In this post I describe a scan I created to find stocks where. . .

1. There is a change in the sentiment of informed investors as well as …
2. A price move above the stocks trend line (or T-line.)

I’m using a program called TC2000 to create this scan. If you don’t yet have
this program, you can get a free 14 day trial along with a free manual and video
tutorial by clicking this link:  Free Stock Trading Software (TC2000)

To find stocks where there is a change the sentiment of informed investors I
use an indicator called “Balance of Power” or BOP. This is a proprietary indicator
developed by the Worden Brothers.  We don’t know the internals of how BOP
works, but we do know what it is supposed to show, namely, buying or selling
of a stock by so called “informed investors.”  BOP values range from -100 (extreme selling by informed investors) to +100 extreme buying by informed investors.

I wrote my own Personal Criteria Formula (a PCF) called   “BOP Tline Cross.” The
formula for this PCF is:

BOP > 25 AND BOP5 < 0

This means that today BOP had a value greater than 25 and five bars ago BOP had
a value less than zero.

In my EasyScan I also specify that the price of the stock must have moved from below the T-line to above the T-line.  (The T-line is the short term trend of the stock, namely an 8 period exponential moving average.) To check for this, I made a PCF called Up Thru T-line, which has this formula:

c > xavg(c,8) AND
c1 < xavg(c,8)

Let’s consider what c > xavg(c,8) means. The letter “c” means closing price.
Of course, “>” means “greater than.”
“xavg(c,8)” means 8 period exponential moving average of the closing price (or T-line).
So this line of code means “the price today was greater than the T-line”

c1 < xavg(c,8)

The code “c1″ refers to the closing price 1 bar ago, so c1 < xavg(c,8) specifies that in the previous trading period, the closing price was less than the T-line.

By putting both of the PCF together into one EasyScan, I’m able to find stocks that meet both critiera. I also like to limit the scan to stocks with volume of 500,000 shares or more which are above $4.99 in price. Here’s what the EasyScan dialog box looks like:

When doing this scan on 3/2/2011, I found just one stock,  BTX. Here’s a chart of BTX:

I’ve drawn an arrow pointing out the change in BOP as well as an arrow pointing out
the T-line.

This stock is also showing which is called a “kicker” candlestick pattern. A kicker happens
when:

1. A stock moved down from open to close in the previous trading session.
2. The stock jumped back up and opened at or above the previous open and traded higher.

You can see that in this close up of the candles:

So BTX looks like a good buy for 3 reasons:

1. Informed investors are suddenly buying it.
2. Price has crossed up from below to above the Trend line (T-line)
3. The stock is showing a “Kicker Signal” — one of the strongers Japanese Candlestick patterns.

Notice, too, that there was an extreme surge in volume. We will see what happens, but BYX looks like it will move higher.

Thanks for your interest in Japanese Candlesticks and Systematic Buying by Informed Investors.  For more information, if you would like a free trial of the scanning software discussed in this post, you may visit:

Free Stock Trading Software (TC2000)

To your trading success. Phil Seyer