Are reversals after a breakout bad?

Hi guys, I'm new to live trading but I've been studying the canslim method of trading stocks for a while.

I usually look at Stocks On The Move and see which growth stocks are breaking out of bases on heavy volume.

One stock that caught my eye is BY. It has good fundamentals (EPS rating of 97). I don't like that its RS line isn't at a new high though. It broke out of a 12 week base on July 30. It gapped up past its buy point of 23.77 but then reversed and closed near the bottom of the day's range.

I'm a bit confused. The stock gapped up, which is bullish but then it reversed. Is this price action considered bearish? I've included a chart for BY for you guys to see the price action.

Thanks

 

You learn by looking at past of stock charting, what happened before when there was day where price gapped up?

 

Thanks for the response Handle. IBD says base breakouts with a gap up is very bullish. This is based on their historical analysis.

However, IBD doesn't talk about whether it's bullish/bearish if the stock gaps up out of a base but reverses and closes near the day's low.

 

80% of BO fail.

In your scenario, thats all that happened.

 

Key to trading breakouts is to anticipate that they usually fail, just above prior resistance... so wait til after false breakout pivots down, and enter above small bullish cup that then forms.

It took many years to learn that, the hard way.

 

There you go again... talkin' "Price TA".

 

This, exactly! Buying the dip after what you thought should've been a breakout (of a high/channel/band or something) for a short-term move! I don't know how you figure this stuff out without the ability to quickly backtest 15-20 years of data, but you do haha. I guess it's kind of like a flag pattern or Linda Rashke's "Anti". Like this?

Source: https://adamhgrimes.com/library/fundamental-trading-patterns

 

Could you walk me through why you think this is a canslim stock?

 

Change your bar charts to show where open actually took place.

Where today's (current bar) close was in relation to the today's open is way more important than where close was in relation to the prior day's (otherwise knows as history, past tense, been there done that, yada yada) close was.

And after doing that you will see today's/Friday's close was above the open - which short term at least is bullish. Doesn't mean gap won't fill or it won't drop further but it appears stock, at least currently, is still strong.

You takes your chances trading breakouts. No other way around it. Enter and let stops do their work.

 

after you've read the book, you need to decontaminate your mind, and unlearn and then do your own analysis.


after the market gapped up with significant volume it doesn't mean it will go to the moon right away.
the gap might even be closed.


now look at the bigger picture.
BY has been going up since 1 year ago.
you have missed quite a few opportunities.
many books don't teach you how to catch those opportunities.