Go to Jeff Salisbury LWGate Home Page.From: "Tom Worley" <stkguru@netside.net>
Subject: Re: [CANSLIM] breakouts - return to base
Date: Wed, 12 Dec 2001 00:29:15 -0500
Next Article (by Subject): [CANSLIM] clarification larry l worden
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Hi Chris,
In the article that I frustratingly still cannot find, but written from =
an interview with Bill O'Neil around circa 1991 or 1992 for the =
Registered Rep magazine (a trade journal for stock brokers), he =
explained the 20% rule not as an absolute, but rather as a guideline for =
newcomers to CANSLIM to teach them "how" to take profits (more than =
"when" to take them). In the same article, he spoke of letting your =
winners run once you had accumulated some profits, AND learned how to =
take profits. Then you were starting to learn "when" to take profits OR =
letting your strongest stocks continue to run, as well as hold through =
corrections, in order to eventually still own the ones that moved up =
several hundred percent.
While times certainly have changed since then, and I am commenting from =
10 year old memory, this article and the training by his staff back then =
taught me that a gain of 20% was reason to carefully examine a chart, =
and be able to articulate why I WAS NOT selling it. In other words, it =
was a reason to sell in the absence of more reasons to hold it, much =
like Katherine's rubberband rule. It forced a conscious examination of =
both the chart, the fundamentals and forecasts, and "M", and then a =
conscious, pro-active decision making process (rather than the =
complacency of "I am up 20% so I sell" or the "I am up 20% and this =
stock will keep rising forever").
For me, that is one of the strengths of CANSLIM. By having some "rules" =
and guidelines, it forces a discipline and conscious intelligent process =
rather than just being a sheep following the herd, waiting for the =
shearing, if not the slaughter.
Tom Worley
stkguru@netside.net
AIM: TexWorley
----- Original Message -----=20
From: Chris Dempsey=20
To: canslim@lists.xmission.com=20
Sent: Monday, December 10, 2001 1:22 PM
Subject: RE: [CANSLIM] breakouts - return to base
Katherine, David, and All others interested
=20
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
=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,
=20
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).
=20
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.
=20
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!)
=20
Katherine
=20
=20
----- 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 size=3D2>Hi Chris,</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=3D2>In the article that I frustratingly still cannot =
find, but=20
written from an interview with Bill O'Neil around circa 1991 or 1992 for =
the=20
Registered Rep magazine (a trade journal for stock brokers), he =
explained the=20
20% rule not as an absolute, but rather as a guideline for newcomers to =
CANSLIM=20
to teach them "how" to take profits (more than "when" to take them). In =
the same=20
article, he spoke of letting your winners run once you had accumulated =
some=20
profits, AND learned how to take profits. Then you were starting to =
learn=20
"when" to take profits OR letting your strongest stocks continue to run, =
as well=20
as hold through corrections, in order to eventually still own the ones =
that=20
moved up several hundred percent.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=3D2>While times certainly have changed since then, and I =
am=20
commenting from 10 year old memory, this article and the training by his =
staff=20
back then taught me that a gain of 20% was reason to carefully examine a =
chart,=20
and be able to articulate why I WAS NOT selling it. In other words, it =
was a=20
reason to sell in the absence of more reasons to hold it, much like =
Katherine's=20
rubberband rule. It forced a conscious examination of both the chart, =
the=20
fundamentals and forecasts, and "M", and then a conscious, pro-active =
decision=20
making process (rather than the complacency of "I am up 20% so I sell" =
or the "I=20
am up 20% and this stock will keep rising forever").</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=3D2>For me, that is one of the strengths of CANSLIM. By =
having=20
some "rules" and guidelines, it forces a discipline and conscious =
intelligent=20
process rather than just being a sheep following the herd, waiting for =
the=20
shearing, if not the slaughter.</FONT></DIV>
<DIV> </DIV>
<DIV>Tom Worley<BR><A=20
href=3D"mailto:stkguru@netside.net">stkguru@netside.net</A><BR>AIM:=20
TexWorley<BR></DIV>
<BLOCKQUOTE dir=3Dltr=20
style=3D"BORDER-LEFT: #000000 2px solid; MARGIN-LEFT: 5px; MARGIN-RIGHT: =
0px; PADDING-LEFT: 5px; PADDING-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 href=3D"mailto:cdempsey@houston.oilfield.slb.com"=20
title=3Dcdempsey@houston.oilfield.slb.com>Chris Dempsey</A> </DIV>
<DIV style=3D"FONT: 10pt arial"><B>To:</B> <A=20
href=3D"mailto:canslim@lists.xmission.com"=20
title=3Dcanslim@lists.xmission.com>canslim@lists.xmission.com</A> =
</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Monday, December 10, 2001 =
1:22=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 color=3D#0000ff face=3DArial size=3D2><SPAN=20
