1. What are the two key mistakes beginners make in reading trends?  2. Which “key” chart pattern reveals a top or bottom is near?
3. What are the most reliable chart patterns? 
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Nov
15
2004
Discussion of Changes to Breakout Tracker

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 0

Question:

Thank you so much for your long memo regarding the upcoming (and recent) changes. I am glad you have decided to go weekly on the update. I was becoming concerned with the obviously enormous amount of work you had to do each day, wondering how it was humanly possible to keep it up. So, I welcome the change. Besides, there are many places to go to get detailed daily updates.

I had not noticed the column change from breakout rank to 50% DMA. I guess that corroborates your view of its relative importance. I welcome the change. I think another value with this new column is the IBD notion that a sell signal flag is raised when the price gets too extended by becoming more than 51% above its 50 dma. It is not easy to get this visual information from Metastock, so you are providing a valuable service on this little-used signal.

Your description of the new look and function of Breakout Tracker sounds great. I can hardly wait. When you have the time, I will be very interested in finding out how you will be calculating the new sixty-point ranking system.

Finally, one last question. Are the numbers in the Breakout Tracker calculated each day? I’m thinking of the pivot point which sometimes tends to meander a bit.

Best of luck on your update. There are many of us who will be thankful.

My Response:

You make a good point about the additional use of the 50DMA info – I had forgot to mention that, nice work.  Let me give you a quick rundown of the new ranking system (in fact now that I think about it I will send all members a look at how the rank is determined sooner, rather than later):
 
TECHNICAL: based on 30 points
  • 10 points (Relative Strength):  eg. RS of 78 recieves score of 8
  • 10 points (Shape): score base on volatility of day to day action as well as overall shape (eg. wild intraday price swings with a V like base will receive a much lower score than a long flat base with tight intraday action)
  • 10 points (Buy Vs. Sell Volume): i look at a daily and weekly chart to determine buy vs. sell volume – the more buy volume the higher the score
FUNDAMENTAL: based on 30 points
  • 15 points (Earnings/Sales Growth): I look at consistency, history, amount of growth, acceleration and future growth estimates (future growth is very important something I noticed IBD wasn’t factoring in to their ranking system). I give it more weight in my system.
  • 10 points (Profit Margins/ROE): I look at relation to industry average and if it’s rising or declining.  (ie. if both margins & ROE are well above the industry average and have been rising the last couple years, the stock will recieve a score of 10)
  • 5 points (Management Ownership/Institutional Positions):  If management owns a large portion (say 20% or more) and institutions are initiating many new positions, the stock receives a score of 5.
The risk number that is included in the Tracker is just a measure of volatility.  I personally don’t use it and don’t think it’s all that valuable, but if you find it valuable  I will probably leave it be.  To come up with a true risk reward ration requires a lot of work and takes into account many factors (support areas, RS, trend lines, sector, future growth, etc.) It is very difficult to come up with an exact numer for something like this.  When I look to enter a position I look at where the buy point is from the nearest major support area (another good use of the new %50DMA column)  - this gives me a good idea as to my potential risk (assuming I will hold and allow it to test that support).  My risk is the % I could lose if the stock drops below support.  Assuming that high ranked stocks will offer the greatest potential rewards, which I think is fairly safe to assume, you can get a decent picture of risk vs. reward.  For example, take a stock like HURC which I mentioned last night.  Here is a stock that is highly ranked (53).  I see that it has been skating along major support of the 50DMA (indicating very strong support there) for the last couple days.  To me, this is an extremely high reward vs. risk stock because if the stock drops below the moving average (which it appears unlikely to do) i’m out with a very small loss.  As it turns out, the stock bounced for a 12% gain today.  Now that’s what I call a nice reward!  As you can see it would be very difficult to determine this on a day to day basis, but combining the ranking system with the %50DMA column and a quick analysis of the chart, you can start spotting some real nice opportunities.
 
You asked about updating the info.  Unfortunately, usually the pivot points aren’t repositioned. Although I have at times gone in and changed a pivot when it was clear that wasn’t quite the best buy point.  IF you could give me an example I would be happy to discuss it.  Also, please dont’ hesitate to notify me if you think the pivot is wrong or there are other errors.  This database is maintained by me and yes I do have bad days and make errors.  If I can get members to notify me of problems, it would be a big help. 
 
Hope this helps .. and hope you’re making some money! 

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