IBD Base Analysis
Never buy a faulty base again! Use the time tested pricniples from the Market Wizards before you to distinguish between healthy and unhealthy patterns. Based on over 10 years of studying Investor's Business Daily, William O'Neil and all IBD Courses! Do not miss this one out.
📜 ––––HISTORY & CREDITS––––
This indicator, titled " IBD Base Analysis (WEEKLY)," is an original creation by TinTinTrading. It synthesises multiple metrics and visual cues to provide a comprehensive overview of market bases on a weekly timeframe. It is based on the teachings of Investors Business Daily (IBD) and William O'Neil. Mainly from attending all IBD Seminars, Courses and part of man IBD MeetUps. I have compiled most criteria and made it into indicator.
What sets this indicator apart is its multi-faceted approach to base analysis. It doesn't just measure base depth or length, or plot a base structure with target (Cup with Handle, Double Bottoms, Flat Bases or other);
The IBD Base Analysis (WEEKLY) allows the user to pick the beginning and end of base and then runs through the criteria for a HEALTHY vs FAULTY Bases. The script is intended for a Weekly timeframe and is base agnostic - hence it can be used on any base pattern you want to analyse. By using the script you will be able to grab a quick visual if there are any faulty characteristics that you have be aware of. Furthermore, its user-friendly interface, complete with customisable color-coding and toggle-able advanced metrics, makes it a great tool for both novice and expert traders to incorporate into their trading.
🛠️ ––––WHAT IT DOES––––
👉Analysis Table with customisable position. Each cell has additional information when you hover over it with a mouse to show what is required and what is faulty. The cells are color coordinated by user customisable color-coding. If the cell is green then it is bullish. If it is orange then it is soft violating condition and if it is red it is bearish.
- Depth: First we look at the Depth of the base expressed in percent
- Length: How many weeks long is the base
- Number of Weeks under Accumulation (Acc Wks)
- Number of Weeks under Distribution (Distrb Wks)
- Number of Weeks showing Supporting action
- Number of weeks which show wide and loose action (unfavorable), "10% WKs)
- Number of weeks we close above the mid point
- Grading of the close within the first 3 weeks after bottoming
- Counting the Gap ups vs Gap down for the given period
- + plot under weeks where we have a tight action compared to previous week - this is considered favorable
- ▲ plot under down weeks where we show supporting action
- ⏺ appear under the 3 most important weeks in the base: The Week at the bottom, The week with the Largest Spread and the Week with the Largest Volume. Green means bullish action, Orange means soft violation. The tooltips on the circles show the Closing Range of the week.
- - midpoint (in blue), this draws the midpoint within the base.
👉18 month line - According to IBD the True Market Leaders Breakout and run for on average of 18 months before topping. For this reason I have included a customizable on/off line that plots 18 months back. What I want to see is if the stock has been in a strong uptrend (Stage 2 accumulation for those knowing the Stan Weinstein methodology) for the last18 months. If yes, you ought to consider the base higher risk than one that is just starting its move.
💡 ––––HOW TO USE IT––––
Add the indicator to your chart
Determine the beginning and the end of the base (use the settings in the indicator or drag the verical blue lines)
Read the price action based on the coloring and the criteria explained in the tooltips. Additionally familiarize yourself with the general tips for reading a base below.
💡 ––––GENERAL TIPS FOR READING THE ANALYSIS TABLE––––
Depth: IBD recommends bases to be under 30%. However, during a strong bear market some stocks can exhibit 1.5-2x the volatility. Yet, it is key within the IBD methodology to buy breakouts from proper Non-deep bases
Length: Many newer traders misinterpret small patterns for bases. This common misunderstanding is addressed by calculating the length of the base and determining if it is developed or immature.
Number of Weeks under Accumulation (Acc Wks): This is the first thing the late Market Wizard William O'neill looks into the base. How many weeks are showing signs of accumualtion and how many are showing signs of distribution (the cell below). Always look for Accumulation weeks to be more than distribution weeks.
Number of Weeks under Distribution (Dist Wks): See above
Number of Weeks showing Supporting action: New traders determine down week as bearish. However, within the methodology and extensive research IBD has given criteria of down weeks that are actually a bullish sign. Counting the number of weeks within the base that meet this criteria gives us this metric.
Number of weeks which show wide and loose action: If the base is not compact but it is wide and loose it is considered an unfavorable pattern. Generally, occurs within Stage 3 of a stock topping.
Wks > Mid: Utilizes a simple 'hack' of base reading. How many weeks have closed above the mid level of the base and how many have closed below the mid level of the base.
Grading of the close within the first 3 weeks of the bottom: The next cell looks at the price action subsequent of the 3 weeks after the bottom. These are very important as they show if accumulation is happening (strengthening the breakout hypothesis) or if it is not.
Counting the Gap ups vs Gap down for the given period: Lastly gaps are key footprint of institutional moves. We look for the number of DAILY gaps on the WEEKLY timeframe and compare the daily gap up vs the daily gap downs within the base.
REMEMBER, ALL TRADING INCLUDES RISK. NEVER RELY SOLELY ON A SINGLE INDICATOR. INCORPORATE IT INTO YOUR BROADER TRADING METHODOLOGY AS A COMPLEMENTING SOURCE OF INFORMATION.
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