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Stocks & Commodities V.

21:4 (26-38): Detecting Breakouts by Markos Katsanos


INDICATORS

Sink Or Swim

Detecting Breakouts
The finite volume elements (FVE) indicator is yet Bostian) or the open (Williams) of the day.
another money flow indicator but it takes into On the other hand, the best-known money flow
account both intra- and interday price action. indicators that use interday price changes are on-
balance volume (OBV), David Marksteins volume-
ost technical analysts underestimate price trend, and the money flow index (MFI), which

M
volume indicators in favor of price- is a volume-weighted relative strength index (RSI).
based indicators or price pattern rec-
ognition. Volume often leads price, CONFLICTING SIGNALS
and volume indicators can predict What if an intraday indicator conflicts with an interday
this price change by observing the delicate balance of indicator? Is money flow confirming price action or
supply and demand in the never-ending battle be- diverging? This is a common situation, and usually
tween buyers and sellers, bulls and bears. To help occurs when a stock gaps at the open usually because
analyze crowd psychology and profit from subse- of breaking news (often earnings reports) after the bell.
quent price moves, I created the finite volume ele- For example, if a stock gaps down at the open, the stock
ments (FVE) indicator. often becomes oversold. Retail investors seeking bar-
gains will then do some buying, causing the stock to
VOLUME-BASED INDICATORS close above its open for that day on heavy volume. In
Money flow, accumulation/distribution, and balance that case, despite the stock being sold off heavily
of power are all terms synonymous with volume- overnight, intraday indicators will be positive. In con-
based indicators. I have been using volume indica- trast, interday indicators will remain negative.
tors for some time as my prime tools in making In other circumstances, usually when good or bad
trading decisions, and Ive found that divergences news is about to break, intraday indicators can also be
between volume and price are often the only clues to correct in predicting a breakout or breakdown. The
important reversals. following example makes this clear: A biotech com-
Volume indicators use intraday (the relation of the pany is researching a new cancer drug with positive
close to the midpoint of the day) or interday (todays results, but no news has been released yet. The stock
price relative to yesterdays) price action to calculate moves sideways or down, but a few insiders buy the
whether money is flowing in or out of a security. The dips, causing it to close persistently above the open
best-known intraday money flow indicators include or midpoint of the day. In another example, an
Marc Chaikins money flow index (CMF), David unscrupulous analyst intends to upgrade a stock. He
Bostians intraday intensity, and Williams accumu- leaks this news to his firms best customers and
lation/distribution. These all ignore the stocks price possibly a few of his friends and relatives, thus
change relative to the past, but calculate accumula- allowing these investors to purchase the stock before
tion or distribution according to the relation between the announcement.
the closing price and the midpoint (Chaikin and In both of these cases, interday indicators may be
neutral or negative, as the stock will move sideways
or slightly down. Intraday indicators, on the other
hand, will diverge from price and may correctly
by Markos Katsanos
predict a breakout.
Copyright (c) Technical Analysis Inc.
PATRICK KELLEY Stocks & Commodities V. 21:4 (26-38): Detecting Breakouts by Markos Katsanos

Copyright (c) Technical Analysis Inc.


Stocks & Commodities V. 21:4 (26-38): Detecting Breakouts by Markos Katsanos

In trying to overcome the problem


of conflicting signals, I developed On-balance volume (-9,003,613.0)
the finite volume elements (FVE) in-
dicator, which takes into account both
intra- and interday price action. Like 0.25
Chaikin money flow (-0.14181)
OBV, FVE is a running total of vol-
ume. Unlike OBV, FVE uses only a
finite period in time, usually the most
FVE (46.9191)
recent 18 to 24 days. All data before
that is irrelevant. I use a months data
(22 trading days) as the default time -52.4
period. Some examples will give you Enron Corp. (0.67000, 0.67000, 0.67000, 0.67000, +0.000)
an idea of how the FVE is applied to
50
gauge correct market dynamics:
45

METASTOCK (EQUIS INTERNATIONAL)


On August 15, 2001, Enron Corp.
40
(ENE) (Figure 1) gapped down 2.7
35
points or 6%. The CMF(21) was di-
30
verging from recent price action and
shot up to 0.25, issuing a buy signal 1 18 25 2 0 16 23 30 6 13 20 27 4 10
25

