How to Screen or Pick Stock for Stock Trading

Picking a stock is an important step to stock trading. There are hundred of stocks out there and the choice can drown you. I wrote previous about how to screen stocks here from perspective of various traders; there is even the Mark Minervini trend template you can use to screen stock

Again here are ways to screen stock for stock trading using technical analysis. These uses a stock screener

Option 1
- EMA price above

Option 2
- MACD about to cross signal from below

Option 3
- MA 20: moving average about to  EMA 13

Option 4 (Mark Minervini Trend Template)
- current stock price is trading above the 50-day moving average
-  50-day (10-week) moving average is above both the 150-day and 200-day moving averages
- price is 30 percent above its 52-week low
- current stock price is within at least 25 percent of its 52-week high

Option 4 (ABS trading)
- MA 20 price is above average
- MA 50 moving average below MA 20
- MA 100 moving average below MA 100
- Value average (10 days) above 20
- RSI 14 equal or more than 70

After stocks are screened this way, look individual into the chart and plot entry, exit and cut loss points

Stock Trading Planning

Money Growers PH shares how to plan your trades in stock trading

• set entry point
• set sell point
• set stop loss or stop profit
• risk computation (risk reward ratio of 2:1)
• portfolio allocation
• potential reward

He first draws a line on the chart for the lines of support and lines of resistance. Buy on support, sell on resistance

Chris Cruz shares his reasons for buying

• Uptrend
• Old resistance becomes support
• Fibonacci 23.5%
• MA 20 support

Abraham Avila Jr of Abs Trading shares

What's a trading plan?

Trading plan helps you to organize your thoughts and takes the emotion of the stock trading

Structure of set of guidelines, define your trading activity, and what and when and how to trade

Why create a trading plan?

manages your risk better

streamline decision making

helps you enter and exit based on strategy and not emotion

maintain disciple

How to develop a trading plan?

Answer the 7 questions

1. what markets are you trading?

- US market? Futures? Crypto currency? Commodities? Stocks or Equities?

- mastery or focus; pick one market then once mastered that's when you pick another. There is also a saying not to limit to once income vehicle

2. what time frame?

- as newbie, focus on one thing. Pick on the set-up most suitable to you. Position trading? Momentum trading?

- as a newbie, master daily candle or daily time frame for now

3. how much are you risking one each trade?

- risk first before profit; how much are you willing to loss to lose?

- started with 25,000; newbies advised to risk at 5 digit amount to as much as 100,000

- biggest lost placed at 2,000

4. What are the conditions of your trading set-up?

- what are the criteria to enter a stock

5. How will you enter your trade?

- breakout? retracement? pullback?

6. Where is your stop loss?

- 5%? Break of resistance?

7. Where is your profit target?

What markets are you trading?

PSE Market capitalization

Blue chip (top 10 companies): Investors; mabagal ang returns

2nd liners (good fundamentals): Investors/ Traders;

3rd liners (Basura stocks): Traders

What is your time frame

Position trader:

- look at big picture--weekly

- Entry/ Exit--daily

Swing trader:

- look at big picture--daily

- Entry/Exit--intraday (minute chart/5 or 15 

Day trader

- Entry/Exit: intraday

How much as you risking on each trade?

Risk should no more than -1% of total portfolio per trade e.g. 100K portfolio lose only 1K

Position sizing and allocation. Avoid buying a lot of varied stocks with low volume.

Buy 8,000 per share to save on transaction fees

Risk Reward ratio 1:2 or better

What are the conditions of your trading setup? Parameters

downtrend? range? uptrend?

Range trend better for experienced trader; buy on support sell on resistance

Uptrend: you just enjoy the ride; recommended (trend or swing) for newbies

Downtrend: avoid for newbies; may be done by experienced traders with success

If price > 20 MA >50 MA > 100 MA then the trend is bullish; AOTS by ZeeFreaks

How will you enter your trade? Triggers

buy on support, sell on resistance

buy on breakout: recommended

buy on retracement

if trend is bullish, then identify the resistance where price could breakout to

if price break the resistance at near end of day, enter an allocation 50% max of total accounts

Where is your stop loss?

If price return back below the previous resistance or reached -3% to -5% loss then cut loss

Where is your profit target?

