DummySpots.com

Below is a list of today’s Top 30 Stocks from a screen I developed based on the recommendations of a well-known trader. They are ordered by the screen’s ranking of their significance as good candidates (not necessarily as longs or shorts, but as tradable movers).

[And anyone know an XHTML-friendly way to split an ordered list into columns?]

1. SPWR
2. STP
3. BIDU
4. APOL
5. CF
6. AAPL
7. PBR
8. MA
9. POT
10. APA
11. RIMM
12. STT
13. SU
14. MBT
15. ICE
16. FSLR
17. WFR
18. MON
19. DRYS
20. CHL
21. UBB
22. CAM
23. DO
24. BHP
25. FCX
26. PCU
27. FWLT
28. FLR
29. MGM
30. WYNN

Doesn’t this look like an interesting and high quality list! Quite different than our normal daily gappers scan, although it contains some of the “usual suspects.”

Here’s the challenge: Anyone have a guess as to where this list came from, and who that famous trader is? Want a clue?

Click on the arrows below to vote for which factors you consider to be important when scanning for daytrade candidates. You can vote “up” or “down” on any/all items. Please feel free to add items of your own!

One of the greatest things about blogging is how much we learn from each other. I think our trading evolves much faster that way than working in a vacuum. For instance, in the comments of my previous post Gabriel enlightened me to the fact that StrategyDesk (hereafter SD) does indeed have a formula for monthly average volume. So my life suddenly became much easier due to some simple generosity.

Let’s get into the meat of this thing a little. Here’s a better-annotated shot of my intraday SD monitor screen with the three windows I keep open. Click for a larger version:

In particular please notice the “Sym” (symbol) and “Inv” (intervals) buttons on the charts. If the Inv buttons are the same color, every time you click a ticker in your screener list, both charts will switch to the SAME time interval. So, make sure the Sym buttons are the same color (so all windows will change to the same ticker when you click it), but that the Inv buttons are different colors, else you’ll get frustrated pretty quickly as your “minute charts” keep changing to “daily” or vice-versa.

To enter a screening formula, highlight the Screener window, then click “Screener” in the toolbar of the MAIN Window. Yes, poor programming. The screener toolbar should be in the screener window. Instead, the MAIN toolbar changes based on which window you last highlighted. Perhaps in a later version…

Under “Screener” in the toolbar, click Add Screener or Edit Screener. This will bring up the Screener Settings window, which is where we do all the “under-the-hood” work. Here’s a screenshot with an important warning:

As of v1.0, SD doesn’t support different directories (”folders”) for groups of formulas- they’re all under the Formula Library list, which can get unwieldy really quickly as you save all your tweaks. For now, I’d suggest you begin each of your custom formulas with a particular letter or symbol so they’ll all stay grouped together within that long list. For example, I start all of mine with a number sign “#“, so the title looks like “# 15-minute Dummy Spot Test“. That way, when I drop down the Select a Formula list, all of my custom ones are grouped together.

Time for that formula! As I’ve said before, your rules have to be extremely specific to be useful. What we’re going to do here is write a formula which will give us, in real-time:

Pretty specific! But that’s what we need if this is going to be really useful. We’re wanting to use this tool to narrow the field the way we previously had to with our eyes, and free our eyes up to pay more attention to the prime suspects as they appear.

Let’s walk through the construction of this formula:

• First, price and volume. The formula for stocks with a prior closing price above 20 is Bar[Close,D,1]>20. The “D” is for “daily bars” and the “1″ tells SD to look at the bar “1″ day before the current day.

  The formula for volume (thanks, Gabriel!) is (Bar[Volume,M,1]/20)>200000. This takes the previous month’s volume and divides it by 20 (trading days in a month), and we’re wanting stocks for which the result is higher than 200k.

  2/25/07 Warning: I’ve been toying with this formula more tonight, and there’s some problem with this volume statement. The lack of documentation by Ameritrade makes this a trial-and-error arrangement, so I haven’t isolated the problem yet. I will post the update/solution once I work it out or someone emails it to me; until then, consider eliminating this statement from your formula and pre-screening your stock list for volume.

  2/26 - formula has been edited and should work reasonably well; please see next post for more details.

• Next, our gap. The formula for a gap simply divides today’s open by yesterday’s close, and, for a 1% gap, looks for a result greater than 1.01. It goes like this: Bar[Open,D] /Bar[Close,D,1]>=1.01

• Now for our 30-minute bar formulas. The high of the current 30min bar would be written Bar[High,30] and the low of the previous bar would be written Bar[Low,30,1] (remember, the “1″ tells SD that we’re talking about “1″ bar prior).

  For our formula, we want the previous 30min bar (bar “1″) to have a lower HIGH than its previous bar (bar “2″), so we would write the formula as follows: Bar[High,30,1] < Bar[High,30,2].

• The formula for a 5-period exponential moving average of 30min bars based on the closing price of each bar is this: ExpMovingAverage[EMA,Close,5,0,30]. I know having to write “ExpMovingAverage” and then having to write “EMA” is redundant. Poor programming again. They should hire someone who actually uses the program as a consultant. Or maybe my 7th grader- she’d catch that one easily.

  Since we want our previous 30-minute bar to have a low which is within 1% of the 5ema, we’d write that part of the formula like this: Bar[Low,30,1] < (ExpMovingAverage[EMA,Close,5,0,30] * 1.01)

• Finally, now that we have a pullback and a price which has come within spitting distance of the 5ema, we want SD to only notify us once the current price reaches more than halfway up the previous bar.. in other words, when it may be approaching a breakout. No need to waste our cerebral processor cycles otherwise– we’ve got better things to do.