(values of CMF above 0.10 are consid- July August September

ered bullish). The OBV and FVE (21),


on the other hand, were making lower FIGURE 1: ENRON CORP. (NYSE:ENE). First window from bottom: 21-day FVE. Second window from bottom: 21-day
CMF. Top window: OBV.
lows. On that day, FVE gave a reading
of -52.4 it was in deep negative
territory. Like a passenger on the Ti-
tanic completely unaware of immi-
On-balance volume (94,551.00)
nent disaster, a gullible investor rely-
ing on analysts recommendations or
a trader using only CMF might have Chaikin money flow (0.29358)
bought more shares, thinking that the
recent decline was a bargain.
Just as the Titanic went down with
the lights still on, there were still buy FVE (33.2473)
recommendations for ENE up to the
last days, when the stock was actually
trading in the 30s only a month
35
before the final collapse. The finite Jack In The Box (28.0000, 28.0000, 27.2000, 27.5000, -0.75000), FVE (33.2473) 34
33
volume elements indicator remained 32
31
in deep negative territory until the 30
29
end. FVE 28
27
In Figure 2, from August 7 to Sep- 26
25
tember 5, 2001, the price of Jack In 24
23
The Box (JBX) was making new 22
25 2 9 16 23 30 6 13 20 27 4 10 24 1 8 15 2
highs. However, intraday distribu- July August September October
tion was taking place, with the stock
closing lower than the days mid- FIGURE 2: JACK IN THE BOX (NYSE:JBX). Bottom window: price and FVE. First window from bottom: 21-day FVE.
point more than half the time. Only Second window from bottom: 21-day CMF. Top window: OBV. Up to 9/5/01, OBV was making higher highs and higher lows,
confirming price action. The FVE started making lower highs and lower lows since 8/23/01, giving ample time to take action.
OBV confirmed the price action,
while CMF and FVE were making
lower lows and lower highs. In the next 10 days, JBX col- rigorous approach would be to sum up or down volume for
lapsed from 34 to 23. every price tick, but this would require data not available to the
retail trader.
CALCULATING FVE In implementing FVE, I calculated the day-to-day price
It is difficult to determine whether money is flowing in or out change, but unlike OBV, I used a securitys typical price
of a security, since you are constrained by the limited amount (high + low + close)/3 instead of the close, because I find it
of data available: open, high, low, close, and volume. A more is more representative of a stocks value during any given day.

Copyright (c) Technical Analysis Inc.


Stocks & Commodities V. 21:4 (26-38): Detecting Breakouts by Markos Katsanos

The close is the price at a particular


moment in the trading day, 4:00 pm, and FVE (11.8063)
it can sometimes be distorted by a last-
minute trade.
I calculated the intraday money flow B 8.59
by looking at the close relative to the
midpoint of the day: (high+low)/2. I did
not use the opening price, since the floor -48.66
specialist can sometimes manipulate it.
The FVE is a pure volume indicator. A
Unlike most of the other indicators (ex- Manugistics Group (3.95000, 3.95000, 3.59000, 3.60000, -0.40000), FVE (11.8063)
cept OBV), price change doesnt come
into the equation for the FVE (price is not
multiplied by volume), but is only used FVE
to determine whether money is flowing
in or out of the stock. This is contrary to
the current trend in the design of modern
money flow indicators. I decided against
a price-volume indicator for the follow- 6 23 30 6 13 20 27 4 10 24 1 8 15 22 29 5 12 19 26 3
ing reasons: August September October November December

1 A pure volume indicator has more FIGURE 3: MANUGISTICS GROUP (NASDAQ:MANU). Bottom window: price and FVE. Top window: 22-day FVE.

power to contradict.
2 The number of buyers or sellers
(which is assessed by volume) will Chaikin money flow (0.13693)
be the same, regardless of the price C
fluctuation. A
B
3 Price-volume indicators tend to
spike excessively at breakouts or On-balance volume (23,750.00)
breakdowns.

