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Any thoughts?

Pete

Hi Pete,

This has been discussed a few times, but it's a big site so I'm happy to go over it again for newer traders that haven't come across those discussions yet. Basically, this is one of only a few areas that has changed since the book was written back in 1988 as the market has evolved due to technology and so there is a much higher rate of false breakouts. So, the method has changed slightly and no longer suggests using buy-stop orders in the way described in the book for investors, and instead emphasises buying a strong "close" above the breakout level. I spoke to Weinstein earlier in the year about it, here's the Q&A on that topic:

Thank you, appreciated. I suspect the average person has far more information than was available to all but a few when the book was written - and the chore of plotting your own charts is all but eliminated.

Me
Q. The book had a whole section on buy-stop orders, which I presume has been dropped over the years due to false breakouts that you would get these days? As I read your Technically Speaking interview from 1997 in which you were talking about buying a strong close above the breakout level, and also note in the GTA reports I’ve come across that you always say something like “A breakout (on a closing basis) above that level would be the signal to do buying”. So I’m assuming that the buy-stop section from the book is now void, and that we should be looking to buy breakouts near the close of the day if they are above the breakout level and towards the high of the day?

Stan Weinstein
A. Because of the increasing amount of false breakouts, investors should only do buying when they see that the breakout isn’t false (and that it closes above the given level). However, a trader should do at least partial buying on an intraday basis when it breaks out above the given level (using a buy stop order), and then if at the end of the day it turns out to be false and it closes back below the level, then traders should immediately get out. But if not false and it hasn’t run too far, then later in the session, traders too can do additional buying.

So, as you can see from the reply it's different depending on whether your are a trader or an investor, as an investor should wait for strong close above above the target level they are watching before getting in. So in practice you can set an alert in your chart software (if it has that option) to notify you by email when the target level is breached and then be ready near the end of the trading day to buy if it's going to close the day strongly above the target level. So, you'd buy in the last 5 to 10 mins before the close of the day imo.

Thanks. I'm mainly an investor - though perhaps with the amount of time I seem to be investing I think I ought to try a bit of trading.

It seems that perhaps my 'watch like a hawk and then buy' strategy is perhaps close to that stated above - if I accept that suddenly rising stocks may fall back to some extent so I will have to put up with losses in the short term - which should nullified by later gains. Just need to discipline myself to not leave it too long, eg buy on the day, not the next day - and if I miss it keep an eye out for a pullback. Pullbacks seem harder to spot though - a lot of shares seem to rise in a stepwise manner, MBH.L, THAL.L (not the best examples).

I'm not in a position in general where I can buy during the trading day so I'm looking after the end of the day.

I've set myself up a database that grabs share price data and records peaks and slowly degrades them back towards the averages. This seems to work reasonably well in detecting potential breakouts - as well as showing what is currently rising to recent highs. Basically I don't need to manually set the levels. It narrows down the number of charts I need to look at. Perhaps I ought to post a few of these breakouts here.

For a trader it's different as for example if you are in the UK then you can use a spread betting or CFD account, which both have the option to do a partial buy stop order order like he suggests in the answer above and then complete the purchase near the end of the day if it proves to not be a false breakout, or get out of the partial position if it closes back below the breakout level for a small loss.

I'll have to read into that. It seems that there are costs associated with holding long positions in a CFD account - looking at one provider you are charged the LIBOR rate for the money 'borrowed' for the shares. Though with interests rates low and hopefully a share doing better than LIBOR then perhaps that is not much of an issue - and perhaps my 'transfer' plan is a mitigation strategy. I'll have to look into CFD accounts. Thing I'm wary of is a small amount of 'finger trouble' causing a miss-placed stop that results in the account being wiped out - hence I'd not want to hold too much in a CFD account. I'll need to learn how the stops work.

Another way to avoid false breakouts is to make sure that you only trade A+ picks that meet the four main requirements of the method. i.e. price action breakout with a rising 30 week moving average, at least 2x the weekly average volume, relative performance above the zero line and above any near term resistance. As you'll find that you get a lot less false breakouts if you really focus on meeting all the key criteria of the method. So focus on the quality of your picks and don't settle for anything less.

I'm looking at a 150 day moving average (same as or v similar to 30 Week). I find volume to be a more tricky indicator, what seems to happen now does not, at least in the UK, look as clean as the examples in the book. I do note that the US stocks on the watchlist do seem to behave more like the examples in the book. I also recall, likely in the interview with Stan W, that volume a less useful indactor than it used to be - probably due to darkpools, automated trading and ETFs. However, I'm a newbie so this is just stuff gleaned here and from the net - not personal experience.

I hope that helps.

Thank you for your time.