The Deceptive and Confusing Nature of Float Boxes

The Float Box Deception

One important point concerning Float Boxes is how they get plotted on days when the price is penetrating above or below the top or bottom lines of the Float Box (the two red lines). This idea applies to stock's penetrating either top or bottom lines but for simplicity sake, let's just look at penetrations through the top red line.

Let's say a stock has been trading sideways for several weeks and the top of the Float Box (the upper red line) is at $16 and the bottom of the float box (the bottom red line) is at $12. Now let's say the stock finally penetrates above the top red line and makes a new high of $18. On this penetration day, we don't want the top red line to be placed at the new high of $18. If it got placed there, then we wouldn't be able to generate an alert that a breakout has occurred and it would be a little more difficult to actually see that the breakout had occurred. Instead we want the line at $16 to remain there so that a penetration is actually visible. What gets sacrificed is the actual size of the Float Box on the day of the penetration. The actual size should be based on the new high that has just been reached, but it doesn't get shown that way because we want to use the line for alert purposes. Study the five charts below and hopefully the issue will be crystal clear.

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