USING FVE A
FVE gives two types of signals. The B
most obvious and ordinary is the slope
Manugistics Group (3.95000, 3.95000, 3.59000, 3.60000, -0.40000)
of the FVE line. An upward slope indi-
cates the bulls are in control; a down-
ward slope suggests the bears are in
control. The strongest signal, however,
is the divergence between price and the
indicator. This takes some time, at least
a month, to develop on a daily chart. A B
27 4 10 24 1 8 15 22 29 5 12 19 26 3
When FVE diverges from price, it shows September October November Dec
that the current trend is becoming weak
and is ready to reverse. FIGURE 4: MANUGISTICS GROUP (NASDAQ: MANU). Top window: 22-day CMF. Middle window: OBV. OBV was
You also need to take into consider- bearish, making a new year low at B. Surprisingly, CMF was also bearish, making a lower high at C.
ation the location of FVE relative to the
zero line. An FVE value higher than zero indicates accumula- a particular stock. The smaller the number, the more sensitive
tion; the opposite is true for negative values. A logical buy the indicator becomes. A technique that can be used to spot
signal would be for FVE to diverge from price, make a series of stocks in the early stages of breaking out is to plot two FVE
higher highs and/or higher lows, and then cross (or be about to indicators using two different time frames. Plot them in differ-
cross) the zero line. It can also as long as it is not negatively ent colors in the same window. In the beginning, both FVEs will
divergent confirm price action. be negative, but as the stock starts to break out, look for the 15-
I use a period of 22 days, but as with other indicators, you day FVE to go positive first and rise above the 26-day.
may wish to vary the period to determine what works best for Ironically, FVEs strongest point divergence from price
is also its weakest. Youll find that sometimes it is too early,

Copyright (c) Technical Analysis Inc.


Stocks & Commodities V. 21:4 (26-38): Detecting Breakouts by Markos Katsanos

especially at tops. If you are entering


long, this should not be a major problem, FVE divergence with %B(2)(29.8548)
unless you are a daytrader. You will only -66% divergence 50
have to endure a week or so of sideways
0
movement before the stock breaks out. It
is a problem, however, when using FVE to FVE (-8.34593) D
50
40
enter short positions. In such cases, it 30
20
might be better to get a confirming signal 10
0
from a different indicator. Otherwise, mo- 15.5 -10
-20
mentum traders may cause the stock to B -30
-40
continue its upward movement for some -48.6 A -50

Finisar Corp (1.36000, 1.36000, 1.25000, 1.27000, -0.11000 )


time, and the position might get stopped 40

out. On the other hand, you should liqui- 35

date a long position as soon as you ob- D


30

serve a strong divergence (better safe 25

than sorry). 20

In a bear market stocks may continue 15

their down or sideways movement, but 10

will break out violently at the first mar- C 5


26 2 8 16 22 29 5 12 20 26 5 12 19 26 2 9 16 23 30 7 14 21 29 4
ket bounce. My best-performing trades 2001 February March April May June

were with stocks breaking from a base


that was at least six weeks long. The best FIGURE 5: FINISAR CORP. (NASDAQ:FNSR). Top window: % divergence between FVE(22) and FNSR calculated using
scenario is when a stock is in the process the %B Bollinger Band method with a 35-day moving average and two standard deviations. Middle window: FVE(22).
of building a base, and FVE diverges
from price and rises at a sharp angle.
The most difficult decision to make is
when to sell. FVE is a leading indicator; FVE (0.62994) 70
60

consequently, there is always the possi- 50


40

bility when using an FVE-based sell 30


20

signal of leaving money on the table. 10


0

As the stock goes up, investor enthusi- -10


-20

asm diminishes, volume dries out, and -30


-40
FVE peaks before the stock does. It is Harmonic Inc. (2.35000, 2.44000, 2.21000, 2.22000, -0.33000) FVE (0.62994)
then quite common for the stock to un-
dergo a mild correction before resuming
the uptrend. To avoid any premature
selling, other methods should also be FVE
considered, such as a price-based strat- D
egy or predetermined selling conditions.
Holding times should be adjusted ac-
cording to market conditions. In a bear
market, breakouts tend to fizzle out ear-
lier than in bull markets, so it is safer to 19 26 2 9 16 23 30 7 14 21 29 4
June
11 18 25
April May
take profits at the first breakout. The
possibility of a failed breakout is greater FIGURE 6: HARMONIC, INC. (NASDAQ:HLIT). Top window: FVE(22). The FVE diverges from price at the end of May.
than the possibility of lost profits. In a bull This suggests prices may break to the upside.
market, FVE divergence tends to fizzle
out in nine to 10 weeks, so if there is no other reason for holding is easy to spot divergences visually, but notoriously difficult to
the stock, consider taking profits at that point. program your software do so. The following are the most
common visual and mathematical methods:
DETERMINING DIVERGENCE
Since divergence between FVE and price is the most important 1 Eyeball. FVE is plotted together with price. They will be
feature of this indicator and most trading decisions will be based moving together, but at some point FVE will sharply
on it, I thought it would be appropriate to delve deeper into this detach from price.
topic by focusing on how to recognize and quantify divergence. 2 Trendline. Plot price and FVE on different windows but
There are a number of visual and mathematical methods. It similar scales. Draw trendlines on both price and FVE.
Copyright (c) Technical Analysis Inc.
Stocks & Commodities V. 21:4 (26-38): Detecting Breakouts by Markos Katsanos

price from the indicator results.


