Large Upgrade to Pattern Finder; And 3 Bullish Charts
Lede
Earlier this week we wrote The Right Chart With the Right Volume - New Capability and 3 Charts with a methodology to identify bullish charts (the corollary methodology works for bearish charts).
But we wrote that the capability wasn’t available yet in Pattern Finder.
It is now, and the upgrade cycle to Pattern Finder is about to rocket higher as we find this a unique moment in time where trading windows are opening up due to market volatility.
Let’s do it.
New Functionality - The Screen
Finding the right chart is easy to do when it’s staring back at you, but it’s more difficult to write down in an algorithm or formula.
We have added six new metrics to the Pattern Finder screener, bringing the total to nearly 200, and here they are.
This first set simply allows a quick comparison to 3-month and 12-month relative strength (RS).
When 3-month RS is greater than 12-month RS, we have increasing relative strength, which is a fancy way of writing increased performance relative to the market (and industry).
This second set is the big change, where we expose our chart algorithms to the screener, and do so for 18-month and 3-year charts.
Next we build the screen:
Aside from the revenue requirement (which is personal and not necessary for all traders), we have some critical requirements:
» Recent stock performance: For the bullish chart screen, we want the stock up over the last week, 10-days, and quarter; a recent rising trend. ✔
» Relative strength: We want the 3-month RS, both relative to the market and within each company’s industry, to be above 80 (out of 100). This forces us to only examine stocks that have performed in the 80th percentile or better in the last quarter.
Further, we want the 3-month RS to be larger than the 12-month RS; this results in us only looking at stocks with increasing outperformance. ✔
» Chart requirements: This is entirely proprietary to Pattern Finder.
The congestion lines on our charts (the pink lines) are from our own algorithm - they cannot be sourced our replicated anywhere else.
We want the distance to the next upside congestion to be larger than the distance to the next downside congestion; this results in charts where the upside is larger than the downside.
And, since we are being intentionally focused, we require this both for the 18-month congestion lines and the 3-year congestion lines.
In other words, both timeframes should look good when charting them. ✔
» Volume: We want the volume on up days to be at least 1.5x that of volume on down days, signaling buying strength.✔
Now the good stuff; the charts.
Charts - The Results
The screener shows 23 results and we pluck out three.
➊ We start with a stock that also shows up on our Pattern Breakouts Tab - it is through trend resistance (the green line).
We will use 3-year charts, although the screen is constructed such that the 18-month chart should show similar characteristics, forcing multi timeframe agreement, a hallmark of good charting.
We zoom in to get a better feel for the profit and loss zones:
➼ The loss zone is nearest congestion ~$14.
➼ Current price is $16.25.
➼ The profit zone is nearest resistance ~$19.
➼ Rising Trend.
➋ Next we turn to ticker CUK and again we use the 3-year chart.
We see a massive drop when COVID hit and then layers of congestion (pink lines).
When we zoom in, we see the set-up, and this time there is the top of a cup that acts as support and reinforces the congestion line.
➼ The loss zone is nearest congestion ~$10 (a very tight stop).
➼ Current price is $10.73.
➼ The profit zone is nearest resistance ~$14.
➼ Rising Trend.
➌ Finally we turn to ticker AMBA and the 3-year chart.
There is a wall of congestion at the $93 level and a nice recent rising trend that has next resistance at ~$109.
We will zoom in and and annotate.
➼ The loss zone is nearest congestion ~$93 (a very tight stop).
➼ Current price is $95.84.
➼ The profit zone is nearest resistance ~$109.
➼ Rising Trend.
We note that you can do the same thing for bearish set-ups to have a market neutral swing trading portfolio.
We also note that we chose two of the three stocks with very tight stops and one with a wider net to the loss zone simply to be illustrative.
Some traders like tight stops, others prefer some room for a trade to develop.
Conclusion
This was less than 5% of the capability of Pattern Finder.
We invite you to discover the benefits of Pattern Finder for yourself by visiting the page here: Learn about Pattern Finder
Thank you for your continued support and trust.