Bottom fishing is a term used to find stocks that have been in a relatively long down trend and are showing signs of a change in trend.

This strategy relies on three events to occur:

• Break in the downtrend - Unless the downtrend is broken, the stock price will continue to fall.
• Consolidation - sign that investor confidence is building.
• Upward break from the consolidation pattern - sign of optimism.

Consider the following chart:

Notice the downtrend was broken at point A. Prices consolidated and a breakout was identified by this query. When a stock breaks from a consolidation pattern, it should do so on stronger volume and close above it's open (Bullish Candle). The settings for this query (and explanation of logic) are:

Volume Tab:

Number of shares traded > 200000 Used to eliminate thinly traded stocks. You can change this setting to match the exchange. Toronto exchange (TSE) may be lowered to 50000 Average Volume 20 Days Today's Volume Above Average 1.5 Times This setting will only identify stocks where the volume is greater than 1.5 times their average of the last 20 days. This will confirm that the breakout is accompanied by above average volume. You can increase the value if you are searching for stronger breakouts.

Liquidity Tab:

Trading Activity 90%  Lookback Period 40 Days It's a good idea to use this setting in your queries, as it eliminates stocks that are not frequently traded. Use this setting if searching OTCBB and CDNX exchanges, as many of the stocks do not trade regularly.

Moving Average Tab:

Long Moving Average 120 Days The moving average is set to 120 days and the query is searching for stocks trading below the 120 day moving average. This will insure that only stocks in a long downtrend are identified.

Price Tab:

Close Price Greater 2.00 Can be changed to suit your portfolio level and trading style. During the learning and testing phase, it is a good idea not to be too restrictive so you can determine how the patterns develop. Price vs LMA < (less than) If turned "on", Stock Filter compares the closing price to the Long Term Moving Average and identifies only those stocks trading less than the LMA. This is how long term downtrends can be identified.

High / Low Tab:

Lookback period for Highs 15 Days By searching for a new high in the past 15 days, we can be assured there is stock has formed some kind of basing pattern. Visual inspection will reveal which stocks have actually formed a good consolidation pattern. A longer look back period will require the stock to form a longer basing period, a shorter period may not give the stock enough time to consolidate for this strategy to be effective.

Candle Tab:

Bullish / Bearish Candle closing ABOVE Today's Opening A close above the open suggests the stock is closing with some momentum, which may carry in the next trading session. If the stock closes below the open, or very low on the day of a breakout from consolidation, the quality of the breakout may be in question and it may be better to wait for confirmation or skip the trade.

Visual Assessment

When looking at the charts of stocks meeting the filter criteria, we want to find stocks that have broken a downtrend, formed a basing pattern, then broken out of the basing pattern with a show of strength. Doing so can yield good results: