"Stock screening/selection" for the weekend topic.
Like many things in life that are important, you need to be able to articulate what it is that you are trying to achieve when you are deploying a stock screening or selection strategy. If you are unable to clearly and simply explain your methodology to someone with no knowledge of trading then I would suggest that you perhaps revisit your strategy. Stock selection is not that hard imo. It is what is done subsequent that determines whether the stock selection worked. This involves investor psychology, entry and exit strategies, trade management, risk management, portfolio sizing etc.
In my eyes when the market is Bullish I am looking to enter the strongest stocks, preferably where there the Smart Money is accumulating, as they have access to a wider amount of 'information' lets say than retailers have, and you want to be alongside them when they are buying, and conversely when they are selling.That is why the study of Volume is so important imo as it gives you a realtime picture of what the insiders are doing.
With that being said there are a number of ways to discover these stocks for possible selection:
1. Run a 52 week low scan and seek those stocks that have been smashed down then have had a long basing period. Add those that appear to be trading sidewards that have the potential to have a great story, so when it comes for the mark up phase the smart money and hopefully the clever retailers can then sell into the hype.Typically this is an event where the Volumes are extremely high and the individual stock threads are going crazy and there is talk of "this stock is going to the moon" or similar.
As a side note keep an eye on the number of posts in the STT weekly and weekend threads. Use this as a measure of investor sentiment. When posting numbers are extremely high there is a good chance that the market has reached a temporary high and it could be a good time to take some profits off the table. Conversely when posting numbers are low, it would probably be a good time to seek out those stocks that have been belted down, as retailers have been stripped of their holdings. The old say that "when there is blood in the streets" probably is a simple way of explaining when the Smart Money love to be actively accumulating.
2. Additionally run a 52 week high scan to add those strong stocks that you can watch to enter on a pullback such as a swing low or pivot point. If the Volume drops off as price is pushed down to trigger stops and in the hope of soaking up the loose float, you can then get set to sell into the next swing high.
3. Look at the HotCopper movers on the bottom left of the homepage, and also look at the HotCopper most posted stocks on the homepage. Then also look at those stocks that are moving across the top of the HotCopper screen in green to for possible selections.
4. Look closely at the STT threads. I actually believe that within these threads are stocks that retailers post which allow other members to do some research and then get set early, sometimes before the Smart Money begins to start accumulating. I highly recommend paying close attention to all of the stocks mentioned and work your way through the ones that you think could be in the strongest sectors at that point in time that have solid Fundamentals and offer a decent risk reward.
5. Be patient. As J.Livermore so famously wrote, it is the sitting that is the hardest thing to do. Wait for your setup. Wait until you feel it is the right moment to act. When and why this is all ties back to what it is that you are trying to achieve.
6. Be consistent. There is no point changing from one selection strategy to another if you have developed a system that has proven to work. There will always be 100s of different ways that could be used as a method of stock screening/selection. Once you have found those that work stick to them. If market conditions change significantly then yes that is a good time to revisit what it is and how you will go about your business.
Finally stay relaxed, trade mindfully and go with the flow. You cannot swim up stream so to speak. You only need a couple of really big trades to make your year rewarding. Yes you can tinker around with short term trades, and even day trades whilst holding and adding into those golden stocks that you hold that you can see will flourish. Just don't get caught falling in love with the story as Directors are very good at selling the sizzle. Be bold, back yourself and continue with your learning. This is one of the toughest gigs to make money in, due to the imbalance of the breadth and access to knowledge and sheer earning power that the Smart Money have over the small retailer. However in saying this if you are prepared to work harder, smarter and grow as both a balanced person and have a satisfying life away from trading, then you can make some seriously large amounts of money.
