Guidelines to find good momentum burst setups | stockbee

7/12/2016

Guidelines to find good momentum burst setups

Guidelines to find good Stockbee Momentum Burst setups


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BWEN , LCI, CRBP, LFVN, BEAT ,and TXRH are examples of good momentum  burst setups showing up on my scans yesterday and many of them were already on my Anticipation Watch List

Momentum burst is the tendency of stocks to move in sharp 3 to 5 days moves of 8% to 40%. This can be used by swing traders to capture part of that explosive move.
In order to find candidates like BWEN , LCI, CRBP, LFVN, BEAT , or TXRH, you have to run a range expansion scan and then select stocks that meet a particular set of criterias.

There is a very specific range expansion pattern we are looking for when trading momentum burst. The following examples show that:

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In all these examples you will see a period of very orderly consolidation prior to the breakout. During the consolidation the stock exhibited very low volatility and did not have wide ranges.

Essentially these stock were  consolidating pre breakout. The breakout triggered a mini buying frenzy and stock went up for the day and as more buyers step in will  likely go up for next couple of days.  As swing traders we are interested in setups like these.

Here are my guidelines for finding best setups like these daily:

  • stock should have range expansion on breakout day
  • volume on breakout day should be higher than previous day
  • day before breakout should be narrow range day or negative day
  • pre breakout there should not be many big range moves or breakdowns
  • stock should have linearity in prior uptrend before the consolidation period
  • correction or consolidation should be orderly during the entire move
  • volume during consolidation should be preferably orderly and lower
  • stock should close near high on breakout day


Here is another  example of a good setup and how it would look on breakout day.



How did the above stock look on breakout day


Does it meet all our requirements. It traded in narrow range pre breakout . It had low volatility pre breakout. It traded linearly in previous move and this was a very compact orderly correction. On breakout day volume was higher.

To identify these kind of setup you have to understand this is a skill which requires some minimum level of competency. You develop that by correctly identifying setups after setups. For that you need to study historical setups and develop guidelines to identify such setups.

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