Breakout Software Review: Finding Consolidation Setups
Updated: Nov 3
A breakout scanner can reduce a large market to a manageable watchlist of stocks approaching defined price levels. Its value depends on transparent filters and a complete trade plan; a scan result is a research candidate, not an automatic entry.
Breakout Software: In This Guide
This guide examines breakout software, including the evidence, practical use, limitations and key risks.
Key ideas and practical calculations
The original Financial Wisdom guide and media
Important limitations and risk controls
Frequently asked questions
Related guides and authoritative sources
Key Takeaways
A scanner identifies candidates rather than guaranteed trades.
Liquidity, relative strength and consolidation quality can improve filtering.
Breakout volume needs context from normal trading activity.
Every setup requires an invalidation level and risk-based size.
Original Financial Wisdom Guide
Background and Core Ideas
Screening software to identify stocks breaking out of consolidation.
In this video we look at the breakout screener, and how we can use it to find stocks aligned to my approach.
Members will know by now that I look for a consolidation in price, followed by a breakout, with all technical analysis viewed on the weekly charts. Weekly charts are my preference for many reasons, but none more so than their alignment with fundamentals, which we also include in the scanning software.
That being said, let’s get straight into the scanner.
At the top of the screen we have the filtering criteria, starting with the date on Monday of any given week.
Next we have the exchanges, covering many of the major markets, including Australia, India, UK, Canada, US, and Germany.
If none of the exchanges are individually selected, the screener will assume that all the exchanges should be scanned.
We can also filter by Sector or Industry. This can be particularly useful if you want to diversify a portfolio into other areas.
Next we have some key settings to help us find our preferred breakout. The settings you see here are my personal settings which I use to filter stocks on a weekly basis, you can of course change any of them to suit your own style.
Practical Checkpoint
Define the setup, entry and invalidation level before acting.
Compare the potential payoff with risk-reward planning.
Set the trade size using consistent position-sizing rules.
Rules and Practical Application
Let’s start with the consolidation range.
The scanner is defaulted to measure a minimum of 6 weekly candles, often more, but we will touch on that shortly.
We can choose to measure the range of consolidation by either using the open and close, or the high and low of the weekly candles.
If we choose the open and close, we would only be measuring the body of the candles, in which case the consolidation box could be drawn like this.
If we choose the high and low, the consolidation box would look more like this.
By using the high and low box as an example, the scanner can calculate its consolidation range.
We state that we only want to see consolidation with a maximum range of 15%. Therefore if the low to the high of consolidation was perhaps 17%, the stock would not be presented. Whereas if consolidation was perhaps 14% it would pass this portion of criteria.
Next, we have the minimum and maximum breakout percentages. This filter determines how far the breakout candle must be above the top of consolidation, and here we are looking for a minimum of 1% to a maximum of 20%.
The scanner would therefore look for one percent through to twenty percent.
Evidence Check
Is the sample broad enough to include difficult markets?
Do the results include spreads, fees, slippage and failed signals?
Could hindsight, survivorship or selective examples explain the result?
Evidence and Examples
This breakout bar is perhaps 10% and would pass the criteria. On the other hand, if the breakout bar only increased by half of a percentage point above the box, it would not be presented as a qualifying stock.
Next up, we have minimum and maximum breakout size. This filter is looking for the size of the breakout candle, from the open price to the closing price. In most cases I’m looking for a minimum 5% breakout size, thereby providing conviction during the week of its breakout.
Next, we have minimum volume, again a sign of conviction, and I like to see volume a minimum of 30% more than the previous week.
Next we have the maximum stop loss distance.
The scanner can determine the estimated stop loss distance based on the breakout bar, and the size of consolidation.
For example, if the breakout bar extended to far away from consolidation, it could exceed our 20% maximum risk, and would therefore not be displayed by the scanner. If however the breakout bar did not extend too far from consolidation, it would pass the criteria and pass this filter.