FVE Divergence with LRS Equity (5,427.77)
5000
EXAMPLES
4000
3000 Figure 3 is a good example of a trade
2000
1000 based on FVE divergence. From mid-
FVE (18.5064) 70
60 September 2001 until the middle of
25-day linear 50
40 October 2001, Manugistics Group
regression 30
20
10
0
(MANU) was moving sideways and
-10
-20
slightly lower. During that period, how-
-30

35-day linear
-40
-50
ever, FVE went from deeply negative to
regression -60
-70 positive values. It crossed the zero line
-80

XM Satellite Radio (5.35000, 5.55000, 5.31000, 5.55000, +0.31000) 50


on October 12, 2001, and made a higher
45 high at point B. MANU closed on that
40
day at 7.08. Two and a half months
35
Exit
30 later, MANU climbed to 21.42 for an
35-day 25
astounding 200% profit. Simulta-
linear 20
1 Exit regression 15 neously, both Obv and CMF (22) were
Exit
Exit 10 bearish, diverging negatively (Figure 4).
2 5
3 4 0

Another example can be seen in


Figure 5. From the middle of February
FIGURE 7: XM SATELLITE RADIO CORPORATION (NASDAQ:XMSR). Top window: system test equity. Middle window: 2001 to the beginning of April, Finisar
FVE(22). Here you see a system test of XMSR. There were four buy signals from 12/28/99 to 2/15/02. Corp. (FNSR) was making lower highs
and lower lows while FVE diverged and
made a series of three higher lows from
The difference in the slope of the trendline will give you point A to point B. FNSR could be bought at point C at 7.64, just
the divergence. Look for FVE to make higher highs and/ after the third higher low. At that point FVE divergence (upper
or lower lows while price is building a base (remains flat). chart), which was calculated using the %B method, peaked at
3 Linear regression (visual). Proceed as in no. 2, but 66%. In the following 16 days FNSR was up 190%. On May 22,
instead of trendlines, draw a 50-day linear regression line 2001, FNSR, exhausted from the incredible run, made the last
on both charts, and compare the slopes. higher high at point D while FVE made a lower high, diverging
negatively from price and predicting lower prices to follow.
4 Linear regression slope (mathematical). Calculate and
In the next example (Figure 6), Harmonic, Inc. (HLIT), was
compare the linear regression slope for the last, say, 35
moving sideways in April 2001. FVE, diverging from price,
days or longer for both FVE and price. This indicates
rose from deeply negative territory and crossed the zero line
divergence when linear regression slope is negative for
twice. On May 4, 2001, it shot up, penetrating the trendline
price and positive for FVE, or vice versa. The limitation
(joining higher highs). During the next 23 days HLIT was up
of this method, however, is that linear regressions of
190% with no help from the Nasdaq, which was moving
price and the indicator cannot be compared mathemati-
sideways at the time.
cally if they are of the same sign, because they are in
different units. A 15% volume increase is common,
SYSTEM TESTING
whereas the same percentage in price rise is significant.
Another good example of a stock that responded to FVE is XM
5 %B. In order to use FVE with a mechanical system, Satellite Radio (XMSR). The XMSR initial public offering (IPO)
divergence, which is obvious from eyeballing a chart, debuted on October 6, 1999, but the system test didnt start until
must be calculated mathematically. Phillip C. Holt de- December 28 because it needs 22+35=57 bars to start calculating
scribes this method (see Suggested reading). He calcu- FVE and divergence. Consequently, the initial IPO upsurge
lates the relative position of both price and FVE in the typical in those days wasnt taken into account.
Bollinger Bands, and subtracts one from the other to find Starting with an initial equity of $1,000, a simple FVE
the divergence. system produced a total profit of $4,395 in two years, versus a
6 Storzs divergence index (see Suggested reading). loss of $55 using the buy and hold method and a measly profit
This is a mechanical variation of the trendline method. of $1.50 using a classic optimized moving average system. All
Matt Storz uses a computer algorithm to identify trades were profitable, and average profit per trade was $1,098.
peaks and troughs. He then calculates the difference Buy and sell signals are shown in Figure 7, and profit and loss
between the current peak and the previous peak for both reports in Figure 8.
price and the indicator and normalizes the result by I used MetaStocks linear divergence slope function to
dividing by the range. The divergence is the difference of calculate the 35-day divergence. The buy signal conditions

Copyright (c) Technical Analysis Inc.


