Stocks move in momentum bursts of 3 to 5 days .
In 3 to 5 days they can go up 8 to 40%
Lower priced stock make bigger moves
Lower capitalisation stocks tend to make bigger moves
Low float stocks tend to make bigger moves
High short interest stocks tend to make bigger moves
What tells you a momentum burst is starting
A range expansion signals start of momentum burst
Range expansion in simple terms is a day that is bigger than previous 3 to 5 days move.
A range expansion preceded by non momentum burst (where stocks was not up 8 to 40% in last 2 to 3 days prior to it) is good candidate.
How can one find these kind of days
By using any kind of range expansion scan.
4% breakout is one of the ways to find range expansion.
Dollar breakout is another way to find range expansion on higher priced stocks that move in 5 to 50 dollar move but may not have 4% b/o on first day of momentum burst.
4% breakout scan which I use is a momentum burst scan
c/c1>=1.04 and v>v1 and v>=100000
Gives you stock up 4% plus
that also has volume surge compared to volume a day ago.
and has volume above 100000
The scan throws a wide net . Just because stock is in 4% b/o it is not automatic buy.
Once a candidate shows up you need to study the context of the setup and only select setup which indicate start of a momentum burst.
What to look for in a good momentum burst candidate
Based on our understanding stocks move in momentum burst of 3 to 5 days
one has to create certain guidelines for selecting candidate from 4% b/o or $ scan
First condition I look for is stocks should not be up 3 days in a row
Why
Because if stock is up 3 days in a row it has already started its momentum burst and entering it now is not a low risk entry.
Second thing I look for is stock should have narrow range day or negative day prior to breakout day
Why
Because that tells you stock was not in range expansion mode prior to breakout
Next thing I look for is relative smoothness of prior move.
Why
This is personal preference based on my study pf stocks that make longer term up moves. they tend to trade smoothly , have orderly pullbacks or consolidation and do not have too many shakeout moves. the prior b/o on them have worked
Why
Because given a choice I like stock that behaves in orderly manner. That reduces risk and marginally improves probability of success
Next I look for is young trend. A trend that is only beginning and is not severely extended . As far as possible first and second breakouts once a trend gets established are better. As trend gets extended probability of breakout failure increases.
Why this condition
Again to marginally improve the success rate.
These are some guidelines . If you use them 95% or more of 4% b/o gets eliminated.
Example of candidate I bought yesterday using the 4% breakout scan and above guidelines is FLY.
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