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Welcome back. In our last episode, we wrote a neat little scan that utilized the Percent Change syntax to look for an accumulation structure. We wanted a downtrend, stopping action, and then a narrow range of price that might represent Phase B testing. Our Percentage Change scan utilized a longer time period (252 trading days) in combination with two shorter-term variations (63 trading days) on Percentage Change. Indeed, our scan returned a small number of stocks that appeared germane to our criteria. Let’s look at some more and see if there is another scan parameter that can deliver top-notch results.
Here is our annotated Percent Change scan language again for ease reference:
[group is sp500] //Looks only at SP500
AND [PctChange(252,close) < -25] //252 (about a year) down over 25%
AND [PctChange (63, close) > -5] //quarterly change (63 trading days) up more than -5%
AND [PctChange (63, close) < 5] //quarterly change up less than 5%
RANK BY [SCTR] //sort by SCTR (default is high to low).
Let’s work through some more results. The second on sorted results list was HP (the other HP):
Our HP annotations show a prior downtrend with a potential area where price is no longer going down (blue box). The two red boxes before show areas of distribution. Buyers (demand) were out in force in early 2019, but price went to new lows more recently. Why you ask? From our technical perspective, the answer is old news now: supply overcame demand. The reasons for supply overcoming demand can be as varied as (you guessed it), the snowflakes fall from the sky.
Here is another from our Percent Change, Concho Resources:
Look like what we envisioned? How about one more to drive the point home: Albemarle.
The three stocks above and, FOX–from our last blog, all have a family resemblance: down and sideways. What were we looking for? Down and sideways.
Now let’s flex our scanning muscles and see if we can develop scan syntax using a different scan term, with an eye toward similar price movement.
The Wyckoff Waltz: Dancing with the ROC.
Rate of change (ROC) syntax is a personal favorite. Why you ask? Rate of change, as a momentum indicator line, is DIRECTLY transferable to your Stockcharts.com chart set up. When scan syntax transfers directly to a chart setup, translation and measuring steps are eliminated. Additionally, visual feedback is immediate. Let’s work on some rate of change (ROC) scanning.
Here is what Stockcharts.com tells us about rate of change:
Rate-of-Change indicator is momentum in its purest form. It measures the percentage increase or decrease in price over a given period of time. Think of it as the rise (price change) over the run (time). In general, prices are rising as long as the Rate-of-Change remains positive. Conversely, prices are falling when the Rate-of-Change is negative.
See, Rate-of-Change Chartschool Article. Compare ROC scanning with Percent Change scanning. Go back to the article on “Writing Percentage Change Scans” and compare it to ROC. An important step in your development as a structural scanner is to know your scan terms: inside and out!
Rumble in the Engine: Percent Change v. ROC.
Let’s start a direct comparison of Percent Change v. ROC. Jot down the similarities and differences and understand them intimately. We can cover those differences in the Structural Scanning Blog. For now, tackle that at your leisure.
Here is what our scan workbench looks like when using ROC in place of Percent Change:
Here are our results in a new chart list:
Our new ROC scan delivered the same seven (7) stocks in the same order. Now let’s reset our charts to take advantage of the power of Rate of Change.
Here is FOX using the ROC scan syntax and ROC indicators (63 and 252) on the chart:
Note the ROC lines in at the bottom of the chart: blue (ROC 252) and green (ROC 63). Study the ROC lines and relate each to price as well as Supply and Demand. Do the ROC lines tell us anything about Supply and Demand? If so, what? Did you expect the ROC lines to act like this? What did you see in your mind’s eye as you were drafting your scan?
What does scanning with ROC add to our understanding of price. Is it more effective for structural scanning that Percent Change? Using ROC on or charts, as well in our scan syntax, allows us to visualize price movement and ROC movement as scanning opportunities. Pretty cool!
Next time we will continue looking at our accumulation scan results, but we will shift to a weekly chart. We have been working in daily time frames so far, but weekly charts should also be considered. How and when should we use weekly charts? Ruminate on that one for the next blog.
See you next time.
Scan well, trade better!
John Colucci, Jr.