Stocks & Commodities V. 21:4 (26-38): Detecting Breakouts by Markos Katsanos

System Report FVE DIVERGENCE wLRS, XM Satellite Radio (XMSR) Results, Test period 12/28/992/15/02
Item FVE MA Item FVE MA
System System
Total net profit 4395.16 1.48 Open position value N/A N/A
Percent gain/loss 439.52 0.15 Annual percent gain/loss 185.89 0.06
Initial investment 1000 1000 Interest earned 0 0
Current position Out Out Date position entered 12/27/01 2/15/02
Buy/hold profit 0 0 Days in test 863 863
Buy/hold pct gain/loss 0 0 Annual B/H pct gain/loss 0 0
Total closed trades 4 13 Commissions paid 120 390
Avg profit per trade 1098.79 0.11 Avg Win/Avg Loss ratio N/A 2.26
Total long trades 4 13 Total short trades 0 0
Winning long trades 4 4 Winning short trades 0 0
Total winning trades 4 4 Total losing trades 0 9
Amount of winning trades 4395.16 526.54 Amount of losing trades 0 0
Average win 1098.79 131.63 Average loss N/A 0
Largest win 2718.06 234.27 Largest loss 0 0
Average length of win 35.5 35 Average length of loss N/A 10.22
Longest winning trade 51 52 Longest losing trade 0 44
Most consecutive wins 4 1 Most consecutive losses 0 4
Total bars out 458 386 Average length out 91.6 27.57
Longest out period 155 149
System close drawdown 0 0 Profit/Loss index 100 0.28
System open drawdown 0 0 Reward/Risk index 98.37 0.8
Max open trade drawdown 0 0 Buy/Hold index 8017.73 102.67

TRADES
Trade # Trade type Entry date Close date Profit Reason for close
Out 10/7/99 5/17/00 0 Enter long signal
1 Long 5/17/00 7/6/00 399.08 Close long signal
Out 7/6/00 1/2/01 0 Enter long signal
2 Long 1/2/01 2/1/01 219.13 Close long signal
Out 2/1/01 4/26/01 0 Enter long signal
3 Long 4/26/01 6/13/01 1058.88 Close long signal
Out 6/13/01 10/16/01 0 Enter long signal
4 Long 10/16/01 12/27/01 2718.06 Inactivity stop
Out 12/27/01 2/15/02 0
FIGURE 8: PROFIT AND LOSS REPORT. Here you see that the FVE was more profitable than a moving average system.

were: First, FVE should cross the -5 line upward, and second, Volume action in the large-cap or major index component
linear regression slope values for FVE and price should be stocks tends to be distorted due to program trading, portfolio
positive and negative, respectively. adjusting, tax selling, index trading, and so on, so volume-
Specifying the sell criteria is the most difficult part of based indicators might not give signals that are as reliable as
designing an FVE-based system. I tried various sell conditions those for smaller-cap, non-index stocks. On the other extreme,
based on FVE and FVE divergence but found that using just for some reason penny stocks do not always respond to indica-
technical indicators alone does not always yield the most timely tor divergences. It is a good idea to test the reliability of the FVE
results. The method could be enhanced using money manage- on historical price charts when selecting a stock to trade based
ment (inserting a stop or profit target, or closing the position at on FVE divergence. Further, using mechanical systems for
a predetermined time after entering). In XMSRs case, a sell was identifying divergence might be more objective, but it is a good
initiated when either the 25-day FVE linear regression sloped idea to verify them visually before making any final decisions.
down, or at the latest, 50 days from the buy signal. I got the best results by using FVE in conjunction with classic
technical analysis formations such as the cup-with-handle,
CONCLUSION saucer, and triangle, as well as stocks that are building a base.
I have done extensive system testing and found that the FVE FVE provided an opportunity to identify stocks early in a cup-
works best for small-cap and volatile securities such as Internet, with-handle formation. You can initiate a trade in the early
software, communications, computer, and biotech stocks. stages of the right side of the cup being formed rather than wait

Copyright (c) Technical Analysis Inc.


