1989issue C101-4
Finish the volume checklist before scoring the breakout
After a 20 percent or larger thrust and a shallow-retracement, the historical workflow still required a price-trading-range, a volume-indicator-range, and a new extreme on a volume series. Only then did a stop just beyond the price-range high count as breakout-entry.
- The long-side price filter required a prior advance of 20 percent or more, a later reaction of less than 40 percent of that advance, and a price-trading-range in which the latest 10 sessions stayed inside the latest 20-session high-low.
- A volume-indicator-range had to form on at least one of three cumulative series, after which that series had to print a new high while price was still inside its range.
- The breakout-entry stop sat just beyond the price-range high only after that volume-leads-price condition; range-defined-invalidation used the tighter of a level just under the range low or a three-point offset from the range high.
- Editorial interpretation: treat the later price break as confirmation of a finished checklist, not as the entire idea.
What had to be complete before the break
Editorial interpretation: pattern recognition is used here as a completeness audit. After a strong thrust and a shallow pause, the chart is scored only when a volume series has also compressed and then printed a new extreme. The later price breakout is then confirmation of a finished checklist rather than the entire idea.
The historical workflow quantified demand with three cumulative volume series and would not treat a price break as the setup until both a price-trading-range and a volume-indicator-range had formed, and until volume-leads-price was already in place.
Three cumulative volume series
Demand was quantified with three cumulative volume series: on-balance volume, Williams' on-balance volume, and volume accumulation.
On-balance volume starts at zero and adds full-session volume after an up close or subtracts it after a down close.
Volume accumulation multiplies session volume by the close's position relative to the session midpoint, then adds that product to a running total.
Williams' on-balance volume accumulates volume scaled by the close-to-close change divided by that session's high-low range.
The price half of the long-side filter
The long-side checklist required a prior advance of 20 percent or more and a later reaction of less than 40 percent of that advance. That shallow-retracement left most of the thrust intact before any range was scored.
A price-trading-range was then required: the latest 10 sessions had to stay inside the latest 20-session high-low.
The matching volume-indicator-range
A volume-indicator-range was defined in one of two ways. Either 10 sessions remained inside the prior 10-session indicator span, or a 10-session indicator span was no larger than one-third of the 20-session span immediately before that window.
The historical workflow waited for that compression on a volume series as well as for the price-trading-range. Editorial interpretation: the volume series is not decoration around a chart shape. It is a required page of the same audit.
Volume-leads-price, then the breakout-entry
After both ranges formed, the setup required one volume indicator to print a new high before price, then a price break beyond the range high. The inverse sequence was specified for declining markets.
Breakout-entry used a stop placed just beyond the price-range extreme only after the volume-lead condition was already in place. The price break was the last check, not the first.
Range-defined-invalidation
Protective-stop placement used the tighter of a level just under the range low when the range spanned less than three points, or three points below the range high when the range was wider.
A 1985 worked example
A 1985 worked example recorded a 37 percent advance over six weeks, a retracement of about 34 percent, and a later volume-accumulation range lasting about 40 sessions.
The example then used a good-til-cancelled buy stop just above the price-range high, with a protective stop just below the range low.
The same sequence on more than one scale
The structure was treated as needing to appear on weekly, daily, and intraday charts.
It was described as uncommon: about six times a year if only 50 stocks or 30 commodities were watched.
All readings on this track · 25 readings
- 1986Construct a decision procedure that revises itself
- 1989Finish the volume checklist before scoring the breakout
- 1989Constructing supervised forecasts on moving averages
- 1991Candlestick labels as stacked construction tests
- 1992Walk-forward evaluation of weekly price-change patterns
- 1993RSI price pattern templates and open interest
- 1994Constructing a dual-net day-ahead index direction forecast
- 1994A clocked stochastic second crest with a window-high stop
- 1996Volatility-ratio, inside-day and narrow-range-4 entry construction
- 1998Sliding-window correlation for cup-and-handle construction
- 2000Constructing rectangles for breakout hypotheses
- 2001Turning one candle into a ranked numeric object
- 2002Fuzzy-scored chart patterns as testable rules
- 2002From hot-zones to an open-close-matrix
- 2003Volume pressure and a band-clearing breakout case
- 2004Evaluating chart patterns against price objectives
- 2004Cobweb turning points from price structure
- 2005Hybrid decision trees and pattern recognition for trend rules
- 2005Two-bar zone codes for testable pattern systems
- 2005Price bar pattern construction and next-bar frequency
- 2008Observe markets before following pattern or system rules
- 2012Treat a four-leg Fibonacci completion as an unpaid hypothesis
- 2014Hidden three-channel regression signals for stock and call option entries
- 2014A shared daily-chart-level framework for session trades and swing holds
- 2015Condensed candlestick signatures