If price snaps the 20 MA, then take profit

Sample Trading Plan

Trade setup: breakout play

Trade objective: trend following

Primary Criteria

- prior consolidation

- breakout of resistance of the consolidation

- volume spike

Secondary criteria

- longest range in the past 10 days or 2 weeks

- new 2 month price high

- price closed above the upper 50% of the day's range or better

Indicators

- AOTS

- RSI 71

- MACD crossover

Abs Trading checklist for Breakout Play (old study)

AOTS
Breakout of resistance

Supply and demand

Prior consolidation

Longest range in the past 10 days

Price closed above pivot point of the day's range 50%+

RSI above 70

Stock Indicators to Buy More Stocks

I wanted to get into stock trading, and what are the indicators I need to know at the minimum to know to enter and exit or how to set buy and sell triggers

• moving average 20: when the price pierces the MA 20, time to probably sell
• candlestick: watch out for the doji
• MACD: when the histograms almost flattens
• RSI: line goes below the 30

Stock Trader's Tool and Set-up

ZF shares
On trading tools commonly used:

• Moving Averages (MAs), 
• Darvas Box Method, 
• Fibonacci 
• RSI (Relative Strength Index)

On buying and timing

• buy in tranches - 3 tranches to be exact : Before, During, and After breakout point.The tranches can be done in weeks, several days or all in one day. 
• The safest to buy is during the matching or run-off at 3:15-3:20 PM since at that point, the possibility of a whipsaw is close to none.
• If you're an active trader, probably 2-5 times a week. 
• If you like to diversify and do low volume trades, then you can do 5 trades a week. 
• A Trend follower can trade once every month or even 2 months

Stop Signs and End of Trails

This post continues on how to set trail stops and when to sell. The aim of which is to avoid loss.

Rayner Teo, a Singaporean independent trader, shares on 5 stop loss techniques

• moving average: exit your position when price closes below 20 SMA
• martket structure: exit when swing low is hit
• percentage: exit with 10% change in  high is hit
• average true range: 5 ATR from the lows; slash chandelier stop
• Previous candle: trail based on the previous candle high or low

MoneyGrowers shares how to set stop loss; it is based on trade objective: momentum or bounce

• for momentum play, place stop loss at confluence of support (read below)
• bearish engulfing candle signals potential sell; the opposite bullish engulfing candle signals potential buy 
• if prices glide in 20 MA, momentum might build up

RKay shares places to place an stop loss

• recent swing high
• recent swing low

ZF shares

• During parabolic runs, hold until candle goes below the previous days's closing price
• Buy on Breakout and Set Trailing Stops
• 3rd day red candle with gap (abadoned baby sign)
• FastK at buy levels with RSI at 53 *on sample chart analysis
• It is also common to set trail stop at previous green candle or moving average or retracement

RKay shares about confluence Confluence Trading Price Action Techniques

• Confluence:  two or more levels  come together at a certain point on your chart 
• It can be a a trendline coming together at at 61.8% or 50% fibonacci level
• it can be a support level meeting a rising trendline
• it can be a Fibonacci level meeting a support level where price meet

RKay shares further that there are 4 areas or levels confluence trading can happen

1. support levels
2. resistance levels
3. fibonacci levels
4. trendlines

Swing or Trend then Screen the Stocks

To get started in stock trading, you need to pick stock. How to effectively pick stocks?

MoneyGrowers shares how to screen stock

• need tool to scan stocks: RSI, CCI, Moving averages, Stochastic, etc
• Mark Minervini has a stock template
• screen 200 MA, price above average OR
• MACD, about to cross signal from below (but this option is not found on Tsupetot)

Money Growers has another suggestion

• check stocks with AOTS (see previous post about this) then do Darvas box and watch for those near breakout

Investagram has a screener. Need to be beta user. You be a beta user when you post to your Facebook account

You can also use Tsupetot to screen stock;

TrickTrades shares to do nightly scan or create watch list pre- market using Finviz

• he said to become prepared: study tonight's market for tomorrow's play
• he screens stocks based on price: $20 and under and he plays with small cap

Drake Traderbits uses Investagrams Screener and shares

• chose trend: uptrend + MA 20 above to cross EMA 13 below; but Investagram screener unfornately does not 
• once he gets the stock fitting the above criteria, he used trendlines  to verify the uptrend
• he also manually checks MA 20 and EMA 13 is they are really about to cross
• he adds MACD 

Stock Screen websites/ apps

• Finviz free to use
• Investing.com Stock Screener free to use; one click on the selected indicator
• StockLabs.ph has a stock screener for premium members
• PSE Watch android app
• Tsupetot for PSE

If you want to pick uptrend stocks, you can use COL's technical guide: Research >> Technical >> Technical guide

It will list per sector and in columns the following information: the price, % from 52 week high, trendmode (uptrend/downtrend) then recommendation (sell, buy or hold)

ZF says

 I usually pick those issues that are on the Top Gainers/Losers. Then observe it in the coming days/weeks. If movement is 'good' to my tastes, I go for it.

