How to Use Breakoutwatch.com

Overview

At the close of each trading day, we use our proprietary computer algorithms to scan our database for stocks setting up in selected chart patterns. These patterns are chosen so as to select the most profitable long and short position candidates. Stocks which meet our minimum price and average daily volume requirements are selected based on their technical condition alone. We do not use fundamental criteria in our chart pattern selection algorithms, but we do provide tools that allow you to carry out your due diligence using fundamental criteria should you wish to do so (more on this below).

Once selected, the stocks are placed on a watchlist. There are watchlists for each chart pattern. The specific methodology used to select stocks for each list is described on the the watchlist itself.

As soon as the new watchlists are prepared, we email a report entitled “Today's Breakouts and Top Ten Report” to each subscriber. This report summarizes the day's trading activity against the previous evening's watchlist and informs you that the new watchlist is ready for you to review in anticipation of the next trading day. In order to review the watchlist in its entirety, you will need to visit the site.

You may notice that we do not require that a stock meet certain fundamental requirements if it is to be included on a watchlist. We do this for several reasons.

  1. it is our intent to identify intermediate-term technical patterns used for trading breakouts. We do this in an 'agnostic' manner, identifying potential breakouts regardless of their underlying business condition. This ensures that we are identifying all stocks on the move based on the market's interpretation of their worth rather than our own personal preferences.
  2. fundamental reporting is a lagging indicator and we believe that technical condition will often speak for a stock before financial reports or news 'explain' the reason for the move.
  3. for those who follow a growth-oriented investment strategy, we have found that many of the fundamental guidelines are open to subjective interpretation. By automatically identifying stocks for inclusion on a watchlist based solely on objective technical conditions, we do not introduce unnecessary bias. We then allow the user to interpret the fundamentals and make their trading decisions based on their personal preferences and investing goals.

We have eliminated the most time consuming task in an intermediate term growth stock investing strategy by automatically identifying stocks setting up for a potential breakout or breakdown on the following trading day. Given a set of potential breakout candidates, you may then choose which stocks to pursue based on your risk tolerance, fundamental requirements and personal preferences. Our tools have been designed to streamline this process for you, meaning the time you spend making a purchase decision is significantly reduced. Our automated intraday breakout alerts then ensure that you will not miss a buying opportunity when your stocks of choice stage their breakout move.

Using the Site: Two Approaches

Following are two alternate approaches to making investment decisions. With either approach, remember that the market backdrop should also be favorable before entering new long positions. A review of our market analysis page will give you an excellent picture of the current state of the markets and the trend of the major indices.

While we have given you an idea of the time you would spend with each approach, the more due diligence you perform on a stock, the more time you will spend. Once you have completed the initial due diligence, the review process will take less time if the stock makes a subsequent appearance on a watchlist. Also, the more proficient you become at using the available site resources, the more quickly you will be able to review any one stock. While the Investor's Business Daily tells you their approach will take “20 minutes a day,” this generally refers only to the first step, that is, identifying potential candidates. It does not take into account the time it then takes to review each chart to determine if the stock is setting up in a basing pattern, to identify a pivot point, to review the fundamentals, to perform due diligence, check charts of other stocks in the same industry to assess the overall technical condition of the industry, and to check the industry direction and rank. It also does not take into account the time it takes to review each candidate's daily price/volume action to determine if it has broken out of a basing pattern.

Approach 1—Total time for all steps, approximately 20 minutes per day

Summary: The timely identification of a stock nearing an impending breakout is performed automatically using our watchlist creation methodology. Review the stocks in each new BreakoutWatch prior to the following day's market open, narrow your candidate list using the filter tools provided, pre-select desired candidates to pursue, and then purchase when/if a breakout alert is issued.

Step 1:
This approach begins at the end of the market day with the publishing of our latest watchlists. When you receive 'Today's Breakouts and Top Ten Report' you will know that the newest watchlists have been prepared. This is dated for the end of day close to which it corresponds and is then used for trading on the following market day.

(Please note: the links below will only work if you already have your username and password "remembered" on the site, so go ahead and login now).

Click here to see the latest daily reports

Step 2:
Go to the site and view the watchlists under the "Watchlists" menu. Use this to make a more thorough comparison of all the stocks currently setting up for a potential breakout on the following trading day. You can quickly browse through the charts for each watchlist from the "Chart Browser" tab. If you have already setup filters on the watchlist to select only your preferred stocks, the process will be even faster. (Note: Filters are limited to Platinum level subscriptions).

Click here to see the latest cup-with-handle watchlist

Step3:

Use the list filtering feature (click the "Filter Settings" tab) to narrow the view of stocks to those most closely meeting your personal trading preferences. When you have found a set of filters which you believe most closely match your personal preferences, you can save them for future visits to the site and also restrict the alerts you will receive to only those that match your filters.
filters

You may also find it helpful to sort the watchlist. By default lists are ordered on descending value of Relative Strength Rank. Click on the column header for any column to perform a sort.

