Weekly Breakout

Weekly breakouts are small capitalized stocks with strong fundamentals that have not been discovered by the market. The idea is to buy these stocks before the rest of the market does and be positioned to ride the breakout and uptrend that will happen when they do. These are the momentum stocks of the future that are currently out of favor. This is a long term strategy that could be held for months to years. This strategy is heavy on the fundamentals, and therefore more subjective to what you think is good. This analysis should be done each weekend.

Criteria:

  1. SPY 50DMA > SPY 200DMA at the beginning of the trading week
  2. Weekly Breakout screener
  3. Quarterly Industry performance  is >= Quarterly SPY performance
  4. Average volume should be >= 0.5% of float (average volume / float)
  5. Shows an increasing earnings history quarter over quarter. Optionally, with a larger than usual beat in the latest quarter.
  6. Year over year earnings that will be easy to beat.
  7. The purchase price should be at least 30% below fair value.
  8. Read the latest earnings conference call transcripts of clues to upcoming EPS catalysts. (optional)
  9. The weekly price broke and closed above the 10 week Donchian Channel

Trade Entry:

  • Use a 4x weekly ATR to determine stop loss and position sizing.
  • The risk will not be more than 1% of account value
  • The dollar amount to purchase will not be more than 10% of account value
  • Set limit buy order at the previous closing price for the following Monday

Trade Maintenance:

  • Maintain the 4x weekly ATR trailing stop from the purchase price
  • Add 1 risk unit each¬† time the expectancy gains 1, but do not add more than 3 times

Trade Exit:

  • If the stock’s 10WMA crosses back below the 40WMA
  • If the week closes below the stop price, sell the following Monday at open