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Visual Candle Scanning for Breakout Trades — Part 1

By  +Follow July 1, 2014 7:04AM
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Sorting through hundreds of charts in search of elusive strong breakouts can be challenging. In this series of articles we’ll focus on how to spot momentum breakout trading opportunities using a visual scanning approach designed to help traders narrow their focus to the strongest emerging trade setups.

Visual Candle Scanning Basics

Candles can show the net buying and selling “story over time” of accumulation vs. distribution (buying vs selling), as it relates to price action. When it comes to spotting the strongest patterns, much of it is common sense, using easily-observed patterns that reveal when institutional buying is at it’s strongest (such as very tall green candles). Other patterns are more subtle, so understanding a variety of these trade setups can be helpful.

Pattern #1: Ratio of Green to Red Candles

All uptrends are not created equal; many are significantly stronger (and tradable) than others. A good basic scan is to look at a 90-day candlestick chart, and visually scan to see roughly the ratio of green to red candles. As long as there’s at least 1.5 times the number of green candles to red, during a 90-day uptrend, these are generally strong patterns for long continuation trade setups.

For example, in Figure 1 S&P 500 Index (SPY) , you can visually check the chart and see there’s many more green candles (N = 43) than red ones (N = 21), which meets our 1.5 green-to-red criteria.

 

Fig1SPX.gif

 

Traders get into trouble by overcomplicating their trading plans by trying to outguess the market using risky pivots on questionable, low-volatility charts.

Instead, focusing on those 90-day charts with a healthy “winning ratio” (1.5x or better) of green to red candles can help simplify the approach to trading, to help decide what’s worth considering for a new entry. These charts are relatively easy to spot, using a simple 90-day daily candlestick chart.

Pattern #2: Wide-Range Green Candles In an Uptrend

Having decided now to look for uptrends with a majority of green candles during a breakout, the next challenge is to further whittle down the list of candidates to a more focused watchlist. One of the author’s favorite stock swing trading strategies is to buy .50 (fifty cents) above the high of a “wide range candle” (defined as a candle whose height is at least twice as high as the immediate past prior 2 candles.

In Figure 2 Newfield Exploration Co. (NFX) the first big green wide-range candle occurred near the end of April, as circled on the diagram. Entering on a day subsequent to this led to a very strong breakout continuation trading opportunity in the subsequent weeks following this candle signal.
 

Fig2NFX.gif

Pattern #3: Cups & Candles: Continuations above 50/100/200 MAs

In an earlier article, we described the use of a wide-range momentum candles at the right side of cups. In Figure 3 Weyerhauser Co. (WY) , this pattern is seen twice, as illustrated in the chart below. The 2 signals to look for are 1) a “cup” pattern, which simply looks visually like a large letter “U”, with 2) a wide-range candle at the far right of the cup. The entry, as in Pattern #2, is to enter .50 (fifty cents) above the high of the wide-range candle, for a swing trade.

 

Fig3WY.gif

 

Another confirming technical entry signal is generated when the price action in this chart is above all three 50, 100 and 200 simple moving average (MA) lines, on the 90-day daily candlestick chart. Visually scanning for the best momentum breakout signals is simplified when looking for these strong patterns with the help of daily candle charts, which serve as an institutional “scorecard” for net buying vs consolidation vs sell patterns.

In our next article, we’ll look at additional momentum breakout patterns and how to visually scan for these with the help of daily candlestick chart patterns.

Recommended reading: For more on candlestick charts, learn from the world’s foremost authority and author’s colleague Steve Nison, in his book Strategies for Profiting With Japanese Candlestick Charts (2011, Wiley Trading). For more on using this pattern, see the author’s complimentary Saturday “Trading Week Ahead’ webinar events at DaytradingUniversity.com/free.

