Scans For Short-Term Traders
After hitting new highs
last Thursday, the market has pulled back on light volume the last
two days. While it looks like certain stocks and sectors may be getting
ahead of themselves, the trend remains up. Longs have been significantly
more profitable than shorts, and until that changes, or I see more evidence
of distribution, I’ll continue to focus on the long side.
On Wednesday, I discussed how intermediate-term
traders could run scans to search for potential trading candidates. Today
I’m going to discuss some ideas for short-term traders.
There are two schools of thought among short-term
traders — those that care about fundamentals, and those that don’t. In
my view, the shorter the time frame, the less important fundamental analysis
becomes. If you are strictly a daytrader, fundamentals may matter very little,
if at all. If you are a swing trader who likes to try and hold on to a
piece of your position for a potential home-run move, then they become more
important. Intermediate-term traders should always be aware of a company’s
fundamental outlook.
The weight you put on fundamental research will
help determine the best way to scan for potential trade candidates. Let’s
first look at the case of the purely technical trader. If you prefer to trade
a limited number of methods, and want to find the stocks that are setting up
to trigger using these methods each night, then the absolute best way to do
it is by using computer scans. For instance, let’s say you like to trade Connors’
Window’s Strategies, and you especially like the “Hanging Windowsâ€. If you want
to find all the stocks that are setting up as “Hanging Windowsâ€, you simply
need a program that will quickly scan through the universe of stocks and will
spit out the ones that fit the criteria. You can then flip through them
and find “Hanging Windows†that look best to you.
There are many programs out there with these capabilities.
Tradestation is one. SortWizard, which can be used in conjunction with
RealTick, is another. People who don’t feel they have the time or expertise
to create the searches needn’t worry. Most popular day and swing trading
setups can be found either for free or purchase. Two places you could inquire
about this would be with either the software vendor, or the author of the trading
setup.
The second way for short-term traders to scan for
trade candidates would be to create a watch list of stocks that meet certain
technical and fundamental criteria, and then trade exclusively setups among
that list of stocks. The size of this list may vary, although to consistently
find some meaningful setups I would suggest your watch list contain at least
30 names. This watch list will need to be updated periodically. Certain
stocks will no longer qualify, and others will emerge. You should update
this list at least every few days. Criteria that could be considered when
setting up such a watch list might include ADX (look for strongly trending stocks),
Earnings Rankings (strong growth potential for home runs), Industry Group Ranking
(the stronger, the better), Relative Strength (leading stock or lagging stocks),
or Average Daily Volume (most traders prefer highly liquid stocks, although
this varies).
Once
you have the watch list, you can then flip though that select group of stocks
each night in search of intriguing trade setups. One thing that I would
suggest when working from a defined watch list is that you make sure that a
wide array of industry groups are represented. Stocks within the same industry
group many times tend to move in step with each other. By diversifying
across industry group, you increase your chances of more consistently finding
meaningful setups.
Some
people prefer to combine these two methods. You can certainly run computer
scans against a defined list of stocks, as well. This will ensure that
you don’t overlook any of the setups you like to trade among your watch list.
However
you decide to run your scans, do it consistently and you’ll always be prepared
for the next trading day.
Best of luck with your trading,
Rob Hanna