Here’s A Nightly Plan To Improve Your Trading

  • July 30, 2004
  • Larry Connors

Profiting From TradingMarkets

In this week’s BattlePlan, I’m going to share
with you a daily plan to help you improve your trading using the indicators and
education found on our site. The following was originally published on the site
in TM University and we have updated it for your use. As you likely know, there
are over 32,000 pages of information on TradingMarkets, making it the largest
source of trading information and education found on the internet. Obviously,
it’s a challenge to get through the entire site and absorb all its information.
For the past three years I’ve presented various ways to help you around the site
and I thought this particular article would be of benefit to many.

Here Is A Nightly Plan For You
To Follow

Each evening, you should use the TradingMarkets
indicators to:

  • Get a handle on the short-term direction of
    the overall market.

  • Find the best stocks in the best sectors and
    the weakest stocks in the worst sectors. 

Here is a game plan which will enable you to do
this. 

Step 1. Short-term Directional Bias of the
Markets. To find out what direction the
overall market is poised to move in:

  1. Click to the

    Market Bias Indicators     to determine if there is a short-term directional
    bias. Two or more Connors VIX Reversal (CVR) signals both pointing in the same
    direction will suggest a higher probability of a sharp short-term move. The
    more signals you find with a directional bias, the stronger this probability
    is. A combination that includes CVR I and CVR III is especially favorable.
    Also watch for agreement among the secondary market-timing indicators: the
    McClellan Oscillator, CHADTP and TRIN Thrust. Note that you should place more
    weight on the signals from the Market Bias Indicators than the more subjective
    interpretations from 1b, 1c and 1d.

     

  2. Go to the
    Tools And Research
    page and pull up charts of the major indices to determine the short- and
    long-term trend of the market. Make a note of the trend of the

    S&P 500     ($SPX) and the

    Nasdaq Composite     ($COMPX) over the past seven days. A strongly trending
    market may tell you to have more of a directional bias in your trading.

     

  3. Zoom in to a three-day period and change the
    time frame to five-minute bars. Identify the key support and resistance levels
    and any intraday trends that may extend into the next day’s trading. 

     

  4. Evaluate how the market closed today, paying
    close attention to the final hour of trading. The momentum of strong closes
    near the top of the daily trading range or weak closes near the bottom of the
    trading range may carry forward into the next trading day. 

Step 2. Strongest and Weakest Sectors

Find out what the strongest and weakest industry
groups are. As much as 70% of an individual stock’s movement is tied to the
industry group to which it belongs. Therefore, ideally you want to be long in a
stock in a strong industry group and short in a stock in a weak industry group.

  1. Check the

    Strongest Sectors of the Past 5 Days     and the

    Weakest Sectors of the Past Five Days.      Also, go to the
    Funds Section
    and look at the top

    one-week    ,

    one-month     and

    three-month     RS Exchange Traded Funds and the Bottom

    one-week    ,

    one-month     and

    three-month     Exchange Traded Funds. Since these lists contain international
    ETFs, you’ll have to ignore those. Focus on charts of the strong and weak
    stock industry groups. 

     

  2. Determine which groups are strongest and which
    are weakest. As you proceed to Step 3, you should be able to see stocks within
    these groups as major “themes” in the Indicator Lists. More about this concept
    in Step 3.

Step 3. Finding Stocks — Indicator Lists

Create your pool of stock candidates. To do this,
go to the
Indicators page. If the market has a short-term bias to the upside, focus on
longs. If to the downside, focus on shorts.

An important point on themes:
While the main purpose of going through the stock
indicator lists is to find good trading candidates, you must watch for themes
and dominant sectors. When looking at the stocks within the lists, pay close
attention to whether many of the strongest or weakest stocks belong to the same
or related industry groups. Do these industry groups match those that were found
in your sector analysis in Step 2? If so, that serves to corroborate your
big-picture analysis. A good sign.

Here are good places to start your search:

  1. To
    find buy candidates with powerful trends and high short-term relative
    strength, run through all the stocks in the

    Proprietary Momentum List    . For shorts, go through the

    Proprietary Implosion List.     Click into and look at every chart in both
    daily and intraday time frames, confirming trend strength and looking for key
    intraday support and resistance levels where intraday setups may form the next
    day. Repeat this same process with the following lists:

    For Longs

     


    1. Pullbacks From Highs List

       


    2. New 60-Day Highs on Double-Volume

       

For Shorts

 


  1. Pullbacks From Lows List

     


  2. New 60-Day Lows on Double Volume List

     

  1. To find stocks that have the potential to explode
    to the upside or downside, check all the stocks in the

    Explosion List.     These are stocks which are trading at lower-than-normal
    volatility. Since volatility tends to revert to the mean, stocks such as these
    tend to explode. To find the stocks with a strong directional bias, not only
    should you look at the charts of the individual stocks, but you should also
    scan the columns that are displayed in the indicator’s grid.