Ken Calhoun is a trading professional who has traded millions of dollars of equities since the 1990s, and is the producer of multiple award-winning trading courses and video-based training systems for active traders. He is a UCLA alumnus and is the founder of TradeMastery.com and DaytradingUniversity.com, popular online educational sites that reach tens of thousands of active traders worldwide.  

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


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Results for SPY
Marshall Moore
25 Oct 14 07:40:24
RT @seeitmarket: Did Investment Managers Throw In The Towel This Month? http://t.co/8WtJLvl6pS by @RyanDetrick $SPY $VIX $STUDY
Erik
25 Oct 14 07:40:20
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
DHCXconf
25 Oct 14 07:39:25
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
DHCXconf
25 Oct 14 07:39:00
RT @philstockworld: Friday Freak-Out: #Ebola Spooks the Markets, Iron Ore Collapsing -- http://t.co/l9C4m3vxVZ $SPY $DIA $IWM $QQQ #Futur…
Ryan Detrick, CMT
25 Oct 14 07:38:37
RT @seeitmarket: Did Investment Managers Throw In The Towel This Month? http://t.co/nN396Hjwud by @RyanDetrick $SPY $VIX $STUDY
Hall Abernathy
25 Oct 14 07:38:29
RT @lancejepsen: GST Stock Trader News $SPY $IWM $QQQ http://t.co/tcS9pPPnZN
Genaro Dillard
25 Oct 14 07:38:28
RT @lancejepsen: $SPY VS $IWM Would have liked to see more leadership from IWM throughout the day but what a surge into the close! http://t…
See It Market
25 Oct 14 07:38:15
Did Investment Managers Throw In The Towel This Month? http://t.co/nN396Hjwud by @RyanDetrick $SPY $VIX $STUDY
donald Stark
25 Oct 14 07:38:03
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
Whistling Pixie
25 Oct 14 07:37:28
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
naomihn2000
25 Oct 14 07:37:04
stop making women where burqa. u use the #quran so u can dominate us women. #ebola is in #SaudiArabia #Iran doing #Islamic work $SPX $SPY
ivan
25 Oct 14 07:36:25
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
NikiM
25 Oct 14 07:35:11
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
Jordan
25 Oct 14 07:34:47
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
Claire FriedrichsCPM
25 Oct 14 07:34:36
@NoanetTrader $spy on a 1y looks like a possible steep inverse H&S set up to take it over 2050 by the end of yr.
Andy
25 Oct 14 07:33:49
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
Daniel Libeskind
25 Oct 14 07:33:36
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
naomihn2000
25 Oct 14 07:33:34
their actions r based on allah this #Quran that. u scums #SaudiArabia #Iran need to stop putting crack in the hookah. $SPY $SPX
armando
25 Oct 14 07:33:31
This is me and @lbhi_services planing the kill on $spy when to enter and leave the trade for profits :) http://t.co/OeSHuY1xCN
Daniel Libeskind
25 Oct 14 07:32:56
RT @philstockworld: Friday Freak-Out: #Ebola Spooks the Markets, Iron Ore Collapsing -- http://t.co/l9C4m3vxVZ $SPY $DIA $IWM $QQQ #Futur…
101 Women of Hope
25 Oct 14 07:32:35
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
101 Women of Hope
25 Oct 14 07:32:01
RT @philstockworld: Friday Freak-Out: #Ebola Spooks the Markets, Iron Ore Collapsing -- http://t.co/l9C4m3vxVZ $SPY $DIA $IWM $QQQ #Futur…
ⓢ
25 Oct 14 07:31:00
$SPY http://t.co/I6TUdYMxWt
Jesse Rau
25 Oct 14 07:30:51
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
Ryan
25 Oct 14 07:30:49
