=20
breakout past the pivot point?=20
=
david</FONT></DIV></BLOCKQUOTE></BLOCKQUOTE></BLOCKQUOTE></BLOCKQUOTE></B=
LOCKQUOTE></BLOCKQUOTE></BODY></HTML>
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