Retracement

One of the popular methods of identifying stocks in bullish momentum is to check how far a stock is trading relative to its 52-week high or all-time high. If a stock marks a new 52-week high, there are likely strong underlying reasons for this movement.

A stock trading near its 52-week high is also considered a strong bullish momentum stock. To define ‘near,’ we can use a retracement tool. For example, stocks trading within 20% of their 52-week high or all-time high are considered in strong momentum. While a stock might be in a short-term correction or consolidation, if it remains within a certain percentage of its key high, it is still classified as a momentum stock.

A 20% retracement is a widely used criterion for defining momentum. In some cases, stocks that retrace up to 50% may also qualify, provided there is an additional trend filtration criterion in place.

Retracement Calculation:

Retracement is calculated based on the breakout period selected. There are three retracement criteria: Within, Above, and Below.

For example, if a stock’s high price is 100 and the retracement percentage is 20%:

• Within Condition: Stocks within 20% retracement or above 80 are considered.
• Above Condition: Stocks above 20% retracement or below 80 are considered.
• Below Condition: Stocks below 20% retracement or above 80 are considered.

The Within condition is recommended when selecting the 52-week high or all-time high option.

If the 52-week low or all-time low is selected, the calculation differs.
For example, if a stock’s low price is 100 and the retracement percentage is 100%:

• Within Condition: Stocks within 100% retracement or below 200 are considered.
• Above Condition: Stocks above 100% retracement or above 200 are considered.
• Below Condition: Stocks below 100% retracement or below 200 are considered.

The Above condition is recommended when selecting the 52-week low or all-time low option.

20% or 50% retracement from 52-week high is a recommended option.

You can adjust the retracement period to suit your needs.