Breakoutwatch Weekly Summary 12/17/16

A small enhancement to our intraday chart was made  to show the breakout price so the viewer can see instantly if the price has been reached or not. Here's an example:

High Tight Flag Trading Hints

The High Tight Flag can be very profitable but stocks should not be traded simply on the basis that they appear on the HTF watchlist. As with other breakout patterns, the watchlist provides a basis from which to do further research and there are three requirements before a trade should be entered:

1. The stock should be a confirmed breakout
2. The stock should have excellent technical strength
3. The market should be favorable to the industry group of the stock

Unlike other breakout patterns, above average fundamental strength is not a requirement. HTF stocks have usually made their move because of some external or internal to the company event that have triggered the exceptional recent performance. This is not likely to be reflected in the fundamentals, which are a lagging indicator. Nevertheless, strong fundamentals are a definite plus.

Our due diligence tools allow you to make these evaluations. We suggest that you use these tools to prepare your own shortlist of stocks to monitor on the next trading day.

The trade may be entered either during the day's trading or at the open on the day after breakout. In general, it's desirable to set a limit price and a stop price.


Our Sell Assistant tool, and/or our Stock Timeliness Checkup tool can be used to time the exit of the trade.
Important Caveat: Stocks that are takeover candidates can meet the criteria for this pattern. In this case, trading the stock should not be considered as the price is unlikely to move significantly higher and can fall dramatically if the takeover does not occur. We cannot determine a takeover candidate arithmetically, so use the 'news' link on the CE page for the stock for additional research.

1. Confirmed Breakout

Price must be at least $0.10 above the pivot price (the Breakout Price)

There is no minimum volume requirement for a HTF breakout. As with other breakouts, the stock is not considered a breakout unless the price condition is met at the day's close.

2. Excellent Technical Strength

Because of the nature of the High Tight Flag, stocks meeting the requirements of this pattern will have excellent technical strength.

3. Market Condition and Profitable Industry Groups

In a bull market, most stocks tend to go up and in a bear market most stocks tend to go down. But in both markets there will be breakouts from a HTF pattern that give exceptional gains. Look at the industry group to which the stock belongs. Whether the market overall is rising or falling, there will be industry groups that are out-performing the market. Our daily market and industry analysis tells you which way the market is trending and our industry analysis tells you which industry groups are outperforming the market.

Intra-Day Trading

Monitoring a stock on the day after it appears on the watchlist may allow you to enter a trade while the stock is in the early stages of a breakout. If the breakout price is achieved and the volume is trending toward, or has exceeded, the breakout volume, then you may be able to enter a position at a much more favorable price than if you wait until the breakout is confirmed at the end of the day.

Trading at the Open

If a stock has successfully broken out at the end of the day, then it may be a candidate for trading at the open the next day, provided it meets the three additional requirements cited above. Stocks that have broken out are reported on the 'Recent Breakouts' report.

Limit Price

In general, a stock should not be purchased at more than 5% above the breakout price. Exceptions can be made if the stock gapped-up on exceptional volume.

Stop Price

After entering a position you should either place a stop order, or, if you can monitor the market in real-time, determine a mental stop so that if the trade goes against you, you will exit the position. While some authors suggest a 7-8% stop loss, we think the stop loss price should be based on the most recent support level for the stock. In the case of the cup-with-handle pattern, this is the low point of the handle. The stop should be placed just below this level.

¹The Market Trend is derived from our proprietary market model. The market model is described on the sitehere.
²The site also shows industry rankings based on fundamentals, combined technical and fundamentals, and on price alone. The site also shows daily industry movements.