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
Haki Hika
25 Oct 14 07:30:43
The week that was: Realized Gains and Losses for the past week. $LAKE $IBIO $ISNS & $SPY. http://t.co/b3yVJCOPso
Ryan
25 Oct 14 07:30:37
RT @philstockworld: Friday Freak-Out: #Ebola Spooks the Markets, Iron Ore Collapsing -- http://t.co/l9C4m3vxVZ $SPY $DIA $IWM $QQQ #Futur…
Juanita
25 Oct 14 07:30:11
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
gokhan
25 Oct 14 07:29:29
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
Robert Guilfoyle
25 Oct 14 07:28:40
RT @RyanDetrick: Remember at the start of the week when I said the 42nd week is historically bearish? $SPX up 4.12% is the 3rd best since …
Luisita
25 Oct 14 07:28:35
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
UUP Fractalerts
25 Oct 14 07:28:22
What is the $SPY http://t.co/JL6zHy9Bay going to do next? Get real time alerts and analysis.
Tim
25 Oct 14 07:27:30
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
Tim
25 Oct 14 07:27:16
RT @philstockworld: Friday Freak-Out: #Ebola Spooks the Markets, Iron Ore Collapsing -- http://t.co/l9C4m3vxVZ $SPY $DIA $IWM $QQQ #Futur…
Kevin
25 Oct 14 07:27:14
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
wa
25 Oct 14 07:27:06
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
Timothy Reazor
25 Oct 14 07:27:02
If you'd like to prepare for our radio show at 10 CT our #StockNerd video will do the trick... http://t.co/TCysa58Chp $SPY $QQQ $AAPL
Kevin
25 Oct 14 07:26:37
RT @philstockworld: Friday Freak-Out: #Ebola Spooks the Markets, Iron Ore Collapsing -- http://t.co/l9C4m3vxVZ $SPY $DIA $IWM $QQQ #Futur…
naomihn2000
25 Oct 14 07:26:13
middle east country r run by idiotic beliefs. stop making excuse for ur belief free our women from oppression #SaudiArabia #Iran $SPX $SPY
Maleah
25 Oct 14 07:24:41
http://t.co/WwRfVvXWbM <<-- Register free! I am excited for Tim Sykes special tutorial webinar! $FB $SPY $AAPL #timsykes
armando
25 Oct 14 07:22:20
This is us when we hit trades on $spy we a the trend @lbhi_services @ArmandoSeba1980 http://t.co/R6sZkGoqBH
naomihn2000
25 Oct 14 07:21:18
this is why #ebola needs to spread in middle east country #SaudiArabia #Iran $SPX $SPY http://t.co/8MkpCmoK2u
OptionsPlay
25 Oct 14 07:18:01
DailyPlay Mon Oct 27 $INFY is in a bullish trend with positive momentum. $SPY is bullish on s/t http://t.co/kftZo1sTK2
armando
25 Oct 14 07:17:58
I'm starting trading options Monday with my boy @lbhi_services we going to kill $spy and no one is going to stop us http://t.co/MLpsyWjplY
Proffitt Financial
25 Oct 14 07:17:58
RT @WallStJesus: 💡A Winning Game Plan For Successful #Options Trading ➡➡➡ http://t.co/DAk2qvdtoN $STUDY $SPY
NoanetTrader
25 Oct 14 07:17:33
Current V-shaped bounce on $SPX is different and we need to pay attention. $SPY $STUDY http://t.co/TVWA0UDMqj
Molly
25 Oct 14 07:15:36
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
Heather
25 Oct 14 07:14:48
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
Heather
25 Oct 14 07:14:31
RT @philstockworld: Friday Freak-Out: #Ebola Spooks the Markets, Iron Ore Collapsing -- http://t.co/l9C4m3vxVZ $SPY $DIA $IWM $QQQ #Futur…
Kimberly McCray
25 Oct 14 07:14:10
RT @philstockworld: Friday's Fearful Outlook as #Ebola Hits NYC: $SPY $DIA $AMZN $TSLA $TM #Amazon -- http://t.co/UIMDFJvSW2 http://t.co/VN…
				
				
By  +Follow July 1, 2014 7:04AM
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