Alignments, Strikes and Parallel Universe

There are important conditions to remember and they also have creative terms

• Zeus strike (ZS)
•  price pierces or is above 100 MA; 
• signals trend reveral
• also known as death cross?
•  Inverse Zeus Strike (iZS)
• price is below the 100 MA
• signals downtrend
• Alignment of the star (AOTS)
• where price is above 20/50/10 MA and
• 20MA > 50MA > 100MA
• signals uptrend; but not completely a buy signal as it also needs other trigger points
• Reverse Alignment or inverted AOTS
• 100 MA > 50 MA > 20 MA
• signal downtrend
• Parallel Universe Alignment (PUA)
• ZS should happen or should have happened in the daily + ZS on weekly chart; 
• signals the beginning of a major trend shift from down to up,
   or up to down

Cookies Laws and Rules of Trading

I got stuck on a concept on stock trading I did not understand again. This is the flaw of self-studying, you may go on a zigzag pattern trying to learn the concept. Learning is accelerated if you have a mentor. And so when times like this strikes, I go watch MoneyGrowers YouTube for awhile before getting back to studying.

 On the side, I am thinking about getting into online marketing instead instead of stock trading. And with this I recalled my earlier days of Blogspot ( which is now Blogger). I did several trial and error of earning from blogging using Blogspot + Adsense. No good result. While I was starting to learn about blogging, I was slowly introduced to Wordpress and continue to use it until this day. I set aside Adsense for the longest time.

 And after forgetting about my blog for a long while, I was greeted with the new laws on cookies notification when I logged in.   I decided to purge all those other blogs and retained the very first blog for sentimental reasons.

Back to stock trading, there are questions (as asked by Yggdrasil)

Why do you enter trade?
What made you buy or sell a position?
Is it because (insert name here) says so?
How can you win a battle when you don’t even know what’s your Target Price or your Stop Loss?

Answers to those questions in the coming posts.

And now the cardinal rules of trading as shared by Yggdrasil

Do not engage without a plan, unless you plan to lose.Do not enter without a proper setup.Do not enter a stock without a chart.Do not be greedy, Take profits whenever happy.Do not listen to noise or hype, It will blur your decisions.Do not lose what you can’t afford to lose.Do not trade and learn nothing.Do not trade when in doubt.Do not hold a stock that doesn’t go with your bias.Do not lose greater than what you gain.Do not trade if risk outweighs the reward.Do not chase a stock. be prepared to catch the next.Do not break a rule, unless winning is absolute. 

Skipping Lessons and Moving Averages

 

Photo by Pixabay on Pexels.com

I am self-studying a system to succeed at stock trading. I have zero knowledge in finance, banking or business. But I have seen a lot of people in various walks of life doing well at stock market so I decided to try it for myself. As I was reading to through the blog posts, some concepts are still hard to grasps for me. At first, I thought I would tackle them head on like MACD but it just made me more confused and I can't seem to move forward. This takes me back to the post of Yggdrasil where he quickly transitioned to a master chartist in a week. It begins with a gratitude to a mentor with a portfolio screenshot  of gains. Then 7 days later, he presented a complex stock chart analysis. I want to learn and be like him, but getting it all in in 7 days, I am not sure. So for now, let's start with moving averages. Lifted from Investopedia

simple technical analysis tool that smooths out price data by creating a constantly updated average price. The average is taken over a specific period of time, like 10 days, 20 minutes, 30 weeks or any time period the trader chooses. Moving average crossovers are a popular strategy for both entries and exits. Common moving average lengths are 10, 20, 50, 100 and 200. When the shorter-term MA crosses above the longer-term MA, it's a buy signal, as it indicates that the trend is shifting up. This is known as a "golden cross." when the shorter-term MA crosses below the longer-term MA, it's a sell signal, as it indicates that the trend is shifting down. This is known as a "dead/death cross."

ZeeFreaks (ZF) would describe moving averages as linemen. He has other terms for the golden cross and dead cross. And I quote ZF

When your "linemen" are above the candles, the trend is down.

When your "linemen" are below the candles, the trend is up.

In Patintero, once a lineman catches you, you're out! Period.

In stocks, I can choose which lineman tells me when I'm out.

