Developed from over 30 years of market experience - My breakout stock scanner.
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In this video we look at the breakout screener. The scanner was designed by myself and tailored to the approach I have used for decades. Before using the screener I recommend reading the strategy PDF, the software presented here will then become far easier to understand.
Members will know that I look for a consolidation in price, followed by a breakout, with all technical analysis viewed on the weekly charts. Weekly charts are my preference for many reasons, but none more so than their alignment with fundamentals, which we also include in the scanning software.
That being said, let’s get straight into the scanner.
At the top of the screen we have some filtering criteria, starting with the date on Monday of any given week.
Next we have the exchanges, covering many of the major markets, including Australia, India, UK, Canada, US, and Germany. If none of the exchanges are individually selected, the screener will assume that all the exchanges should be scanned.
We can also filter by Sector or Industry. This can be particularly useful if you want to diversify a portfolio into other areas.
Next we have some key settings to help us find our preferred breakout. The settings you see here are my default settings which I use to filter stocks on a weekly basis, you can of course change any of them to suit your own style.
Let’s start with the consolidation range.
The scanner is defaulted to measure a minimum of 6 weekly candles, often more, but we will touch on that shortly.
We measure the range of consolidation using the open and close of the weekly candles.
By choosing the open and close, we would only be measuring the body of the candles, in which case the consolidation box could be drawn like this.
With the open and close prices, the scanner can then calculate its consolidation range.
We state that we only want to see consolidation with a maximum range of 12%. Therefore if the open to the close of consolidation was perhaps 17%, the stock would not be presented. Whereas if consolidation was perhaps 14% it would pass this portion of criteria.
Next, we have the minimum breakout percentages. This filter determines how far the breakout candle must be above the top of consolidation, and here we are looking for a minimum of 1%.
The scanner would therefore look for a breakout of one percent or more.
This breakout bar is perhaps 10% and would pass the criteria. On the other hand, if the breakout bar only increased by half of a percentage point above the box, it would not be presented as a qualifying stock.
Next up, we have the minimum breakout size. This filter is looking for the size of the breakout candle, from the open price to the closing price. In most cases I’m looking for a minimum 5% breakout size, thereby providing conviction during the week of its breakout, however I set a minimum of 2% to ensure we do not miss a stock with other favourable metrics.
Here we have the minimum market cap, I personally prefer a minimum of 500 million, this ensures we avoid stocks with liquidity constraints and excessive trade costs.
Next, we have Technical, Momentum and Quality scores. These scores range from 1 to 100 and I prefer to see a minimum of 50 in Quality and Momentum and 80 in technical, this ensures we filter out stocks that clearly do not align with my approach.
Here we get a list of all the filtered stocks sorted by the overall score. If we select any of the stocks within the list we are then presented with the weekly chart, scoring summary and other key information.
We can click on any of these headings to get a breakdown.
Let’s first look at the technical score for this stock. We can see that we have 5 aspects within the scoring, each with a scale bar. We ideally want the scores to be within the green area on each bar.
The first Channel Formation bar measures the range of price movement over the past 6 candles, prior to the breakout candle, the tighter the consolidation the better.
Next we measure the number of bars that fall within the above consolidation range, we want a minimum of 6 bars to consider the position, again, the more the better.
Next we have Normalized Average True Range, here we are looking for stocks that have not been too volatile in the lead up to consolidation.
Next we have the Break Of Structure score. Here we are looking at the percentage break above the upper portion of consolidation. This tells us that price has moved out of consolidation in a strong way, a move of more than 5% is desirable.
Lastly we have the Risk score, measured in terms of the stop loss percentage. The scanner is able to establish the likely stop loss position based on the previous 6 bar consolidation, again we are looking for stocks within the green portion of the bar, although it is an all things considered approach, in other words if all the scores are high we would not necessarily ignore the position if it was a 15% stop loss.
Next up we have the Momentum scoring. We break this up into different portions, Short Term Momentum, Medium Term Momentum, Long Term Momentum, Market Momentum and lastly Financial Momentum. The goal is to have momentum in every aspect behind the stock.
First we have the Breakout Bar Size, here we measure the size of the breakout candle from its open to its close. The larger the size of the bar indicates more recent momentum.
The first volume measure looks at the percentage move higher than the previous candle, again we want it further up the scale but I would not discount the position entirely if we measured up well on all other scores.
The second volume score looks at the average of the previous 6 volume bars, the higher the percentage above the average the better.
