There are thousands of Stocks to choose from and there isn't enough time to search through all of them. There are also a lot of stocks that are horrible trading vehicles including stocks that are trading none to little volume. We use a Scanner or Screener to narrow down the selection of stocks we see and only show us ones that meet our specific criteria.
We also show you how to check which sectors are performing well. Trading stocks that are in a strong performing sector greatly increases your odds of being right. As mentioned before we need to stack the odds as much as possible in our favor.
Swing Trading Stock Screener.
How to Scan for Winning Stocks
Scanning for Stocks With FinViz.com Stock Screener
Finviz.com is a free website that allows you to select endless parameters and find the stocks you want to trade. You don't want to trade every single up trend or every single chart pattern setup. Trade the best looking setups that fit your strict criteria. For example you can choose to only see stocks that are trading at least 100 thousand shares in daily volume or stocks that are priced under $20.00 if you have a smaller trading account.
My basic screening filters are quite simple yet very effective.
1. Market Cap = Small ($300mil to $2bil)
2. Average Volume = over 500k (market liquidity)
3. Relative Volume = over 1.5 (higher than average volume shows new buyers/sellers)
4. Price = under $30.00 (personal preference)
5. Country = USA (not mandatory but cuts out a lot of garbage)
6. Sector = Top performing (when available)
Identifying Sector Strength:
We use the S&P 500 to watch the overall markets and to identify the current market direction or trend. Finviz.com breaks it down a little further and shows us the top performing sectors. When possible I like to trade within the top two or three strongest performing sectors. During bull markets these sectors contain stock that trade high relative volume and are more likely to have explosive moves. Chart pattern breakouts become more reliable and more profitable during these times.
Take a look at the sector performance image below. Notice our top performing sectors across a 1 week, 1 month, and 3 month time frames are Healthcare, Technology, Consumer Goods, and Utilities. Weakness is also clearly shown in Financial and Conglomerates sectors.
Finding Positive Risk vs Reward Chart Setups:
Now that we have found our top performing sector(s) and have set our filters for the screener it's time to look at the chart results. I'm specifically looking for bullish charts that are trending up. I look for specific chart patterns that you can learn about on my Chart Patterns page. Lastly I wait for the stock to give me a good risk vs reward entry. I attempt to find bullish trending stocks so I can trade them multiple times. A stock will remain on my Swing Trading Watchlist for as long as it remains in an upward bullish trend. I will attempt to trade the stock every time it gives me a good risk vs reward opportunity. If I miss the breakout or big move I will simply wait for the stock to pull back and re set itself up again.
Below is an example of a stock $AGRO that remained on our Swing Trading Watchlist for 6 months since October of 2015. $AGRO went from $9.00 to just under $13.50 over that 6 month period giving $4.50 in total range. Now lets look at the three trades that presented themselves represented by the green highlighted circles. First a move from $9.00 to 11.50 for a $2.50 range, second a move from $10.75 to 12.50 for $1.75 range, and third a move from $11.75 to $13.25 for $1.50 in range. These three trades presented over $5.75 in trading range, more range than the last 6 months from low to hi. Not only did our proper entries give us max range but each time the holding requirement was only 1-5 days, keeping our account mostly in cash and allowing for other trades during the cool off period.
For me the best trades are ones that have large range breakouts with large relative volume. The idea is to sell into these large breakouts and then give the stock a couple of weeks to cool off and re set itself up. If a stock remains in a bullish up trend it is likely to have multiple breakout moves. If you miss a stock that makes a large breakout move as you predicted, don't make the mistake of chasing. Be patient and wait for the stock to come back down and offer a positive risk vs reward ratio and low range entry day with a defined risk.