Scanning Tips and
|We spend too much time looking for stocks to trade.
Surprisingly, stock picking is one of the easiest skills a new
trader can learn (while actually taking a position is one of the
The trick to finding good setups is scanning dozens of charts in
seconds, instead of hours. And this isn't as hard as it looks.
||First, let's talk about stock scanning. Chart database programs
(such as Worden's TC2000) feature advanced market scanning
tools. With them, you can write Boolean statements that will
search quickly for your needle in the market haystack.
Many folks think the purpose of scanning is to find perfect
trades that can be mindlessly executed. Nothing could be further
from the truth. The best scans just take you to the next step,
where you discover the opportunity for yourself.
|Your two eyes are better tools for locating good trades than the
most carefully written market scans. The most effective formula
will uncover a lot of useless garbage but also let you find the
real gems. So keep your search sloppy, and don't try to
optimize. Instead, put your resources into a fast computer that
lets you flip through your output at the speed of light.
Let's examine five visual aids to speed up your stock scanning.
Train your eyes to look at charts in this way the next time you
sit down to do your market homework.
You don't want to ski on the Bunny Slopes. There's little
profit for traders when price rises or falls in a very gentle
pattern. Real opportunity comes when strong tension between
conflicting forces gets released in a big move. Bunny slopes
never build that tension and should be avoided if you're looking
for short-term gains. The good news is it takes only a second to
see this flaw on a price chart.
Border Disputes happen between price bars and intermediate
moving averages. These conflict levels define important setups
because so many players react to these zones. Keep your eye on
the interplay between price, the 50-day and 200-day moving
averages as you flip through your charts. No single pattern
defines these disputes, so stop and investigate when you see
Davy and Goliath traps many traders. This trend-relativity
error happens when you see a great pattern, but miss the support
or resistance that's going to screw it up. Avoiding this error
is simple. Look above and below the breakout price for the setup
that's catching your eye. Then do the math. How far will it
travel before it runs into the mean ogre?
Trend Mirrors tell you to look to your left before taking a
trade. Mirrors show all the past stuff that's going to affect
price movement right now. One of the great trading secrets is
that price reacts a lot more than it acts. In other words, old
debris in the charting landscape generates most price swings. So
look for all the past highs/lows, gaps, volume spikes and candle
shadows when you see an interesting setup in the present.
If you have to look, it isn't there. The Bad Hair Day refers
to a price chart that makes absolutely no sense when you first
look at it. So what do you do when an oddball pattern catches
your eye? You waste more time and try to figure it out. When a
chart doesn't slap you across the face at first glance, move on
and find one that does.