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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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Scan by exchange as well as individual stock characteristics. Nasdaq's popularity for short-term execution makes it the preferred choice for intraday tradersBUILDING WATCH LISTS Modern technology offers fast access to short-term stock watch lists. Free online services scan markets in real-time and output leaders/laggards in many categories. But over time, swing traders find that these listings don’t address their growing needs, and they start to build their own custom databases. These valuable tools rapidly organize market information and scan for impending setups, often in real-time. Scans provide an efficient method to uncover subsets of the market universe that match individual risk tolerance. Experience develops an affinity for stocks at defined sectors, liquidity, and volatility. Scan filters target these unique quirks and do an excellent job focusing on specific information needs. Most CD and online market databases now contain entire exchanges of individual issues. Create a subset of this total stock universe to isolate all of the major categories and sectors of interest. Many database services let users define custom scans that include technical strength rankings and filter output through volume, market capitalization, and price/earnings growth. But avoid too many rules and filters. That beaten-up sector in today’s market could become liquid and volatile in a relatively short period of time. So program the scans to capture these gems when they finally wake up from the dead. Carefully evaluate how trading account size will impact the watch list. In general, available capital will rule out positions over or under certain price levels. Small retail traders may avoid issues over $100, while many professionals won’t look at stocks valued under $30-40. Small accounts should avoid the tendency to trade very low-priced stocks in the false belief that this will overcome undercapitalization. High relative spreads on these issues negate their greater percentage price movement. Bigger fortunes grow in small accounts that control risk than in those that chase quick rewards. Scan by exchange as well as individual stock characteristics. Nasdaq’s popularity for short-term execution makes it the preferred choice for intraday traders. But position traders often conclude that the NYSE provides better opportunities for gain with controlled risk. Most participants can build effective watch lists through this simple method: retain the upper half of the NYSE but only the top one-third of Nasdaq. Avoid thinner Nasdaq stocks unless executing trades through a direct-access terminal that routinely fills between the spread. Without an execution advantage, illiquid stocks steal profits and ruin risk management. For long-side opportunities, consider an additional filter to sort low-volume issues by relative strength. Save only the best output from this group and add them to the universe of liquid stocks. The 1,000-3,000 stocks that survive the first scanning process become the raw material for end-ofday trading analysis. Run these issues through custom criteria that create separate watch lists to target specific stock plays or setups (see Chapters 7-14). Remember that the best scans will build multiple filters on top of one another. The size of these subsequent output lists must match the time available for preparation. It makes no sense to uncover great setups that will never be traded. Consider unique scan criteria to uncover promising short sales. Keep in mind that these issues require greater average volume to minimize the dangers of the short squeeze. They also take more effort to locate. While strong stocks usually make good long positions, weak stocks may not produce good short sales. Markets fall faster than they rise and with less warning. Custom scans must account for the fear-driven characteristics that produce quick declines. Use scans to pick out emerging trends in addition to imminent setups. Create and manage a separate core group of 50-100 major issues to review nightly. Add active output from this list to the top picks from the specific setup groups. This produces a final hot list to focus the swing trader’s attention during the following session. Try to follow these stocks on a tick-by-tick basis to catch the predetermined execution price. If this list outputs too much to watch during market hours, create an abbreviated group of 20-30 stocks and discard the rest. Alter the hot list each evening but keep the core group for months at a time. WRITING SCANS Look at a typical database scan that searches for characteristics of the classic MACD (Moving Average Convergence-Divergence) Histogram indicator with Worden’s TC2000 EasyScan language. The scan applies the popular 12-26-9 settings as it moves step by step through a logical filtering process: 1. MACD starts with the difference between a short moving average and a longer moving average: SCAN: (AVGC12)-(AVGC26) TRANSLATION: Subtract a 26-day simple moving average of the closing price from a 12day simple moving average of the closing price. 2. MACD then looks for this difference smoothed over 9 days: SCAN: AVG(AVGC12,9)-AVG(AVGC26,9) TRANSLATION: Subtract a 26-day simple moving average of the closing price over the last 9 days from a 12-day simple moving average of the closing price over the last 9 days. 3. MACD signals BUY based on UP histogram zero crossover: SCAN: (AVGC12.1-AVGC26.1)-(AVG(AVGC12.1,9)-AVG(AVGC26.1,9))<0 AND (AVGC12-AVGC26)-(AVG(AVGC12.1,9)-AVG(AVGC26.1,9))>0 TRANSLATION: Yesterday’s MACD is below histogram zero line and current MACD is above histogram zero line. 4. MACD signals SELL based on DOWN histogram zero crossover: SCAN: (AVGC12.1-AVGC26.1)-(AVG(AVGC12.1,9)-AVG(AVGC26.1,9))>0 AND (AVGC12-AVGC26)-(AVG(AVGC12,9)-AVG(AVGC26,9))<0 TRANSLATION: Yesterday’s MACD is above histogram’s zero line and current MACD is below histogram zero line. This scan may appear complicated at first glance. But it just uses simple price inputs and looks back several days to compare the current action. Signals generate from crossovers at a key indicator level and adjust easily to user preferences. Fortunately, less math-inclined swing traders can locate many of these scans free and online at websites dedicated to the various database packages. More industrious technicians will find the scan languages easy to learn and highly versatile. Keep in mind that scans serve two primary needs. First, they reach into broad databases and output a primary list that meets the swing trader’s general specifications. Second, they perform narrow analysis on this remaining subset to uncover specific trading setups and patterns. Perform frequent maintenance on the primary list but don’t rerun the entire database every day. Develop a sense of how often they clog with dead data and need a fresh spin. However, run setup scans nightly as each day’s data become available. The markets change so quickly that the edge belongs to those who prepare fresh tactics for the opening bell. |
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