Published on: July 22, 2024
Trading in the stock market requires a well-defined strategy, and among the various approaches, two prominent styles stand out: reversal and continuous trading.
This article will delve into the continuous trading structure, focusing on the follow-up of momentum patterns.
Continuous Structure in Trading
Continuous trading involves capitalising on the momentum of price movements. Traders following this style aim to ride the wave of an established trend, whether it is bullish or bearish. The idea is to identify stocks that are already moving in a particular direction and join the trend, expecting it to continue.
Follow-Through in P&F Charts
Point and Figure (P&F) charts are a valuable tool for identifying and confirming these momentum patterns. In P&F charts, follow-through is a critical concept.
A follow-through buy or sell signal confirms the significant patterns that were previously triggered. This confirmation helps traders to validate the momentum and make informed decisions about entering or exiting trades.
The Follow-Through Scanner
To aid traders in identifying these follow-through signals, Definedge employs a specialised scanner in RZONE. This scanner displays a list of stocks generating bullish or bearish follow-through signals.
Top Open the scanner, login into RZONE. On the left menu option, select P&F Smart Scanner and Follow-Through Scanner.
Select Group, Box Size and Timeframe as it defines your trading style. Click on “Scan” after selcting the Criteria.
In the above example, I select F&O stocks for swing trading. Here is the result.
Patterns
Double Top Buy (DTB): DTB is the bullish follow-through pattern and the scanner will signal the stocks, confirming the DTB as per the box-value and time-frame the user selects.
Double Bottom Buy (DBS): DBS is the bearish follow-through pattern and the scanner will signal the stocks, confirming the DTB as per the box-value and time-frame the user selects.
Stocks (%) – In the scanner, the DBS is the stop-loss for bullish trade, while the DTB is for the bears.
Activation of Vertical Counts (VC)
Follow-through signals also play a crucial role in activating vertical counts in P&F charts. Vertical counts are projections based on the height of the pattern formed in the P&F chart, providing target prices for the ongoing trend. These counts are displayed in the output table, giving traders a clear view of potential price movements.
Exporting Results
To facilitate further analysis, the scanner’s output can be exported in CSV format. This feature allows traders to review and analyze the data using their preferred tools and software, enhancing their decision-making process.
