How I Find Stocks to Trade: Part II

How I Find Stocks to Trade Part II

My Morning Scans

I like to make premarket scans because it can give me stocks that are gaining momentum that missed all of the scans the previous night.  I pay close attention to the volume though.  If a stock jumped up $2 but only shows 1 or 2 trades and low volume, then it’s just noise.  If the volume is high along with a high percentage move, then I have a good chance to predict the trend for the day.  My favorite early trade setups are the gappers, or stocks that have gapped up premarket.  I have a specific strategy to trade those and often times I will have 2 opportunities to trade that one stock as seen with this chart on ARNA. 

I get up at 6am to get ready for work so I cut on Squawk Box and listen to what the early morning market chatter is.  I get to my computer about 6:30 and there is usually some activity on my watchlist. I'll look to see what is going on with those and sometimes I can immediately eliminate one or two from my list.  I'll take a quick look at the MarketView on Equityfeed.  This gives me info on all of the stocks that are moving in premarket.  I won't do much between 6:30 and 7 other than try to get a feel for how the market is setting up like which sectors are hot and which are not.  My major preparation will come once I get to work.

I will reference EquityFeed a lot in this blog but the best way to understand the power this tool has and how you can use it is go to the website. Just click on the name throughout this blog and watch the videos on the web site.  What I can tell you will not do it justice.  I am sharing how I use it now and as I move forward in my trading career I will be taking more advantage of it's features and integrating them into my trading strategies.

Once I'm at work I pull up my TOS platform, my Tweetdeck, and Equityfeed.  I glance at my Twitter feed but during the trading day I try to filter out as much noise as I can.  I have my MarketView set to where I have the largest % movers on top.  I also have a filter that only will allow stocks between $2 and $20, that have traded at least 100000 shares, and with over 25 transactions. This will eliminate any fluke trades that have no relevance.   I am only interested in tickers that have gapped up at least 5% from the previous close.  I will vet them the way I do my scans at night.  I only keep the ones I feel will give me the best chance.  At this time I give all of my watches a final look and pick the best 8, my top 8 at 8.  Usually I'm done by 8:30.  Waiting until 9 is better but my students start coming in at 8:30.  This is how the MarketView looks

I also have a specialized filter that I built utilizing Filter Builder in Equityfeed.  This is what I have running after 8:30 to only deliver stocks that meet my criteria for potential trades.  The parameters for this filter are: last price >=2, last price <=20, today's trades >=100, today's volume >=100,000, % change >=3%, markets NASDAQ, NYSE, AMEX.  This filter will run all day but I mainly use it for my morning trades.  This is an example of how it looks. on a typical morning.

After I vet the tickers I'll plug them in my TOS platform.  I have an 8 chart montage that I put them in at home but at school my monitor is 1/2 the size so I have 2, 4-chart montages.  The charts are set for 5 minute candles.  My main trading screen has 2 charts with Level 2 and Time and Sales for each.  Once a ticker is in play and ready to trade, it will put it on my main trading screen and the charts are set for 1 minute candles.

After the first three 5 minute candles I will draw a green trend line across to show the high and a red trend line to show the low of the first 15 minutes.  Then I switch to one minute candles and the two stocks that are closest to crossing the green trend line will go on my main screen.  Sometimes I have an immediate trade.  If I do not and it looks like I have a couple of minutes I will start building alerts in Equityfeed to let me know when a possible trade is near. I try to set alerts slightly ahead of a breakout point so that I have enough time to wrap up what I'm doing and get to my computer. I have a 15 minute break that starts at 9:45 so it works out perfectly.  If I am in an immediate trade then my break miraculously extends to 20 or 30 minutes!  Now when I start shorting stocks I will use the red trend line to tell me when I need to short it.  And there are times when the stock will trade within those lines all day and offer no setup.

Now there are opportunities when I get the morning break to trade and then the stock will start setting up for an ABCD type move for later in the day.  It is not uncommon for me to trade the same stock twice in one day.  If after 1pm all of my potential trades have dried up, I will use the Trade Alerts feature on EquityFeed to look for stocks hitting the HOD or making 52 wk highs so I just check day high box and the 52 week high box. Everything else I leave blank. For the filter settings I look for stocks priced between $2 and $20 and a volume over 1 million. As the tickers come up I just click on them and a chart pops up and I can quickly identify if the chart looks like the ABCD patterns I like to trade.

There are many potential trades everyday.  The only reason I would miss making a trade would be because of my schedule at work that day.  Everything I trade right now follows either the simple gap pattern or the simple ABCD pattern.  The hard part is trusting what I see and clicking that button.  Not everything works perfectly nor do I trade everything perfectly but the potential for me to make a few thousand dollars a day is definitely there once I get more experience.

One thing I can tell you is that having a tool like EquityFeed is a necessity if you want to control your own destiny.  You do not want to depend on someone telling you to buy and sell this or that.  You need to know what you are doing and why.  I have had a slow start to 2015 trying to do 2 things at once but once I get my rhythm back at work I know I will be back on top of my game, well back to making progress toward reaching the top.

Well, until next time, happy trading!