Is there an indicator to measure or filter out false breakouts?

[cudderbean]

I was looking at a few charts this weekend and came across GNC on 19 May that opened up at 860 just over 10% higher that day than previous low and then proceeded to fall all day. I was expecting a breakout from 780 after the attempt the day before on high vol and almost got on board but decided to wait a while to see what happened during the day.. maybe buy on a retracement.

Perhaps 860 was an old support/ resistance level from way back in 2006/7. Maybe it was the result of some rumour/ tipster sheet or manipulation. Whatever.

What I want to know: is there any indicator that measures/filters/accounts for? these false breakouts.

For example, the average Rate of Change for GNC is 2%..and even after you add on a standard deviation this becomes about 4%.

Extreme gap ups are usually good news on a breakout, but not in this instance. Is there any other indicator that might warn you: Take care, wait, this is an exceptionally high opening gap, or if you’d been unfortunate enough to buy at 860 get out when it fell >4%i.e. at what point is a gap up a failed gap up?

My ROC indicator is just a crude measure. Is there anything more sophisticated around that filters false breakouts and perhaps tells you: Stay clear of this for a while until it does X, Y and Z?

I know there are two called Cyrstal Ball and Holy Grail. Just wondering if there's anything else already that's not quite so ambitious.

Thank you for your help.

 

[Country Lad]

Even the holy grail would have been fairly uselesss for GNC around that time, with all the rumours about takeover and the company's announcement which said nothing and probably added to the speculation. The high opening may have been people taking a position assuming there was some truth in all the takeover rumours.

Cheers
Country Lad

 

[Gringotts Bank]

Volume has to be high for large gaps to carry through. If you want to get on at open (which is the way to do it), make sure the opening volume is at least half the previous day's total volume. Also helps for the previous day's gain to be <10%.

 

[wayneL]

Hindsight works every time.

 

[nulla nulla]

Hindsight works every time.

Is that like the Elliot Wave System, you call it in after the event?

 

[tech/a]

Is that like the Elliot Wave System, you call it in after the event?

Actually it's like those who don't invest the time to understand what the analysis means and how it should be interpreted.
Then add that to practical application of Technical analysis and you end up with very few who can successfully trade with it.

The false breakout analysis is best handled with a few timeframes and volume and price with reactions to high volume in a lower timeframe.

Eg
If trading daily and high volume thrusts on say 20 min charts are being left un supported and price drifts lower then it's logical to assume that high volume is SELLING into any strength.
For price to drift lower there is NO DEMAND.

If you don't have R/Tcharts you can get an idea using Weekly and Daily charts
Weekly the longer term and Daily the shorter.

 

[cudderbean]

Thank you all for your kind input, especially Gringotts and Tech/A. I will try to factor in volume into my evaluation of a gap up or down, although I've noticed that falls can often occur on light volume (sheer lack of interest), but rises usually need volume strength behind them.

Thanks again.

Back to the tea leaves....