Catch stocks before they breakout using this scanner trick!

Nifty was seen trading with gains of nearly half a per cent on the final trading session of the week. Even the laggard of June series i.e., Bank Nifty has jumped 1.87 per cent, outperforming the benchmark indices. Moreover, the stock-specific action continued with as many as eight stocks trading with gains of over 4 per cent. The top gainer in the list is Apollo Hospitals, followed by Navin Fluorine.   

With so much going on in the market and everyone eager to know which is the best breakout trading set-up, we would advise not catching a stock that has already witnessed breakout and is trading with high momentum as most of these trades are overcrowded and sometimes risk-reward in such are not favourable. Instead, we would advise you to look out for stocks that are about witness a breakout or are on the verge of a breakout.   

So, what’s the best way to catch stocks before they breakout? Here is an important trick that we are sharing to help you recognise at an early stage. First, identify a stock that is trading very close to the Call option i.e. where the maximum concentration of open interest is. Let’s call this as Max Call open interest. Now, once you have created a watch list of stocks that are trading close to its Max call open interest, monitor the activity of open interest in this call option. If unwinding is witnessed in Max's call open interest, it indicates that the call writers are trapped and since the writers are trapped, they would run to cover their positions; eventually, leading to a bigger upmove, which is a type of a short squeeze.

Remember this strategy could work wonders if we add few more filters, which can confirm the trend of the stock. Like we can set a filter that the stock is trading above its 21-EMA and the 21-EMA is trading above its 50-EMA.   

Here is the list of stocks which are trading close to their Max Call open interest: