Active Trading Blog

4 Great Ways to Scan for Breakouts

When a stock makes a major move up or down following a period of consolidation, it’s called a breakout. Breakouts are prime opportunities for traders because a stock has the potential not only to make a big move in a short period, but also to continue that directional move by gaining momentum. So, if you can get in on the ground floor of a breakout, there’s a lot of potential for profit.

The trick to trading breakouts is that finding a potential breakout before it happens requires looking at a number of different technical signals. Not every setup will develop into a major directional movement, so it’s essential to make sure you’re using all the tools at your disposal before opening a position. To help, we’ll take a look at four different ways you can scan for breakout stocks using Scanz.

Breakouts Module

The first place to go looking for breakouts is the aptly named Scanz Breakouts Module. This is a great tool for finding potential breakouts in progress, allowing you to open a position early on in a stock’s movement.

There are a couple different ways you can use the Breakouts Module to your advantage. Perhaps the best option is to look for stocks that are both crossing above or below a simple moving average while also trading on higher than average volume. Simply scan on these two parameters, then sort the results by ticker symbol to spot symbols that are breaking out on both price and volume. 

Breakouts - Breakouts Module Price+Volume

You can use the same technique to spot stocks that are also setting new highs or lows. While this will generate signals from stocks that are simply gaining on momentum, you’ll also find stocks that are stepping higher or lower after a period of consolidation – breakouts that are likely to be genuine if they’re combined with above-average trading volume. 

Finding Consolidation

The Scanz Pro Scanner offers more options for finding breakout setups before they trigger. In this respect, it can be extremely useful to look for stocks that are moving sideways as the price consolidates.

Ideally, when a stock is narrowly consolidating, there won’t be much volatility or much of a range in the price for days, weeks, or even months. During this period, the stock is forming a base or testing support and resistance levels that will eventually serve as crossing points at the start of a breakout.

Finding stocks that are consolidating requires several different parameters that constrain a price range:

PREV DAY CLOSE is less than ANALYTIC CLOSE 5 DAYS AGO by 1.02X AND Less

AND

PREV DAY CLOSE is greater than ANALYTIC CLOSE 5 DAYS AGO by 0.98X AND More

AND

PREV DAY CLOSE is less than ANALYTIC Simple Moving Average (Daily, 10) by 1.02X AND Less

AND

PREV DAY CLOSE is greater than ANALYTIC Simple Moving Average (Daily, 10) by 0.98X AND More

AND

10 DAY HIGH is less than ANALYTIC Simple Moving Average (Daily, 10) by 1.03X AND Less

AND

10 DAY LOW is greater than ANALYTIC Simple Moving Average (Daily, 10) by 0.97X AND More

The first two parameters ensure that the price hasn’t net changed by more than 2% over the course of a five-day period. The second two parameters help to ensure that there were no major price fluctuations during that five-day period by constraining the simple moving average. Finally, the third pair of parameters ensures that there were no significant tests of the support or resistance bands over the consolidation period.

Breakouts - Consolidation Scan

Thus, this scan gives you stocks that are potentially consolidating at a specific price level. This consolidation can then form a basis for a breakout.

Breakouts - Consolidation Chart

Scanning for Breaks above a Base

When scanning for a break above a base, we’re primarily looking for longer-term consolidation than what you’d find simply by scanning for short-term range-bound trading. Ideally, stocks will form a price floor by making consecutive lows around the same price level over a period of weeks to months.

At the same time, you can spot a breakout above that base when the stock sets a new high. However, a new high alone doesn’t confirm that a breakout is happening or that it’s likely to succeed. So, it’s important to also limit your search to stocks that are trading on strong volume.

10 DAY LOW is greater than ANALYTIC 20 DAY LOW by 2% AND Less

AND

10 DAY LOW is greater than ANALYTIC 40 DAY LOW by 3% AND Less

AND

LAST is greater than ANALYTIC 40 DAY HIGH

AND

DAY’S VOLUME is greater than or equal to ANALYTIC 10 DAY AVG VOLUME

Breakouts - Base Breakouts Scan
Breakouts - Base Breakouts Chart

Keep in mind that you can expand the timeframes of the scan parameters to look for stocks experiencing months-long periods of consolidation. For example, it’s possible to compare the 10-day low to the 52-week low.

Searching for Momentum Stocks Stepping Higher

Scanning for momentum stocks that are making a step higher or lower after a period of consolidation puts together a lot of the elements of the other breakout scans. The main difference is that this scan looks only at stocks that very recently were making a steady directional movement on momentum. These stocks are excellent candidates for a breakout, since short consolidation periods before the broader trend continues are very common.

This scan combines a search for stocks trading in a narrow range over a five-day period with a scan for stocks that have all the technical indicators of upward momentum:

PREV DAY CLOSE is less than ANALYTIC CLOSE 5 DAYS AGO by 1.02X AND Less

AND

PREV DAY CLOSE is greater than ANALYTIC CLOSE 5 DAYS AGO by 0.98X AND More

AND

PREV DAY CLOSE is less than ANALYTIC Simple Moving Average (Daily, 10) by 1.02X AND Less

AND

PREV DAY CLOSE is greater than ANALYTIC Simple Moving Average (Daily, 10) by 0.98X AND More

AND

10 DAY HIGH is less than ANALYTIC Simple Moving Average (Daily, 10) by 1.03X AND Less

AND

10 DAY LOW is greater than ANALYTIC Simple Moving Average (Daily, 10) by 0.97X AND More

AND

Relative Strength Index (Daily, 14) is between 50 AND 80

AND

Average Directional Index (Daily, 14) is greater than VALUE 25

AND

Simple Moving Average (Daily, 10) is greater than ANALYTIC Simple Moving Average (Daily, 50)

AND

Simple Moving Average (Daily, 50) is greater than ANALYTIC Simple Moving Average (Daily, 200)

Breakouts - Step Higher Scan

Remember, this scan only looks for potential breakouts. It’s up to you to keep an eye on momentum stocks that are consolidating for a move higher. A true breakout should close above the previous high set by the trend and should be accompanied by above-average trading volume. If the consolidation goes on for too long, the chances of a step higher diminish. But, in that case, the stock would also lose its momentum and would no longer be captured by this scan.

Breakouts - Step Higher Chart

Conclusion

Stock breakouts offer a lucrative opportunity for traders who can identify consolidation patterns. With these four scans, you can use Scanz to quickly and easily find different breakout setups. Keep in mind that breakouts can be finicky, so it’s important to use multiple technical signals to confirm a major directional move before opening a position.

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