Bar HC Percentage refers to High Close. This measures the high and the close of the breakout candle, if the closing price of the candle is considerably away from the high of the candle it suggests we have some selling pressure, we want to see a close near to 100% of the high, therefore suggesting continued upward momentum.
Candle High measures how many previous candles have been surpassed by the breakout candle, more than 10 is the target.
Next we have the mack dee, this is a simple yes or no, is the mack dee above its signal line or not?.
Is price above the 20 period moving average? Both give a guide on medium term momentum.
Is price at a 52 week high? Ideally we want it to be yes to indicate longer term momentum, but again it is not a necessity, we consider the overall momentum score to make a decision.
Next we have Market Momentum, here we are looking at the 10 and 20 exponential moving average against the S and P 500 index. We have completed a separate video on the approach, but for the purpose of this video we simply want it to say yes, this implies that the 10 EMA is above the 20 EMA and that the S and P 500 as a whole is healthy. The metric has a significant weighting, therefore if we get a ‘No’ the momentum score will be significantly downgraded.
Lastly we have Financial Momentum, here we want the Piotroski score to be 6 or above, again we have a video providing more detail, but for simplicity, the Piotroski score not only measures the Quality fundamentals of a company, but it also measures the ‘momentum’ of the Quality metrics. If the metrics are moving positively over time, then we get a higher score.
Let’s move onto the Quality heading. For the purposes of this video I will assume that most are familiar with each of the metrics, put simply, we want a Quality company, these metrics do a good job of doing just that. The more we have in the green, the higher the score.
The scoring of each of the factors equate to the overall score of the stock, therefore generating a long shortlist of potential stocks. My next job is to look at each chart profile for each of the stocks, stocks that qualify visually, generally stand out, and for those that do this regularly it becomes easier and easier. In essence we are looking for that lateral consolidation, what we do want is a volatile consolidation or an inclining consolidation, lateral is the key.
Once we see a chart that fits, and the overall score is solid, we can then dig deeper by clicking on the Financial heading to see all the key fundamental data.
The headings should be self-explanatory, but I’m sure in a future update we can add the meaning against each.
As part of my last piece of analysis I like to see positivity in a few metrics, I like to see growing revenues, growing Net income, manageable debt, healthy cash and working capital, and an increasing book value. By hovering over each metric we get a bar chart to see the trends at a glance. Again, I would not discount a stock on one metric alone, I would look at the whole picture.
You will also see a ‘notes’ section. Here I provide my observations on the top 20 US stocks in the list, this will give you an insight into what I look for, or what aspects do not align to my approach. If the stock has a red minus symbol next to it, it means that the stock does not qualify, with a reason as to why in the notes section. If there is a green plus symbol against any of the stocks in the list, it means I have selected the stock, and details will be in the weekly report in the members forum area.
Next, we have the portfolio heading, here you will be able to add any of the stocks into a portfolio to track. Click on the create button and add any text you like into the comments, you might like to add something about the next earnings date, a new product launch, or any reason why you selected the stock.. Click save and you will see the stock highlighted as a portfolio entry. If you then click on the weekly portfolios at the very top you will see all your selected stocks. This is particularly useful for those looking to make their own trading selections, it will highlight if the MACD is positive or negative, along side the stop loss figure. The stop loss figure is only relevant if we have a negative MACD, in which case the stop loss figure will represent the low of the closing candle after the MACD closed negative. It serves as a quick glance to determine if you need to raise the stop loss on any of your positions, assuming you are following my approach of course.
If you wanted to see a list of your stocks and their scores, you can tick this portfolio only box, remember however the scores maybe lower than previously shown, this is due to the technical score becoming almost irrelevant the days after taking the trade once the setup structure has changed. You can however click into the stock for a breakdown of the Quality, Momentum or Financial factors.
Additionally, once all your analysis has been completed for any given week, and you have made your notes and selections against those stocks, you can select shortlisted only and only those stocks will appear.
And finally, at the top of the scanner you will see the option to scan by stock rather than date, this allows you to select any stock and lookback based on previous scan results. The scores shown will be the ones that were presented on the date searched.
Hopefully the video will help members understand how the screener operates, how it combines numerous aspects into a weighted score for further analysis, and how I personally find stocks to trade. You might find it useful to look back at the previous weekly reports in the forum, there you will see stocks that I have selected from the scanner and the reasons why.
For those interested, we have a highly engaged group that uses our bespoke breakout scanner to find some of the best trades, offering low-risk high reward potential. Feel free to use the links below, and as always thanks for watching.
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