Here is a video from Trading 212 to illustrate about moving averages

And here is part two of moving averages which illustrates that when a shorter-term MA crosses above the longer-term MA, it's a buy signal and when the shorter-term MA crosses below the longer-term MA, it's a sell signal

Questions and Answers from ZF

•  When can you use moving averages in stock trading?
  • Moving averages can be used with Blue Chips, some 2nd Liners, but rarely on 3rd Liners [more about blue chips, 2nd liners and 3rd liner below]
• What SMA numbers do you use?
  • The simple moving averages I use  20/50/100 MAs; But sometimes I use 30/60/90 For Blue Chips.
• Which linemen or SMA tells you sell/quit that stock?
  • For blue chips, I use 90MA. But usually, I'm already out once 50 MA snaps
• What are Blue chips, 2nd liners etc?
  • Index stocks = Blue Chips 2nd Liners = Good fundamentals But Lacks Liquidity 3rd Liners = Good/Bad Fundamentals. Very Low Liquidity
  • Yue Kai commented to checl PSE EDGE, if the market capital is below 10 billion and below consider that company as 3rd liner
  • Liquidity means you can buy and sell shares easily, no need to wait for a long time for your buy or sell to match
• Is it better use DAILY or WEEKLY movements?
  • Daily is better

Original post: Moving Averages and Patintero

Oversold, Overbought, RSI

Photo by Clem Onojeghuo on Pexels.com 

Sirius Lee in his early days was searching about stocks trading and this led him to Zeefreak’s blog where he initially got disappointed because of not being able to see a single stock recommendation. I also stumbled upon the same blog and was not able to appreciate the valuable lessons in the post until I re-read it and studied some more. It was in the blogs earlier that I stumbling upon MACD which was discussed previously, I also came across RSI. RSI stands for relative strength index and among the popular trading indicator. It is presented as a value from 0-100. It measures speed and change of price movements. Skipping the formula for RSI, lifted from Fidelity

In an uptrend or bull market, the RSI tends to remain in the 40 to 90 range with the 40-50 zone acting as support. In a downtrend or bear market the RSI tends to stay between the 10 to 60 range with the 50-60 zone acting as resistance.

Lifted from Investopedia

RSI is that values of 70 or above indicate that a security is becoming overbought or overvalued and may be primed for a trend reversal or corrective pullback in price. An RSI reading of 30 or below indicates an oversold or undervalued condition.

David of Trading 212 mentioned about RSI being used since 1970's and supporting it's a well established indicator; the textbook value for RSI is 14-day period but he sets it at 10 day period. There is a still a lot more to RSI which will be discussed in another post: Divergences Again, Ricardo Alvaro teaches us how to setup RSI on Investegram chart. MACD and RSI are both indicators that measure momentum in a market. However, Investopedia warns

because they measure different factors, they sometimes give contrary indications

MACD or MacDonalds

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I first got introduced to MACD and RSI while following the blog of a prominent trader. He mentioned about MACD along with buy signal and RSI in acceptable levels on the chart screenshot of a $BHI and $NI. I was puzzled; it was something I need to learn. Lifted from Investopedia:

MACD shows the relationship between two moving averages MACD is The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. The result of that calculation is the MACD line. A nine-day EMA of the MACD, called the "signal line," is then plotted on top of the MACD line, which can function as a trigger for buy and sell signals MACD is often displayed with a histogram which graphs the distance between the MACD and its signal line. when the MACD falls below the signal line, it is a bearish signal which indicates that it may be time to sell... when the MACD rises above the signal line, the indicator gives a bullish signal, which suggests that the price of the asset is likely to experience upward momentum

Another explanation from David of Trading 212 at 3: 38 of video

If lines are about Zero line, it is upward trend (bullish) and if the line is below the Zero line, it is a downward trend (bear).

Comment from CallousDnb

Generally if the averages cross AND the RSI is over 70 sell, if they cross low AND the RSI is near or below 30, buy.

Here is a video by Ricardo Alvaro on adding MACD on your Investagram chart. But instead of the usual 12- ,26- and 9-period EMA, he uses 15- and 30- period. He had not provided reason for changing the default. But other opinions are that, it may be adjusted to 24, 52, 9  which makes the MACD slower and it removes most of the noise. RSI deserves another post.

Identifying Chart Trends

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Trends tell about the direction of the stock, it will signal traders when to buy and when to sell.

 There are 3 trends
1. Uptrend
2. Sideways
3. Downtrend

 And to to identify these trend it may be done using
1. Channel line
2. Moving Averages: same say this is the easiest to learn
3. Price action: some say this is the best indicator

 A trader Ninuni Nunu wrote about it wonderfully.