Finding Stocks Using Daily Breakout Scans

Finding Stocks Using Daily Breakout Scans

September 24, 2018 0 By Jeremy




Finding Stocks Using Daily Breakout Scans

Daily breakout scans look for stocks that have broken out of a range that have a higher probability of going higher.  I have a couple of breakout scans I use including a Bollinger Band Breakout and this one I am going to talk about.  I use TC2000 to run all these daily breakout scans which makes it quick and easy to identify potential trades.

Daily Breakout Scans – The Criteria

Looking for breakout stocks that meet a very specific criteria can be time consuming and time wasting.  Without the right tools, you basically have to go through all the charts in the universe of available stocks to find the ones that meet your criteria.

I personally use TC2000 and have set up a scan I run at the end of every day which goes through a watchlist I have of over 7400 stocks and spits out only the ones that meet the following criteria.

Traders have a choice to be either very loose in their scans or very strict.  Personally, I choose to be more strict as I only like to see the best possible setups.  That does not necessarily mean that all trades will be successful.  In fact, like ALL systems there WILL be losing trades.  Often, there are more losers than winners.

The “trick” is making sure the winner’s gains far outstrip the losses you take on your losers.  My personal belief and experience is that tighter scans leads to a better chance those winners will be stronger.

Here is my scan criteria I use in TC2000.  This is entered into a new Easyscan:

Daily Breakout Scans - TC2000 Easyscan Criteria

I will walk through each criteria so you can run the scans yourself.  If you want to give this a try, use this link to get $25 off when you give Tc2000 a try.

40 Day Moving Average is Greater than 120 Day Moving Average

The first test is a trend test.  In this criteria, I am only showing stocks where the 40 day simple moving average is trading above the 120 day moving average.  If this is true, then the stock will be in a medium term uptrend.

I only want to buy stocks long if they are trading in an uptrend.

To add this criteria, enter AVGC40 > AVGC120 into the PCF box.

Price Breaks Out Above Donchian Channel

The breakout condition for this daily breakout scan is a piercing of an upper Donchian Channel marker.  In this case, I use the 40 period 1 offset Donchian Channel.  The condition is met if the closing price of the stock is higher than the top Donchian Channel.

To enter this scan, set up a condition in your easyscan window to only show stocks that have closed above the top 40 period Donchian channel:

Daily Breakout Scans - Donchian Channel

On a chart, you will only see stocks that look like MKC did below:

Daily Breakout Scans - Donchian Channel MKC

Volume Above 20 Day Moving Average with a 2 Day Offset

The next criteria (note they are in no particular order – it does not matter) is a volume test.  To be good potential trades, the volume must also have a breakout that is higher than its 20 day moving average.  I have also added a 2 period offset as an extra hurdle.

This criteria is added as a condition using a 20 day moving average on the volume bars.  It will only show stocks that meet this criteria.  To show up on the screen, it is finding stocks where the volume is above the white line on the image below:

Daily Breakout Scans - Volume Moving Average

Price History Above $5

I only like to trade stocks that are above $5 .  I avoid low priced stocks as they can be too volatile and behave poorly in a breakout scan.

90-Day Volume is Greater than 250,000 Per Day

Another scan criteria is that I want to see volume greater than 250,000 per day over the past 90 days.  We need good volume on the stock – in other words enough shares are traded to be able to get in and out easily.

40 Day and 120 Day Moving Averages are Going Higher

Another screen I run is to make sure that the 40 and 120 day are heading  up.  As opposed to the first criteria where the 40 day moving average is above the 120 day moving average, this tests that both averages are moving higher.  This is further confirmation of an uptrend.

Daily Breakout Scans - Moving Average Moving Higher

Trend Intensity is Positive

Just to make sure the trend is really good on the stock (sensing a theme here!) I also check that the trend over the past 65 days is better than 5%.  Things in motion tend to stay in motion, so finding stocks that have a high trend intensity are good candidates for daily breakout scans.

To test for this I enter a condition using the following PCF: avgc7/avgc65>=1.05.

That is all there is to it.  When you scan for these stocks daily you have some strong candidates for purchase.

An Example Trade – SQ

As of this writing, I am still in a trade.  SQ was signaled by the screen on August 14th and I bought at the open on August 15th at $74.31.  SQ has screamed higher and is in the middle of a consolidation.  The green error is the signal day:

Daily Breakout Scans - SQ

Daily Breakout Scans – When to Exit

You will notice on the chart above a number of red dots.  Those are Volatility Stops that are pre-loaded into TC2000.  If the stock moves below those red dots (and show up as white dots) then I get out the next day.

These stops work well on daily breakout scans as it takes volatility of the stock into account.  That means that it does not prematurely take you out of a stock on a good uptrend.  As you can see with SQ, I am still in and will not exit until the price closes below that red dot.  Easy signal to trade.

Give it a Try

I will continue to post these trade from time to time.  If you want to see updates on this scan, then please subscribe to the newsletter.

In the meantime, if you want to try this scan out yourself, then consider signing up for TC2000.  If you have any questions please use the comment section below.

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Featured Image: Cliffhanger