How I Find Stocks to Trade: Part I

How I Find Stocks to Trade

There are literally thousands of stocks that you can trade on any given day.  When you are new, the potential number of trades can and will overwhelm you.  I know when I first started I just traded what was on the guru’s watchlist that was put out every day.  My only plan was to rely on these guys I paid money to for stocks to trade as well as alert services (pumpers) I subscribed to.  I would buy on the alert, hold for a while and sell for a profit.  Yeah, that worked really well.  I lost over ½ my trading capital in a month.  I did not know how to do basic technical analysis or read candlesticks.  I spent months not gaining the knowledge I needed.  I realized that for me to be successful, I needed to become self-sufficient.  I needed to spend time learning how to find stocks to trade as well as what to look for when I find them.  My idea of looking for a simple list of high volume momentum stocks that I can trade every day and make boat loads of money wasn’t reality. 

Scanning for stocks is a huge fundamental skill that you must develop as trader, even if you are someone who gets most of their ideas from others while sitting in a chat room. You never want to be in a situation where you must rely on others to give you what you need to survive in this business. Having the foundation to be able to scan for yourself actually helps you to better be able to analyze the stocks mentioned every day in chat rooms by others, especially since not all of them are going to be setups that you like or are familiar with. If you can't scan through stocks on multiple time frames quickly and efficiently, you are going to be left in the dust by traders who can react quickly and efficiently to what they see since they have so much experience at it. Finding the best stocks to day trade requires preparation, having the correct tools, and a basic understanding of technical analysis. I use a two part system to find the stocks I trade so I will be sharing part 1 in this blog.

For me it begins with the nightly scan.  I not only use this to help build my watchlist but I use it to get an idea of what happened in the market that day such as if a particular sector is gaining momentum. Even though only 1/4^th of the stocks on my watchlist actually ever set up for me as a possible trade, it helps me organize my thoughts and gives me much needed practice in reading charts and formulating plans.  I need this structure as being a full time teacher my time to research and chart intraday is very limited.  I have to start preparing at night.  I will eat dinner, have a little family time, take a shower to shake the day off, and start my scans.

I use Finviz for my nightly scans.  It is free, it has a great selection of technical indicators, and it provides a daily chart and some basic fundamental information.  I have two simple scans that I took straight from the Textbook Trading and TandemTrader DVD’s.  I start with Scan 1, and if there are more than 40 tickers, I’ll run Scan 2 to cut down the list.  You can click on them to see what they look like.  Also, I change the charts to candlesticks to take those distracting trend lines off!  From there I will begin looking on the daily charts to see if any of them have the potential to set up for a trade the next day.  Along with looking for stocks which have immediate setups that are looking like they will breakout, I will be looking for charts which show me that they can have nice moves with good range again and again.What I look for comes directly from the DVD’s.  I look for charts that may be gearing and setting up for an ABCD type move, one that can set up for an anticipated R/G (red to green) move, a weak open and then stabilize for a move upward, or a potential morning washout after a bullish or bearish close.   Here are some examples of what I am looking for:

In PVG I am looking at how it has run up and broke through the prior resistance.  I am interested because It can make a push to 7+. I am interested in SGMS because it is a potential ABCD setup.  If you match it to the intraday chart it was forming an ABCD pattern as well.

Once I run the scans and pick out the charts I like, I will add them to my watchlist in TOS and pull up multiple time-frame charts to see how they compare to one another.  This is an example of SGMS.  I like this stock for a potential trade the next day because on all 3 charts it is close to breaking a key resistance level and half dollar mark and will most likely run to and possibly break the next whole dollar.

I still look at other watchlists from gurus but only to see if they came up with some of the same stocks I came up with.  I always have 2 plans for a possible trade.  If it sets up the way I want it to one way or the other, or fits one of the patterns I like, I trade it.  If not, I dump it and move on. 

A stock will either open red or green, with strength or weakness.  I always wait at least 15 minutes before I make any trade.  To make sure I wait I set all of my charts on 5 minute candles for the first 15 minutes to give me a clearer picture of what the stock wants to do.  Then I'll switch to 1 minute charts and choose my trades accordingly.  I do this because I am trading at work and I cannot allow myself to jump in a trade because I do not have time to watch every tick.  After 15 minutes I can usually tell whether I will trade a stock or not.  Sometimes I am wrong because stocks are often manipulated by market makers, but more often than not, I am right.

My goal this year is to start with making $250 a day and as my account keeps growing I'll raise it.  If I only average $250 a day I'll make $65,000 for the year which is what I make at my job.  Since I am starting with $5000 this year my position sizes will not be as high as they have been.  I will have to scale them up as my account grows. I will not use leverage like I did last year.  I fully expect to be between a $400 - $500 a day average by the end of the year, especially since I have 3 months in the summer to trade full time.  I look at it this way, a 1000 share position with just a .25 move is $250.  or 3 .10 moves is $300.  The only thing that can stop me from hitting that mark daily would be my responsibilities at my job.

In my next post I will talk about how I modify my watchlist in the morning and how I locate possible intraday trades using Equityfeed once I have exhausted all of the tickers on my morning watchlist.  Also, in the mornings I scan for my favorite intraday set-ups, the gappers.  These setups will be even more profitable to me once I start shorting.  Until next time, happy trading!