HOW TO USE VOLUME BREAKOUT ???

WHAT IS VOLUME BREAKOUT?

W.D.Gann,a great forecaster of the stock market, has said that there are three parameters that govern the price movements,namely PRICE,VOLUME AND TIME(SPACE). There exists a particular relation and behaviour pattern between these three parameters. Obviously the price movements are the results of the supply and demand, but the time and volume parameters are very important background players who affect the price movements. I personally feel that price movements are the effects of movements in volume and time frame. So the real reason behind any price movement is the volume and time.

Volume breakout is a term used in technical analysis to indicate the unusual rise in volume( in the above sheet i have taken the volume of 2.5 times the average as the unusual). It has been revealed that the first thing that happens before any pricing action is the change in volume.

,so as a rule the jerk in price is followed by jerk in the volume. The above sheet taps the scrips in the market in which there is unusual volume in positive direction.(Means the volume has taken the price of the security up,indicating that the volume is in the interest of buying and not selling).

WHAT IS LIVE VOLUME BREAKOUT?

Mostly those who follow the eod(end of day data) for technical analysis come to know about the volume breakout after the closing of the market, and next day when they try to enter into the stock it has already ran up by considerable amount, to avoid such situation,my page tracks the securities volume during the live market and informs you as soon as the volume crosses the threshold value in positive direction, so i call it as the LIVE VOLUME BREAKOUT.

ENTRY AND EXIT RULES:

Rules for entry:

1. The stock has appeared in the live volume breakout sheet.

2.  The eod chart for the scrip shows the rising RSI.

3. The eod chart for the scrip shows rising slow stochastic

4. The main trend of the market is positive ( as obtained from nifty chart) i.e close above 20day ema.(The volume breakout doesn't works when main market trend is negative).

Rules for exit:

1. Target achieved.

2. Stoploss triggered

3. Inactivity exit i.e if no price movement seen even after 12 trading days.

My own trading system with volume breakout:

1. Trading capital allocation

I have allocated a total of 80,000 rs/- for volume breakout, and i invest rs 8000/- in one scrip at a time. Thus at a time i have maximum of 10 positions in different scrips.(everybody should have such plan depending upon his own capital)

2. Entry decision

I prefer to enter into the scrip as soon as it appears on the sheet (with a quantity 4 times that of calculated for rs 8000, means if a scrip appears into the breakout page i buy in a quantity equal to rs 32000/-) and on 3:15 i square off the ¾ th quantity and keep the quantity equivalent of rs 8000 . The intraday gain brings down my average entry price. Rarely the price falls from the entry price in that case my entry price goes up, but i strictly square off the ¾ th quantity. Further i prefer to enter on the days when nifty is in upswing and avoid the entry on the days when nifty is closing near the days low.(because mostly when nifty closes near the low of the day, there are few chances of market zooming next day.) further as stated above i check the eod chart for the scrip before making the entry decision.

3. Free trade stoploss:

On next day of entering the scrip, i prefer to not to put the stop loss, on the third day i put the stop loss equal to ( entry price + brokerage), i call this as the FREE TRADE STOPLOSS. The logic behind is that even from the third day your stop loss is hit you don't loose a single rupee from your capital. This is the key to capital preservation.

In case the stock has not moved in my favor on next day i prefer to apply the yesterday's low as the stop loss or the stop loss indicated in the sheet. I prefer the manual exit at the time of market closing rather than applying the stop loss because sometime in high volatility we get stop loss hit unnecessarily.

4. Inactivity exit:

When i see that the stock is not moving towards the target even on the 12 trading day, i prefer to exit from the stock, and book the profit or loss whatsoever it may be. This opens to doors to trade in other better moving scrips rather than getting stuck in inactive scrips. But at least allow the 12 trading days to move it.

5. Booking profit( i book shares and not the cash)

One of my friend always use to repent on the fact that he had so and so stock at so and so price but booked profit and it is zooming now. To avoid this i use a unique technique to not to book profit in terms of shares and not the cash. Let me explain this with example :

suppose i bought a scrip XYZ at rs 50 a qty of 160 shares(50 *160=8000) and my target price is 56. now when the scrip reaches the target i sell only 144 ( 56*144 =8064) and my profit is not in terms of money but my profit is 16 shares which i call free shares.

Now i forget about these shares i have earned, and my profit is also active now which also goes on multiplying. Further i need not to fear about this holding because my investment in these shares is 0 rs.

Thus as the time passes your portfolio goes on accumulating such free shares and it is active profit which goes on rising as well as gets dividend,splits ect.

6. Stick to your laws even in unfavorable situations:

The key to success of any system lies is following it strictly and having faith in it even when the system is going against, because in most cases when few stoplosses are hit the follower looses confiednce and starts modifying the system as a point from where the system starts giving good output. I have personally backtested the system and found good results, you can also test the sysem with paper trade and then start actual trading with 

SOURCES : NF