Next, we have the Normalised Average True Range filter.
I use this filter to eliminate stocks showing excessive volatility, I prefer to see signs of a volatility contraction prior to a breakout.
Next, is the Piotroski filter. The detail of the Piotroski score can be seen in this video, but in summary we are only looking for breakout stocks which come from the basket of good quality fundamental stocks, whilst ignoring stocks of poor quality. Be mindful however, the filter will not allow to show stocks below 5, it has a default of 5 or more.
Risk and Limitations
We also have two check boxes, ensuring the weekly Mack dee is above the signal line, and price is above the 20- week moving average.
Our final filter is the score. The score is calculated from several aspects, each weighted accordingly. The higher the score the better. In this example we can see the scanner presented several stocks scoring above the minimum score of 7. By clicking on PKG with a score of 10.1, we can evaluate as to why the stock has ranked relatively highly.
Price is above the 20-week moving average. The Mack Dee is positive. Volume is considerably higher than previous weeks, and reasonable consolidation can be seen over multiple weeks.
This consolidation allows the scanner to calculate the stop loss distance, which for this example is a credible 9.91%.
Underneath the chart we can see some rationale as to where the scoring is achieved, this however is being developed further and variations will be seen in the future.
Currently we can see each of the weighted scores equating to the 10.1 total score.
At this stage we have a quantifiable score, which is the easy part, the hard part is the qualitative observations which can, by nature, be subjective. This subjectivity does become clearer with experience, and to help with this process I include my observations underneath each chart which passed my filter. Here we can see my comment suggesting that we are near a strong double top resistance, therefore, although everything else is good, this near-term resistance point provides too much uncertainty, and for me its not a position I would take.
You will also see a filter defaulted at ‘auto’, this allows the screener to look for the best score based on the length of consolidation, alternatively, you can select the look back period based on your preference. The period with the best score is highlighted withing the scoring table.
To the left of the chart, you will see an icon, an icon is added based on my qualitative analysis of the stock, and in the case of this red icon, the stock does not qualify for me.
Summary of the Original Guide
The green icon means the stock qualifies and I have personally taken a position, whereas this icon means that the stock qualifies but I have not personally taken a position, this could perhaps be due to portfolio size or the weighting of a certain sector.
And finally, at the top of the scanner you will see the option to scan by stock rather than date, this allows you to select any stock and lookback based on previous scan results.
Hopefully the video will help members understand how the screener operates, how it combines numerous aspects into a weighted score for further analysis, and how I personally find stocks to trade.
Any questions, please don’t be afraid to ask in the forum.
Hopefully traders applying a breakout strategy to the US markets will find this tool very useful indeed, saving hours of research.
Access the Screener here - https://www.financialwisdomtv.com/service
Practical Limitations
Historical examples, book claims and indicator results are educational illustrations rather than forecasts. Outcomes depend on the market, timeframe, data, transaction costs, financing, taxes and execution assumptions. Test complete rules across varied conditions and define the maximum acceptable account risk before taking a position.
Put This Into Practice
The ideas in this guide become more useful when selection, entry, stop placement, position sizing and trade management form one repeatable process. The Financial Wisdom Trading Blueprint connects those decisions in a practical weekly framework.
Frequently Asked Questions
What should a breakout scanner filter?
Common inputs include price, liquidity, volatility, relative strength, consolidation length and proximity to resistance.
Does high breakout volume guarantee success?
No. Volume can support the signal, but news, market weakness and supply can still cause failure.
Further Reading
References and Further Reading
Educational information only. Trading and investing involve risk, including the possible loss of capital. Examples are illustrative, not guarantees of future performance, and nothing in this article is personalised financial advice.
About the Author
Written by Gareth, MBA
Gareth, founder of Financial Wisdom, has more than 30 years of personal trading experience. He competes in the United States Investing Championship, creates award-winning trading content and has been featured in Technical Analysis of Stocks & Commodities.
Comments