breakout

karthikmarar

Well-Known Member
#11
cmlee

Volume is an important Factor in Breakouts. Just to refesh....

Generally, volume follows trend, that is in a rising trend volume should expand on rallies and contract on declines. In falling trends volume should expand on declines and contract on rallies.

When volume contracts after an extended rally, or expands sharply after an extended decline a dramatic reversal will normally transpire.

Volume and volatility contract in consolidation patterns because investors cannot reach consensus, they are undecided.

Volume should expand significantly for upside breakouts. If volume does not expand the breakout is considered illegitimate.

Volume may not expand for a downside breakout because falling share prices cause demoralization and inactivity among stockholders. During such circumstances, fewer shares are required to drive prices lower

Karthik
 

karthikmarar

Well-Known Member
#13
cmlee said:
do we need to change the forumla for Consolidation Breakout Downside too?
Yes...do change the formula for downside breakout also. Changed Formula given below for ready reference.

Consolidation Breakout Downside
If(Ref(Fml("Congestion Index"),-5),<,15{%},
{and} If(Fml("Congestion Index"),>=,15{%},
{and} If(CLOSE,<,Ref(LLV(C,40),-5),
{and} If(Mov(V,5,S),>=,1.5*(Ref(Mov(V,40,S),-5)),+1,0),0),0),0)

karthik
 

karthikmarar

Well-Known Member
#15
cmlee said:
when you say Volume should expand significantly for upside breakouts, how much increase in volume is significant?
Very good question !! Unfortunately there is no proper answers to it. :confused:

It depends of the stock, market and your own experience :D

Normally 50% increase above 60 day moving average is considered good enough for breakout on the upside. However the larger the voulme expansion the stronger the breakout. The formula considers 50% increase above the 40 day MOV of the volume. Try playing with the figures in the formula...I always do that....It gives many new insights..

Also check out the OBV Indicator along with the Breakout indicator. During breakout the OBV should also expand...

Happy Experimenting


karthik
 

karthikmarar

Well-Known Member
#17
cmlee said:
what do you mean by "OBV should also expand..." ?
I mean that the OBV indicator will also show marked increase. I am enclosing the same D-LINK chart including the OBV indicator. Note the sharp increase in volume and the OBV indicator.


karthik
 
Last edited:

karthikmarar

Well-Known Member
#18
CMLEE

Did you notice the latest breakout - BASF. Volume jumped from an average of 20000 to 150000. Let us see if it holds. Chart enclosed.

karthik
 
Last edited:
#19
looks like OBV indicator is the same as the stock price right?
ie. when stock price move up OBV move up if stock price move down OBV move down.
 

karthikmarar

Well-Known Member
#20
cmlee said:
looks like OBV indicator is the same as the stock price right?
ie. when stock price move up OBV move up if stock price move down OBV move down.
But the OBV Indicator has the volume also factored into it. The idea behind the OBV indicator is that the volume precedes price. Changes in the OBV precedes price changes.

OBV is calculated by adding the day's volume to a running cumulative total when the security's price closes up, and subtracts the volume when it closes down

Rising OBV indicates smart money flowing into the stock. Then when the public also follow suit the price increases further.
A rising OBV line along with rising prices indicate strong uptrend. So the OBV line can used for confirmation of a Trend.

At the same time if the volumes drops and the prices moving up indicates weakness in the trend. So divergence between the price and OBV will indicate weakness of the trend.

Karthik
 

Broker Special Offers

Intraday Higher Leverage

Save up to 90% in brokerage and get higher leverage for intraday trades.

Name:Phone:
Email:City:
State:
Are you a day trader?