Introducing the 'Calm After the Storm' Stock Scan

March 10, 2016


A few days ago I added a new scan which I'd been thinking about for a while. This scan was motivated by a somewhat tedious process I do almost daily during earnings season. I like to find stocks which have had a strong positive initial post-earnings response and then sell off a bit before rebounding. In order find those stocks I would look at the Earnings Movers scan for each of the previous 5 days or so. I would quickly look at those charts (using the hover charts feature) and then more closely inspect any stocks that were setting up to my liking.

The recent action in Shopify (SHOP) is a great example of the type of action I'm trying to find. I happened to catch SHOP setting up intraday on February 19th and I bought some when I saw it rebounding from the lows of the day. Here's the chart:

SHOP calm after the storm post-earnings setup

As you can see SHOP gapped up after earnings on the 17th and sold off the rest of the day (a gap & trap). It continued to sell off the next day and closed the gap from the previous day. (Closing the gap isn't a requirement but in this case I took it as a plus.) The action on the 19th (an open narrow-range candlestick after two long/tall dark/closed candlesticks) gave me confidence that the selling was over and that SHOP *might* try to mount a rebound back to the post-earnings high. This is a classic case of volatility swinging from high to low and (hopefully) back to high again. Obviously that trade worked out quite well -- I'm still holding SHOP today with approximately 30% gain.

I see this type of setup a lot but often not until after the rebound move is already underway. So I wanted to create a scan which would unearth these setups for me. That scan is what I'm calling the "Calm After Storm". Here's what it finds:

  1. The Storm: In one of the previous 6 sessions, a stock must have a true range greater than 2x its average true range on at least 2x average volume. (Note that this price change could be the result of a gap, a wide range bar or a combination of a gap and an intraday move.)
  2. The Calm: In the days after a "storm", the stock must make an NR7, a narrow range bar (NRB) (day's range less than half the stock's average true range) or have a real body (distance between the open and the close) less than half the stock's average true range (which might catch reversal candlesticks like doji, hammers or shooting stars).




Here are some examples of stocks which triggered this scan/alert in the last several days:

WAB calm after the storm post-earnings setup

TX calm after the storm post-earnings setup

ALRM calm after the storm post-earnings setup

VSI calm after the storm post-earnings setup

BSFT calm after the storm post-earnings setup

While I tend to favor this setup to find reversals, the "calm" candles could just as well be a pause before a continuation of the prior trend, as evidenced by the TX chart above. The way I trade these is to enter an order which will enter me in the trade (long or short) when the bounds of the 'calm' day are exceeded with a stop loss near the opposite extreme of the 'calm' day. I generally won't enter both long and short orders for the same setup -- I'll pick a side and if it doesn't trigger I may move on or adjust the order (if needed) and try again the next day. The thing I've always loved about executing against narrow range bars is they give me a tight, well-defined stop loss point.

I've been very happy with what the scan has been finding.  Every day I've found at least two setups which I felt were too good to pass up. It's now much easier and effective for me to track the post-earnings moves that I care about.  An added bonus is that this scan will surface stocks that moved (experienced a storm) for other reasons besides earnings.  I hope you find this scan as useful as I do. You can find it on the main stock scans page.

scans Range Contraction screens Volatility Range Expansion



SwingTradeBot about 8 years ago

This comment was originally posted by TraderMike (@mseneadza) on 2016-03-12 17:16:07.

I think the answer is "no" but you should check with your broker. I believe that most brokerages won't let you be long and short the same stock at the same time but I think I've heard of some that will let you do such things.

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SwingTradeBot about 8 years ago

This comment was originally posted by theresa1 (@theresa1) on 2016-03-12 15:47:47.

Question...if I purchased this set-up on the storm, can I put in a short sale order on th shares I own...if I place a sell short order on stock I own, will the broker sell my shares short for me to pick up lower later, or will I have to pick up additional shares in addition to the ones I own later on the short sale. In other words, can I roll my shares in and out if short and long positions? Thanks for answer.

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