Stocks & Commodities V. 21:4 (26-38): Detecting Breakouts by Markos Katsanos

CALCULATING FVE L= Todays low


FVE is calculated by adding +V or subtracting -V from a Typical = (H+L+C)/3
running total of volume for the finite time element chosen Typical-1= Yesterdays typical price.
(days, bars, weeks, and so on) according to whether:
The above inequality is derived by adding the follow-
ing two inequalities:
H+L
C- + Typical - Typical -1 > 0.3%C or < - 0.3%C
2
where: H+L
C- > 0.15% C
C= Todays closing price 2
H= Todays high
(for intraday price action)
COLUMN FORMULAS FOR ROW 28 :
G (C28+D28)/2
Typical Typical -1 > 0.15%C
H (C28+D28+E28)/3
I E28-G28
J H28-H27 (for interday price action)
K E28*0.3/100
L J28+I28 The formula is normalized for all securities by
M IF(L28>K28,F28,IF(L28<-K28,-F28,0)) dividing by the time period and simple moving average
N SUM(M6:M28) of the volume and multiplying by 100. Hence, FVE can
O AVERAGE(F6:F28) vary between 100 and -100, although it seldom is
P N28/O28/22*100 outside the range of -80 to +80.
SIDEBAR FIGURE 1: CALCULATING FINITE VOLUME ELE-
MENTS INDICATOR USING AN EXCEL SPREADSHEET + V, V, 0
t MA V, t
FVE = *100
1
t

A B C D E F G H I J K L M N O P
MANUGISTICS NASDAQ:MA
GROUP NU
TYPICAL +/- AVE
<DATE> <OPEN> <HIGH> <LOW> <CLOSE> <VOL> H+L/2 TYPICAL C-(H+L)/2 PREVIOUS .3%*C MF VOLUME SUM VOL FYE

11/2/00 57.56 63.13 55.38 61.81 23376 59.255 60.107 2.555


11/3/00 61.53 62.56 59.06 60.25 17538 60.81 60.623 -0.56 0.51667 0.18 -0.04333 0
11/6/00 61 61.75 59.31 60.94 13794 60.53 60.667 0.41 0.04333 0.18 0.45333 13794
11/7/00 60.25 65.38 59 65 25270 62.19 63.127 2.81 2.46000 0.20 5.27000 25270
11/8/00 65.81 66.06 55 55 34194 60.53 58.687 -5.53 -4.44000 0.17 -9.97000 -34194
11/9/00 53.81 57 51.75 54.53 24082 54.375 54.427 0.155 -4.26000 0.16 -4.10500 -24082
11/10/00 53.22 53.67 49.5 51.75 12690 51.585 51.640 0.165 -2.78667 0.16 -2.62167 -12690
11/13/00 50.78 52.94 46.25 50.99 20352 49.595 50.060 1.395 -1.58000 0.15 -0.18500 -20352
11/14/00 52.06 57.25 52.03 56.44 15638 54.64 55.240 1.8 5.18000 0.17 6.98000 15638
11/15/00 56.03 58.85 54.38 56.61 15798 56.615 56.613 -0.005 1.37333 0.17 1.36833 15798
11/16/00 55.25 57.44 53.81 55.49 7356 55.625 55.580 -0.135 -1.03333 0.17 -1.16833 -7356
11/17/00 55.38 58.75 54 57.72 14446 56.375 56.823 1.345 1.24333 0.17 2.58833 14446
11/20/00 56.22 56.86 48.19 48.47 29480 52.525 51.173 -4.055 -5.65000 0.15 -9.70500 -29480
11/21/00 49.36 49.38 40.19 41.03 35866 44.785 43.533 -3.755 -7.64000 0.12 -11.39500 -35866
11/22/00 40.31 44 36.78 40.13 25410 40.39 40.303 -0.26 -3.23000 0.12 -3.49000 -25410
11/24/00 41.72 44.19 40.03 44 9906 42.11 42.740 1.89 2.43667 0.13 4.32667 9906
11/27/00 45 48.15 43.5 44.13 25514 45.825 45.260 -1.695 2.52000 0.13 0.82500 25514
11/28/00 43.71 45.19 37.25 38.5 19906 41.22 40.313 -2.72 -4.94667 0.12 -7.66667 -19906
11/29/00 38.51 38.56 32.85 36 25712 35.705 35.803 0.295 -4.51000 0.11 -4.21500 -25712
11/30/00 33.75 38.44 32.63 37.88 29546 35.535 36.317 2.345 0.51333 0.11 2.85833 29546
12/1/00 38.28 44.63 38 40.63 36366 41.315 41.087 -0.685 4.77000 0.12 4.08500 36366
12/4/00 40 41.75 38.44 39.94 19928 40.095 40.043 -0.155 -1.04333 0.12 -1.19833 -19928
12/5/00 41.22 52.03 41.22 51.65 38732 46.625 48.300 5.025 8.25667 0.15 13.28167 38732 -29966 22615 -6.02
12/6/00 51.22 55.63 47.5 48.88 29824 51.565 50.670 -2.685 2.37000 0.15 -0.31500 -29824 -59790 23173 -11.73
12/7/00 47.5 53 46.06 47.5 39892 49.53 48.853 -2.03 -1.81667 0.14 -3.84667 -39892 -113476 24359 -21.17
12/8/00 52.25 56.44 50 54.75 23901 53.22 53.730 1.53 4.87667 0.16 6.40667 23901 -114845 24297 -21.48
12/11/00 57.72 60.5 53.81 55.44 16567 57.155 56.583 -1.715 2.85333 0.17 1.13833 16567 -64084 23496
12/12/00 54.88 55.06 50.5 50.88 11357 52.78 52.147 -1.9 -4.43667 0.15 -6.33667 -11357 -51359 22918-

