Scanning - it's a process
One of the common misperceptions that people have is that you need the perfect scan; that scan that gives you back 3 winners from the universe of stocks that exist. I don't believe that is reality. The reality is that you must look through 50 charts for every 3 that might make sense at right now. Of those 50, maybe 10 are worth watching, 2 or 3 may be worth an immediate trade and the rest are throwaways. Scanning is a process. I'm sure there are many ways to structure the process but, for your covenience, I've listed my mine below.
With Prophet Net (which I use almost exclusively) you can easily set up scans and watchlists to track potential trading candidates over time. I'm sure there are other services and I only mention them as an example because it's a product I use and have a subscription service to. One of the items I like best about about there service is that you can arrange your scan results to show the time periods you are interested in and you can place a number of charts on the same screen enabling you to flip through them really fast. I can flip through a 100 charts in 5 or 10 minutes and save the ones that need further analysis with a single key stroke. Once I have flipped through all the potentials, I review those that showed promise.
It is at this point that I divide them into two groups; immediate and future. The future ones I don't do much more on them until later. The immediate ones I'll look more at there longer term charts (I look at 6 month charts with only moving averages at first) and any recent news and how the stock reacted to it. During earnings season, I'm especially careful to try and avoid large positions in a stock that will report. I might carry a small position but a lot of times, I'll just stand aside and then re-enter later if it still makes sense.
A common misnomer is that you have to catch all of a move in order to be profitable as a trader. I could not disagree more. I don't care if I miss one dollar of a move at the beginning and then end and even a dollar in the middle if I catch a couple dollars of the overall move. If I'm constantly looking for setups, what does it matter whether I make all I can make in a given stock? What matters is not getting hit with a huge loss in any given stock. You can't always avoid this but if you work with a lot of charts that show promise, the odds are you will do ok. Of course now we are crossing into the land of money management and that's a subject for another piece.
With Prophet Net (which I use almost exclusively) you can easily set up scans and watchlists to track potential trading candidates over time. I'm sure there are other services and I only mention them as an example because it's a product I use and have a subscription service to. One of the items I like best about about there service is that you can arrange your scan results to show the time periods you are interested in and you can place a number of charts on the same screen enabling you to flip through them really fast. I can flip through a 100 charts in 5 or 10 minutes and save the ones that need further analysis with a single key stroke. Once I have flipped through all the potentials, I review those that showed promise.
It is at this point that I divide them into two groups; immediate and future. The future ones I don't do much more on them until later. The immediate ones I'll look more at there longer term charts (I look at 6 month charts with only moving averages at first) and any recent news and how the stock reacted to it. During earnings season, I'm especially careful to try and avoid large positions in a stock that will report. I might carry a small position but a lot of times, I'll just stand aside and then re-enter later if it still makes sense.
A common misnomer is that you have to catch all of a move in order to be profitable as a trader. I could not disagree more. I don't care if I miss one dollar of a move at the beginning and then end and even a dollar in the middle if I catch a couple dollars of the overall move. If I'm constantly looking for setups, what does it matter whether I make all I can make in a given stock? What matters is not getting hit with a huge loss in any given stock. You can't always avoid this but if you work with a lot of charts that show promise, the odds are you will do ok. Of course now we are crossing into the land of money management and that's a subject for another piece.
posted by Tat | 12:34:00 PM
4 Comments:
"I don't care if I miss one dollar of a move at the beginning...." But doesn't this increase your risk? i.e., if your R/R projections are done and you miss your entry by a dollar, you now have a dollar more risk and one less reward, right? Or would you chalk up this scenario to slippage?
Like everything in life, it depends. When I say that, I'm suggesting that if a move has, say 10 points in it, if you miss the first three points of a move up and then wait until you catch a retrace, for example, of say a point, then you have "missed" the first two points of the move yet I don't think in such a case you have increased your risk. You have simply let a move get underway and then, when the time is right, you enter with a good risk/reward. I don't think the idea of missing some of a move at all increases your risk if you wait until an appropriate time to enter. Really depends on the chart and where you enter on that chart. Hope that makes it a bit more clear.
Thanks for clearing that up. The tough part is deciding how much move is actually left.
My approach is to see if a setup makes sense; period. If I can see a difference between the likely loss stop point and the likely gain price point that makes sense, it's worth it. If not, it's probably not. Add in the general market direction and then you have a tendency to lean mostly one way or the other or in the middle. Not a science by any means but it puts the odds in your favor and that, in a nutshell, is what it's all about in the end.
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