Compressions are a sign of price consolidation and we search for them on longer-term and short-term time frames. These stocks are coiled springs waiting to release. The longer and tighter the compression, the bigger and more sustained the breakout. Unlike other searches that look for momentum or breakouts, these compression breakouts have not happened yet and we can catch them early. The key is to set alert lines above the compression for bullish prospects.
I can’t speak for ThinkorSwim, TradingView or FinViz searches, but if they offer these search variables you should use them. Here’s how we do it.
In Option Stalker Pro we are able to search for compressions on any time frame. Friday we had a nice market rally early in the day followed by a heavy round of selling. We wanted to join the upward market momentum during the last week. When the market was dropping we looked for stocks that were in a short term compression, were above the prior day’s high, that had liquid options and heavy volume. The compression is another way of finding relative strength. If the market is going down, the typical stock will go down. If the stock is compressing, that is a sign that it has buyers. Again, the key is to set a horizontal alert at the top of the compression. When the market finds support, the stock will release and we will get an alert at the perfect moment.
Below is a Custom Search we use. As we go through the search results we drop alert lines on all of them. Some of them might break out, and some of them might not. If the alert is triggered, we check the stock and the market. If the alert is not triggered, we are not in a trade so there is no concern. If the market keeps going down, we run the search and drop alert lines at a lower levels.
Never be sitting idle during the trading day. Run searches and drop alert lines.
I hope this lesson helps you find trades.