     

    1. For longs, look for stocks with high
      short-term relative strength, ADX readings over 30, and DMI indications that
      are “Up.” 

       

    2. For shorts, look for stocks with low
      short-term relative strength, ADX readings over 30, and DMI indications that
      are “Down.”

     

  2. To find highly volatile stocks, go to the “Trading
    Where The Action Is    ” list. These stocks are the most volatile stocks of
    the past 50 days. Look at the charts and focus on those which are exhibiting
    big intraday swings. Also, as with 3b, check the indicator grid columns. 

     

    1. For longs, look for stocks with high
      short-term relative strength, ADX readings over 30, and DMI indications that
      are “Up.” 

       

    2. For shorts, look for stocks with low
      short-term relative strength, ADX readings over 30, and DMI indications that
      are “Down.”

       

  3. For strong candidates that have pattern setups
    in the process of forming, check TM’s Nightly Daytrader’s Report. There you
    will find setups such Slim Jims, strong closes, and final-hour volume surges. 

Step 3a For Haggerty-Style Traders

Traders who have a working knowledge of Kevin
Haggerty’s daytrading strategies as taught in his

“Trading With The Generals Course” will be able to find their trading
candidates on the following screens.

Click here to get an introductory overview of these indicators, but be sure
to take Kevin’s course in order to use these tools properly. 



  1. S&P 500 Index Screen

     



  2. Nasdaq 100 Index Screen

     



  3. 3 Day Wake Up Call

     



  4. Change in Direction

Step 4. Finding Stocks — The Stock Scanner

You can also find trading candidates through the

Stock Scanner. By specifying your own parameters, you can identify
additional daytrading candidates on the long and short side that meet your own
special criteria. Here is one set of parameters that will get you strongly trend
stocks with high short-term relative strength, good liquidity, and good intraday
moves. Feel free to tighten the parameters if this gets you too many candidates.
But don’t loosen the parameters. A lack of candidates may be indicative of a
market that is best watched from the sidelines.

  1. Closing price of 20 or higher. Higher-priced
    stocks tend to have greater intraday trading ranges.

     

  2. 50-day average volume of 300,000 shares/day.
    This enables us to get the liquidity we need for easy entries and exits. 

     

  3. ADX of 30 or greater. Along with an ADX of 30
    or greater,  look for stocks with an “Up” DMI for longs and stocks with a
    “Down” DMI for shorts.

     

  4. 3-month RS of 80 or higher for longs, and
    3-month RS of 80 for shorts.

We’ve barely scratched the surface of what you
can do with the Stock Scanner. 

Step 5: Tips On Knowing When And What To Trade

The obvious final step is to narrow the choices
to the stocks which have the highest potential reward and the least potential
for loss. Also, no matter how good the setups look, you need to decide whether
it’s appropriate to trade any of them, given other factors. Here is a checklist:

  1. Do not trade counter to multiple market bias
    signals. For example, if all your stock candidates are to the long side, but
    you have three or more CVR down signals, it’s better to focus on shorts or
    stay on the sidelines.

     

  2. Check the news on the stocks you are
    considering trading. Many traders will be cautious or not trade in front of
    Fed announcements, earnings reports, or other types of major announcements.
    Surprises can work both for or against you.

     

  3. Make sure that the buy candidates you are
    considering are in the strongest sectors or industry groups and that the
    shorting candidates are in the weaker groups.

     

  4. Be cautious when your list doesn’t contain
    very many names. When there aren’t many buying candidates to choose from, it
    is a sign of overall market weakness. Remember that the market is made up of
    stocks. When many stocks are behaving well, there is a greater likelihood that
    the overall market is healthy.

    Wrap Up

    Hopefully this information helps you with your trading. Being able to identify
    the correct stocks at the correct time is a major factor in the overall
    success you’ll achieve from trading. And beginning on Wednesday, August 11,
    our editor, Brice Wightman, and I will be writing a new weekly column teaching
    you how to further profit from TradingMarkets.

    Have a great week trading (and if you need any help with the above, e-mail me
    at lconnors@tradingmarkets.com.

     

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