Stocks & Commodities V. 18:8 (42-46): Catching DJIA Breakouts by Mark Vakkur, M.D.
Buying breakouts in the Dow Jones Industrial Average works well — but there are caveats.
If the trend is your friend, the simplest way to use
that idea is to buy only those markets that are
breaking out to new highs. But is this really a good strategy? As it turns out, at least for the Dow Jones Industrial Average (DJIA), breakouts are very useful in identifying periods of increased profitability. I studied breakouts on the DJIA from February 1988 to November 1998. If breakouts truly are useful, buying a breakout over this 11-year span should have led to a greater than average subsequent four-week and eight-week
Obviously, the DJIA has been in an extraordinary secular bull market since 1982; it may behave differently in a downtrend or a trading range. Many
market players are now used to buying high and selling higher. I leave it to you to apply the concepts presented
here to your tradable of choice. That said, here’s how the DJIA performed following breakouts.
Using EasyLanguage, I created a function that tests to see:
1. Is the high of this bar greater than the highest high of a given lookback period?
2. If yes, is this the first time a new high was set during the lookback period?