Step 4:
Review the charts of the filtered stocks and eliminate any stocks with flawed bases from consideration. (Note: We create a cached version of the chart for stocks on the watchlist so that charts are displayed very quickly using the Chart Browser tab) The charts automatically display the characteristics of the specific chart pattern under review.

Click for Sample CwH Chart

Step 5:
For those stocks which remain, click on the CE score and review the details for the stock. Stocks which fall into the green CE Zone contain the best combination of both fundamental and technical characteristics. Review the fundamental details and eliminate any stocks which do not meet your preferred personal minimums or that show potential red flags. For example, while sales and earnings growth rates may still be high enough to warrant a high fundamental (CEF) score, they may not be accelerating at a rate you prefer. You might want to eliminate this candidate in favor of another watchlist candidate with a higher rate of accelerating earnings and sales.

Note: from time to time, we analyze the attributes of individual stocks which are giving better results under the then current market conditions. These results are reported in our weekly newsletter.

For a review of the Methodology used for CANTATA Evaluator (CE) scoring see:

CE Methodology
CE Scoring Summary
CE Zone Methodology

Step 6:
While viewing the CE Detail, click on the Industry Name and view the list of stocks within the industry. This will give you an idea as to whether the stock is a leader or a laggard within the group with respect to RSRank, fundamentals (CEF), and/or overall technical condition (CET). You might choose to eliminate a stock from consideration in favor of other watchlist candidates that possess better leadership characteristics.

Click for sample Industry List

Step 7:
While viewing the CE Detail, click on the Industry Rank and view the history of the stock's Industry over the last year. In the near term, this will give you a generalized view of the technical condition of all stocks in the same group. You can use this view to assess whether the stock comes from an industry group rising in overall technical condition and/or rank. Look for signs that the technical condition of the group might be rolling over (deteriorating). You may want to eliminate a stock in favor of another watchlist candidate that comes from a stronger group.

Click for Sample Industry Chart

Step 8:
Now that you have assembled a list of candidates, wait for them to break out of their basing pattern before making a purchase.

Gold and Platinum subscribers automatically receive intraday email alerts as each stock attempts a breakout. Platinum subscribers can choose to receive alerts on all stocks or only on those stocks meeting their saved filters. These are set on each watchlist using the "Filters" tab.


When we issue an alert, the stock is also placed on our "Alerts" page on the site. There you can monitor the status of the stock and access an intra-day chart of the stock price and volume. This intraday chart shows the price status relative to breakout price and volume (up to 20 minutes delayed). Usually a stock will not have met its volume target when the alert is issued, so the intr-day volume chart is a valuable tool for assessing the degree of interest in the potential breakout.


Click for sample email Alert

Step 9:
Once you have purchased a stock, monitor the open position for potential sell signals. If you are unable to monitor the stock regularly during the day, place a protective stop order with your broker to protect yourself from sudden downswings.

Approach 2 – Total time for all steps, approximately 10 minutes per day

Summary: The timely identification of a stock nearing an impending breakout is performed automatically using our watchlist creation methodology and an intraday alert automatically notifies you that a stock is attempting a breakout. On receipt of an email breakout alert, review the chart, review the CE Detail, make a purchase decision. (Note: This approach requires a Gold or Platinum subscription which includes email alerts)

Step 1::
Review the email alert when received to assess whether the stock is one that you would be willing to purchase.

Step 2:
Click on the chart link within the email to review the chart for potential technical flaws. (See Step 4 under Approach 1)

Step 3:
Click on the CE Detail link within the email to review the stock's fundamental and technical characteristics. Assuming you have previously performed a more in-depth due diligence on the stock, this quick review may be sufficient. Use the “News” link to find any current news of importance. (See step 5 under Approach 1)

Step 4:
While viewing the CE Detail, click on the Industry Name and view the list of stocks within the industry to determine whether the stock is a leader or laggard. (See step 6 under Approach 1)

Step 5:
While viewing the CE Detail, click on the Industry Rank and view the history of the stock's Industry over the last year. (See step 7 under Approach 1) 

Step 6:
Make a final purchase decision.

Step 7:
Once you have purchased a stock, monitor the open position for potential sell signals. If you are unable to monitor the stock regularly during the day, place a protective stop order with your broker to protect yourself from sudden downswings. From time to time we recommend specific sell stop levels and publish them in our weekly newsletter.

Approach 1 vs. Approach 2

Approach 1 follows a more conservative approach to making a purchase decision. Each of the steps described is designed to give you the best overall risk assessment of the stock and to give you a means of comparing one purchase option against another. We consider it to be the more comprehensive approach overall.

While Approach 2 also has risk assessment steps included, it does not provide an opportunity to compare one stock against another and therefore, does not give you the chance to wait for a stock that may be a better candidate to break out at a later time. We consider this to be the riskier of the two strategies.

You may want to combine the two approaches depending on the time you have available, your risk tolerance, and your overall familiarity with a stock and its industry.