A stock must have been in a price range for 20 trading days or longer. You have to be able to draw a horizontal resistance line touching two or more top prices and a horizontal support line touching two or more of the lowest prices in the range. This is what gives you the rectangle or box that the stock has to break out of. See the lines I drew in above on the ABG chart. Also the stock needs to be above the 50 day moving average of volume. This provides the oh so important volume spike that moves a stock to higher or lower prices depending on its direction. Also the stock should ideally trade at least an average of 100,000 shares per day. Gary B. Smith's formula called for 500,000 or more per day. The stock should be $20 or higher in price. The stock should have closed above the resistance line or below the support line on strong volume above the 50 day moving average of volume.. In fact you can sort for stocks that meet these parameters yourself if you have Worden Charts. Here is the Gary B. Smith formula for scanning for these stocks on Worden 2000 Stock Charts Program:
Gary B. Smith
Worden Sort Formulas for scanning for breakouts
Longs
(C>20) and (AVGV50>500) and (C>MAXC5.1) and (C>C1+1) and (V>1.5*AVGV50)
Shorts
(C>20) and (AVGV50>500) and (C
Or you can look for candidates yourself for free without any software. Just go to BarChart.com. My favorite lists of stocks to look through are the 52 week highs, 52 week lows, Stocks that Gap Up, Stocks Gap Down, etc.. But almost all of their lists have potential candidates. You will have to see which categories work best for you. This website is a treasure trove of great stock and commodities data. Enjoy browsing. It costs nothing to register and login for an enhanced browsing experience, too.
A phenomena that Gary B. Smith noticed was when the market was ready to turn down then there would be a dearth of setups for longs and more setups for short candidates, and visa versa when the market was bottoming and turning back upward. This tended to keep him from being in the wrong position and getting killed by a sudden market change.
At BarChart.com Once you click on a category a list of stocks moving today will appear. Access each stock's chart by clicking the chart button Link icon to the right. It's pretty easy to check out every stock on the list. After you look at a few charts it gets easier to recognize the telltale flat range a stock has been treading water in to create the Cash-In-A-Box setup. The volume is also graphed at the bottom of each chart so you can see if the volume is spiking up and if the stock trades enough shares per day. If volume is not turned on it's a simple matter to switch it on using the Display volume setting control underneath the chart.
Next you really want to check out your stock. Go to FreeStockCharts.com and you can draw in the support and resistance lines to be sure the prices are breaking above/below resistance/support and you can also check the 50 day moving average for the volume.The horizontal line tool is in the list to the left side of the chart graph. Can you connect two or more of the highest price tops in the range? Can you connect two or more of the lowest prices at the bottom of the range? Is volume spiking above the 50 day moving average line today? Does this stock trade more than 100,000 shares per day on average? Is the stock's price above $20. Did the stock close today above/below the resistance/support lines for the first time since being in the range? If yes then it's a candidate. Buy the stock or the options at the open at market price on the next trading day and watch it go up (or down if it's a short)!
If I find a Cash-In-The-Box pick for another paper trade Monday I will post it this evening or over the weekend.
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