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Stocks & Commodities V. 21:4 (26-38): Detecting Breakouts by Markos Katsanos

where: Sidebar Figure 1 includes an Excel spreadsheet calcu-


t= Time segment chosen. The default is 22 days. lation. TC2000 users cannot program custom indicators,
V= Volume. It can take a +/- sign or zero value according to but they can use Time Segmented Volume (TSV) instead
inequality (1). of FVE. I found out by chance that FVE looks uncannily
MA(V, t) = t day moving average of volume. similar to Wordens proprietary Time Segmented Vol-
The MetaStock formula is: ume (TSV) indicator, although numerical values (and the
formula) may be different. The indicators peak or cross
PERIOD: = Input ( PERIOD FOR FVE,10,80,22); the zero line within a day or two of each other. M.K.
MF:=C-(H+L)/2+Typical()-Ref(Typical(),-1);
FVE:=Sum(If(MF >0.3*C/100, +V, If(MF <-0.3*C/100,
-V,0)),PERIOD)/Mov(V,PERIOD,S)/PERIOD*100;
FVE

for the handle to form, thus increasing your profits dramati- Bostian, David, Jr. [1985]. Intraday Intensity Index, Encyclo-
cally. FVE will also help you determine the direction of the pedia Of Stock Market Techniques, Investors Intelligence.
breakout from triangles. Colby, Robert W., and Thomas A. Meyers [1988]. The Ency-
Last but not least, keep in mind that there are no certainties in clopedia Of Technical Market Indicators, McGraw-Hill.
the financial markets only probabilities. FVE will increase your Hartle, Thom [1994]. Chatting With Marc Chaikin, inter-
probability of winning, but good money management will help view, Technical Analysis of STOCKS & COMMODITIES,
you avoid large losses and maximize your profits. You should Volume 12: January.
always use stop-loss orders to protect your capital or profits. Holt, Phillip C. [1994]. Enhancing On-Balance And Negative
Volume, Technical Analysis of STOCKS & COMMODITIES,
Markos Katsanos is a structural engineer and private trader. Volume 14: June.
Storz, Matt [1996]. Quantifying Divergence With The Diver-
SUGGESTED READING gence Index, Technical Analysis of STOCKS & COMMODI-
Achelis, Steven [1995]. Technical Analysis From A To Z, TIES, Volume 14: January.
McGraw-Hill.
A Survey Of Volume Indicators [2001]. Bollinger Capital
Management. Video, See our Traders Tips section this month for strategies implementing
Katsanoss concepts.
www.BollingerOnBollingerBands.com
S&C
See Traders Glossary for definition

Copyright (c) Technical Analysis Inc.