Swing Trade Setups Part 6: How to Setup Stock Screens
[ This is the 6th article in a series, describing how I trade. You can start with Part 1 here ]
We now know what the “perfect” scenario looks like, but now, how the heck do we find these candidates out of a sea of stocks?
The answer? Stock screens.
This is so important, because by taking the time upfront to create a screen that describes EXACTLY what you are looking for, you are helping yourself in so many ways.
Three reasons why you need to use stock screens for swing trading:
- Stock screens save time – No longer do you have to pore over hundreds of charts every day to find the perfect setup. Each day, you are simply presented a handful of candidates to sift through and review. These are the “best of the best”. The stocks that have the potential to perfectly align with your checklist of a perfect trade.
- Stock screens keep you focused – For me, this is huge! I have documented my flaws as a trader and a person, so having a limited universe of stocks to potentially trade has been a lifesaver. This way, buy only looking at my stock screens, and trading taking trades from what I consider to be the best of the best, I am staying focused. I’m not chasing the latest shiny object that catches my eye. If a stock I find is not on my screen…I’m not trading it, no matter how good it looks. That’s my rule, and I follow it.
- Stock screens produce only the best potential trade setups – This is quite obvious. When setting up a stock screen, you have drilled down to a handful to stocks out of a universe of thousands. The stocks that show up on your screens are now very close to being exactly the type of trade you ideally want to take. By no means are every single trade exactly the ideal trade, but at least you now have a very targeted set of stocks to review and potentially pick. By spending the time up-front to think about your trading method, outline exactly what you are looking for, then trying to describe that within a stock screen, you then have the ideal trading setups right in front of you to review every day. Setting up some of my screens has taken days and weeks to perfect! One time, it took me 6 months to setup just 10 screens! The time was worth it though…I still use those screens years later.
Here are the 2 major stock screening websites that I use:
- Finviz – This website is simple and free to use and has tons a ton of filters that you can pick from. Most of the technical filters should come pretty close to describing the major components of what I am trying to find in a potential trading candidate. The service is free to use, but their paid subscription has a ton of extra features that I like, including some of the basic candlestick patterns to use as triggers. I subscribe to the paid version, which is pretty damn cheap when I consider how much I rely on them and how much money I make from using their paid version.
- Stockfetcher – This is a very unique screening site. You can use very basic screens that are easy to create and setup (they have quite a few pre-set screens that are great). This service is also free to use (you can have up to 5 stock screens with the free service). The paid version is also very cheap, just like Finviz, and adds tons of functionality, including the all-important ability to backtest your screen! Their service allows you create very specific, granular requirements that a extremely specific and narrow. One of the main reasons why I like Stockfetcher is the candlestick focus. I have created filters that describe the basic chart pattern I am looking for, that also describe the exact candlestick pattern (example: Matching Low, or Homing Pigeon), along with indicators. Some of these screens only produce 1 stock to look at a week, but usually, that stock has all of my check-boxes ticked off for being a perfect trade!
Creating screens using my ideal setups
At this point, you can see what I am ideally looking for in a positive swing trade reversal.
My ideal trade setup is:
- A stock that has a relatively sharp upward move, then a relatively sharp, clean decline
- A stock that has been trending upward nicely over the long term
- A stock that has approached support levels (horizontal support lines and upward sloping trendlines)
- A stock that where recent trading action over the last day or two produces candlestick patterns that show a potential reversal is likely
- A stock that has indicators that I have selected, showing that a potential reversal is likely
One thing, I have noticed…it is very hard to describe all of exactly what you are looking for and boil it down into a stock screen. As they say, a picture says a thousand words. Stock screens typically describing basic conditions, greater than, less than, equal to, etc. My goal with screens is to get a reasonable approximation of customized parameters, which produces a daily output of stocks that meet the criteria. I then look at the results and find the best that match exactly what I am looking for.
Ok, let me just give you a few basic examples of screens that I use…
My favorite screening site is Finviz
It’s free to use, but with a ton of features that I love with the paid version. Here is their site: Finviz.com
Take a look at the technical filters you can pick from to setup a screen from the image above.
You can also include fundamental filters if that’s your thing, and then descriptive filters. I use both the technical and descriptive filters for my preset Finviz screens. Here is an example:
Here are the parameters:
- Market Cap – Over $300 million: In my opinion, I have found that I don’t see as much reliability in technical analysis patterns for super-small companies. I want to trade a company with bit of a following of traders and holders.
- Price – Over $1: I have found that technical patterns seem to hold up better for stocks over $1. Probably a stock over $5 would have even more reliability of technical pattern reliability, but I have found that some of these smaller priced stocks between $1 and $5 have a great combination of huge gains with decent reliability.
- Average Volume – Over $1 million: I want to trade a relatively liquid stock. Get in…get out.
- 50 – Day Simple Moving Average – 50 Day SMA above the 200 Day SMA: I want a stock that has been behaving well recently, where the last two months, the stock has traded higher than the 200 day moving average.