class=3D619121018-10122001>Katherine, David, and All others=20
interested</SPAN></FONT></DIV>
<DIV><FONT color=3D#0000ff face=3DArial size=3D2><SPAN=20
class=3D619121018-10122001></SPAN></FONT> </DIV>
<DIV><FONT color=3D#0000ff face=3DArial size=3D2><SPAN =
class=3D619121018-10122001>I=20
remember reading that WON says 40% of breakouts return to the base. I =
believe=20
it is more than that. I'm not sure that it is 75%, but it might be. =
For that=20
reason WON states in his book you must take some profits when they hit =
20%. On=20
one of the IBD tapes they state to profits in 1/2 of positions =
reaching 25%.=20
These are because of the high rate of pull backs. If you don't do this =
then=20
you are forced to use the rule, don't let a winner turn into a loser.=20
</SPAN></FONT></DIV>
<DIV><FONT color=3D#0000ff face=3DArial size=3D2><SPAN=20
class=3D619121018-10122001></SPAN></FONT> </DIV>
<DIV><FONT color=3D#0000ff face=3DArial size=3D2><SPAN =
class=3D619121018-10122001>SCUR=20
appears to be an example of a stock returning/nearly returning to =
the=20
base.</SPAN></FONT></DIV>
<BLOCKQUOTE dir=3Dltr style=3D"MARGIN-RIGHT: 0px">
<DIV align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><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 9:49=20
AM<BR><B>To:</B> canslim@lists.xmission.com<BR><B>Subject:</B> Re: =
[CANSLIM]=20
low volume breakouts<BR><BR></FONT></DIV>
<DIV><FONT face=3DArial size=3D2>hi katherine , thank you so much =
for this very=20
good information! when bulkowski states that stocks retrace back to =
the b/o=20
piont 75% of the time is he talking about high or low volume =
breakouts? and=20
where is the best place to get a copy of his book? =
david</FONT></DIV>
<BLOCKQUOTE dir=3Dltr=20
style=3D"BORDER-LEFT: #000000 2px solid; MARGIN-LEFT: 5px; =
MARGIN-RIGHT: 0px; PADDING-LEFT: 5px; PADDING-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 href=3D"mailto:kmalm@earthlink.net" =
title=3Dkmalm@earthlink.net>Katherine=20
Malm</A> </DIV>
<DIV style=3D"FONT: 10pt arial"><B>To:</B> <A=20
href=3D"mailto:canslim@lists.xmission.com"=20
title=3Dcanslim@lists.xmission.com>canslim@lists.xmission.com</A> =
</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Monday, December 10, =
2001 5:10=20
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. Demanding=20
controlled study proof of a guideline like this is important, as =
it makes=20
an underlying assumption about technical patterns which may or may =
not=20
trigger a buy. I pulled out my "Encyclopedia of Chart Patterns" by =
Thomas=20
Bulkowski to answer this question. In this book, the author does=20
statistical studies on chart formation and there is an entire =
chapter=20
devoted to the C&H. (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=20
general overview of WON's theory as to why volume should be high =
on the=20
breakout. That is, you are looking for the point at which demand =
so=20
outweighs supply that the price moves up and onward. In my own =
personal=20
experience, low volume breakouts seem to fall back more often than =
not.=20
But these are "odds" not specifics. SONC is a good example =
from=20
recent discussions on the list. Take a look at the daily chart =
from 10/3=20
to now. You can see that SONC tried very hard on several days to =
break out=20
of its consolidation, but fell back and eventually gapped down. =
The low=20
volume B/O's don't always mean the stock will fail, just that it's =
not yet=20
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,=20
the failure rate is 26%. If you wait for an upside breakout, the =
failure=20
rate falls to 10%. Stocks retrace back to the B/O point 75% of the =
time=20
(average time 12 days). Waiting for the throwback increases the =
success=20
rate another 1%. Typical B/O volume is 180% above the prior day =
and stays=20
high for the following week. Interestingly, he says removing the =
high=20
volume B/O criteria does hurt performance, but only minimally. =
This is an=20
excellent chapter on C&H and, based on the statistical =
evidence,=20
the author makes other conclusions that lead to particular =
trading=20
tactics. There are several additional criteria that WON would =
require of a=20
stock forming a C&H and then breaking out, such as rising RS, =
high=20
group RS, underlying fundamental characteristics, etc. that are =
not=20
included in the author's study. My own conclusions, anecdotally, =
are that=20
if these other criteria are met AND you get a high volume B/O, the =
odds=20
are in 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"BORDER-LEFT: #000000 2px solid; MARGIN-LEFT: 5px; =
MARGIN-RIGHT: 0px; PADDING-LEFT: 5px; PADDING-RIGHT: 0px">
<DIV=20
style=3D"BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: =
black"><B>From:</B>=20
<A href=3D"mailto:camelot.homes@charter.net"=20
title=3Dcamelot.homes@charter.net>camelot.homes@charter.net</A> =
</DIV>
<DIV style=3D"FONT: 10pt arial"><B>To:</B> <A=20
href=3D"mailto:canslim@xmission.com"=20
title=3Dcanslim@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 =
breakout=20
past the pivot point?=20
david</FONT></DIV></BLOCKQUOTE></BLOCKQUOTE></BLOCKQUOTE></BLOCKQUOTE></B=
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