Methodology
How we tier broken stocks.
Broken Stocks is a rules-based warning system. The criteria are public, the data refreshes daily, and the tiering reflects price action — not opinions about the underlying companies.
What goes on the list
A U.S. equity joins the list when it crosses any of three thresholds:
- Decline depth — currently trading 20% or more below its rolling 252-day high.
- Time-frame continuity (TFC) — the latest bar is bearish (2-Down or red 3) on 3 or more of {daily, weekly, monthly, quarterly, yearly}.
- Decline sigma — the most recent drop (over a 5, 10, or 20-bar window) measures 4σ or more relative to the stock's own typical daily volatility.
Any of those triggers inclusion. The tier (Red / Amber / Watch) is determined by the most severe axis — the worst single reading wins.
The universe is U.S.-listed common equities — roughly ~3,000 tickers across every major sector. ADRs, ETFs, and OTC names are excluded.
The three axes
1. Decline depth
The most legible axis: how far has the stock fallen from its rolling-252-day high? This is the "drawdown" reading that most investors think about. It's a slow signal — a stock that's been broken for months still triggers here, even if today's bar is quiet.
A 30% decline that took two years to develop is structurally different from a 30% decline that compounded in four months. The Red List recency clause (≥30% within 120 days) catches the latter.
2. Time-frame continuity
From The Strat (Rob Smith). A stock's price action exists on multiple time frames simultaneously: daily, weekly, monthly, quarterly, yearly. When all those time frames are moving in the same direction, the trend has continuity and is more durable. When the latest bar on each is a 2-Down or red 3, the trend has continuity to the downside.
A ticker can pass the TFC axis with a tiny percentage decline — what matters is that every relevant time frame is broken. The classic example: a large, slow-moving stock that drops a few percent but does it across daily, weekly, AND monthly time frames. The drawdown is small; the structural break is real.
3. Decline sigma
Sigma scales a decline by the stock's own typical day-to-day volatility. The calculation is:
decline_sigma = (recent high − latest low) / recent high ÷ daily_std
where daily_std is the standard deviation of daily returns over the trailing 20 bars. We compute this across lookback windows of 5, 10, and 20 bars, and take the worst (highest sigma).
Why this matters: a 7% drop in McDonald's (typical daily move ~1.3%) is a 5-6σ event — the same magnitude move as a 30%+ crash in a typically-volatile name. Pure-percent thresholds miss it; sigma catches it.
Tier thresholds
A ticker lands on the most severe tier any axis qualifies it for:
| Red List | Amber List | Watch | |
|---|---|---|---|
| Decline % | ≥40%, or ≥30% within 120d | ≥30% | ≥20% |
| TFC bearish | 5/5 | 4/5 | 3/5 |
| Decline sigma | ≥8σ | ≥6σ | ≥4σ |
Each ticker's detail page surfaces all three axes, with the triggering axis flagged. The "Trigger" column on the list page shows which axis qualified the ticker.
Recovering
A ticker on Broken Stocks earns the Recovering badge when our proprietary engine flags a confirmed bullish structural signal — a moderate or strong time-frame-continuity alignment — alongside the existing decline.
The Recovering badge coexists with the tier. A ticker can be Red List · Recovering simultaneously: the structural decline is still severe, and a bullish setup has formed inside it. The two readings answer different questions — the tier tells you how deep the damage is, the Recovering badge tells you whether momentum may be turning.
Recovering is not a buy recommendation; it's an acknowledgement that structural conditions have shifted.
What we do NOT do
- We do not issue buy or sell recommendations.
- We do not analyze company fundamentals, management, or business quality.
- We do not set price targets.
- We do not rebalance, time, or model portfolios.
- We do not publish opinions about why a stock declined.
The list reflects what price action has done. The interpretation is yours.
Refresh cadence
The underlying scan runs each night against live market data. The most recent scan date is shown on every page of this site (footer, list page header). Listings can join or leave the list any night based on the new data.
Limitations
- Technical only. A company with great fundamentals can still be on the Red List if its price has fallen far enough.
- U.S. equities only. No ADRs, ETFs, OTC, or international.
- No intraday updates. The list reflects the most recent close, not real-time prices.
- No survivorship adjustment. If a ticker is delisted between scans, it falls off the list silently.
Not financial advice
Broken Stocks is published for educational and informational purposes. Nothing on this site constitutes investment advice, a recommendation, or a solicitation to buy or sell any security. The list is technical and rules-based — it reflects price action, not company quality. Always do your own research and consult a licensed advisor before making investment decisions.