- Performance – Week, down 10%: I’m trading positive reversals…so I need to have a decline to setup the bounce.
- Candlestick – Inverted Hammer: Here I’ve selected from their preset candlestick signals a bullish reversal, the Inverted Hammer.
Today, that produced exactly 1 result, NTLA. Here it is:
This actually looks like a great trade! Here is the chart:
- I like the previous up move, which started with an initial breakout in late January, retraced to the breakout point, then rocketed higher.
- Now we’ve had a decline right back to the breakout point, with a series of 6 straight red candles
- And now we finally have a white candlestick yesterday…the inverted hammer. Look at how this has occurred right near where these two blue support lines intersect!
This is one to watch this morning. If it moves higher right off the bat, this is one to get in on!
In any case, you can see how with a relatively simple screen on Finviz, you can come up with a stock screen that should match your trading style. Finviz is much more intuitive to use when compared to Stockfetcher and a great starting point to setup your screens. If I were to pick one to focus on, get started with Finviz. The free version is a great way to get started testing your potential trade setups. Once you get comfortable with it, and find that you are making successful trades, the paid version of Finviz would make sense.
Another filtering site I use is Stockfetcher
This is a screen I use that is looking for a specific candlestick pattern, the Bullish Harami Cross. Stockfetcher is a useful tool for me because it has pre-built candlestick filters that are already defined. Remember that I do like to use candlestick patterns that occur at pivot points of horizontal and upward sloping trendlines.
The filter starts with very broad criteria, then keeps narrowing the paramaters down to more and more specific requirements.
Let’s look at each one of my settings in this screen. Remember, these settings are variations of my overall theme of what I consider to be my perfect setup.
- pattern is Bullish Harami Cross – This is a positive reversal candlestick pattern. Ideally, when I look at the screen results, I would want to see this at a perfect pivot point. If not, I don’t even consider taking the trade.
- and close is below EMA(10) – I want to make sure that the current price has declined recently. After all, you can’t have a positive reversal, if the price hasn’t previously declined.
- and close is above 5 – I wanted to weed out tons of penny stocks…personal preference on this screen.
- and average volume(30) is above 20000 – I don’t want to view illiquid stocks, and want to make sure there is enough volume so the actual patterns are legitimate and not flukes.
- and RSI(7) is below 45 – Remember that I like to combine candlestick patterns with an indicator. This one is requiring that the RSI is starting to reach an oversold level
- and MA(50) is above MA(200) – I want to make sure the more recent trend has been positive, where the 50 day moving average is above the 200 day moving average
- 50 day slope of MA(50) is above .1 – This one is simply requiring that the 50 day moving average is sloping upwards. I want the overall recent trend of the last 2 months to be positive. The earlier requirement states that the 50 day moving average is above the 200 day moving average, but in some cases, the moving average is headed down.
Now let’s take a look at one of the results from this screen:
On this particular day, March 1st 2018, this screen produced 3 results. Two of the 3 look to have potential, FCB and WSO. I don’t like how FXB has very small-bodied candlesticks and looks to be somewhat choppy, with large gaps between the open and closes each day. It also doesn’t have a clean or relatively quick decline that could potential bounce. It’s meandering along. Garbage.
So I immediately focus on the other two.
Here is the chart of FCB:
We had a two previous mini-uptrends that have occured over the course of what is a pretty significant longer term uptrend. The stock had a recent pullback to a horizontal support line. The current price also reached a upward sloping trendline as well. I love when the horizontal support and upward sloping trendlines intersect. The Bullish Harami candlestick signal occured right at this potential pivot point. This turned out to be a great trade, as you can see, it moved from about 53.50 when the it showed up on my screen and moved to over 57 rather quickly.
Here is the other chart that showed promise, WSO:
Here is a closeup:
One thing I want to point out here…I regularly have stocks that make it through the filters that I look at and don’t like. I’m only looking for perfect trades with a high reward and a low risk. That happens quite a bit. I have over 20 screens that I look at each day. I might take only 1…or none. I want the best of the best. I only take the trades that I feel meet exactly what I am looking for.
I like to just tell it like it is…here is another day’s screen, where the results were some duds. One quick look at these three, and I know that I don’t even need to expand the charts and do any further analysis…
- KSS didn’t have a nice sharp move up and then decline down. It is just meandered along. Not a prospect to bounce when it didn’t have much of a sharp decline to bounce from!
- JSEJF has horrible gaps from one day to the next, with tight trading ranges during the day with hardly any tails. Just dead.
- VIA did have a sharp move up from about 34 to the 39-40 range. It had a perfect bounce after that move up during the first week of February that would have been a good swing trade… but here I am in March. That opportunity is long gone. Look at how it’s just moved sideways since then. Not what I’m looking for. I’m looking for a reactionary bounce. This doesn’t fit the bill either.
Up Next: Putting it all together
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