  Our formula to say “Last price higher than 50% in the previous bar’s range” requires us to take the high of the previous bar minus its low, divide by 2 (thereby giving us “half” of the hi-lo range), then adding that number back to the low for our cutoff price.

  The way we write that part of the formula is: Last > Bar[Low,30,1]+((Bar[High,30,1]-Bar[Low,30,1])/2).

Ok, bored yet? Let’s put it all together so we can move along to more entertaining subjects. Here’s the completed formula, with each part (hopefully) explained above:

Well, all the formula yakking is great, but what does this accomplish? For your viewing pleasure, here’s a chart from Wednesday which shows the kind of setup we’re trying to catch with this scan:

Well, that’s that. It’s just a basic start, but maybe it’ll give you some ideas. Feel free to copy the above and edit it as you see fit to make yourself a scanner. I’d also encourage anyone who comes up with a useful scan to share the formula in the comments so we can collectively speed up our learning curve.

Cheers, and best of luck!

I’ve waited patiently for weeks and weeks for TDAmeritrade to come out with StrategyDesk 2.0. Or maybe StrategyDesk 1.1. Hell, I’d be excited to see version 1.01. As I’ve said over and over, the clunky interface and next- to- useless documentation are hindering what appears to be a very promising piece of software.

Instead, we’re nearing the end of February and are still stuck with v1.0 and a manual that looks like a non- English- speaking 8th-grader wrote it. I figured about the time I went to the trouble to do some annotated screenshots and a minor tutorial, they’d release a real users manual and my effort would have been in vain. So far, nothing. So here goes- if you want to get your feet wet with StrategyDesk, maybe this will help get you started.

I’m going to focus tonight on what I feel is the most important ability of StrategyDesk: its real-time scanning capability.

First, you’ve got to have a very clear idea what you want to do. You never realize how “flexible” all your trading rules are until you try to put them in writing, or even better, program them. You’ll often find that your “rules” have so many “exceptions” that they aren’t really rules at all. More like suggestions, if that, and your constant bending of them causes you great agony in the end.

I’ll write more about this in a separate article, but in scanning for potential daytrades what we’re trying to do is simultaneously narrow the field and improve the quality of candidates with each “rule” or criteria we add. For instance, the first “cut” many daytraders make is with gaps. Not all stocks that make a big run start with a gap, and not all gaps result in big runs (in fact, if you read my ramblings I’m sure you know one of my favorite plays is on an Opening Gap Reversal), but requiring a gap can drastically reduce your workload and improve your odds- you might be looking at a list of 100 stocks of which 20 are likely to be strong winners, as opposed to 5000 stocks of which 50 are. Yes, you cut out some winners, but you improve the quality of the remaining field by an exponential amount.

Ideally, we’d continue to add this requirement and that filter, and end up with a list of 5 stocks with 4 very likely winners. That’s a little pie- in- the- sky (at a certain point additional criteria do more harm than good), but you see what I’m getting at. We can’t mourn for every winner we may have excluded; that’s not what’s important. What we want is a small, strong set of candidates, and then we use our chart-reading, executions, stops and money management to spank those puppies.

Ok, so we’ve fired up StrategyDesk and arranged our layout. I close everything except three windows:

(not clickable, just for show)

• Window 1 is my intraday chart, ranging from 3min to 30min bars. I do not use this chart to make trades! It’s too clunky. I have Medved Quotetracker (another freebie) running on the other monitors for that.

• Window 2 is a daily chart, about 30-40 bars long. I cannot overemphasize the importance of knowing exactly where a stock is on its daily chart when you’re trying to daytrade it. Daily bar support/resistance levels play a large role in intraday thrusts and reversals, and without them you’re driving blind.

• Window 3 is my Screener window, which shows the real-time results of whichever scan I have running at the moment.

Let’s Build That Screener!

For this example, I’m going to use a setup that most of you have seen or traded already: the famous 30-minute pullback to the 5ema. Sounds pretty simple, no? Au Contraire! Read on…

I like stocks over $20, and I like stocks with reliable volume. You may not agree, and you may make millions on lower-priced, thinly-traded stocks. More power to you. But they give me gas. So the first thing I want to do is reduce my universe of candidates to stocks over $20 with a 30-day average daily volume of over 200,000 shares. So far, I have found no way to screen for average volume with StrategyDesk, other than to take today’s volume, today minus one, today minus two, etc for the past month, then add them up and divide by 30. Yeah, you gotta be kiddin’ me.

Also, StrategyDesk won’t scan “the stock market” as it is. You must choose a list of stocks on which the Screener operates. Here is where I saw an opportunity. But more about that in a minute.

SD (I’m tired of typing the name out) comes with only a handful of default symbol lists: The NDX, the S&P 500, the OEX, the S&P Midcap 400, the Dow, and the Nasdaq Financial 100. That’s right- the Nasdaq composite is not included! However, this is relatively straightforward to remedy:

• Go to the Nasdaq Market Site. Locate the option to download the Composite list to a spreadsheet.

• In the spreadsheet, delete all the rows and columns except for the ticker symbols. Now drag over them (guess you could do this without the deleting, but it’s clearer this way) and Copy & Paste them into Notepad.

• Once you have that long list (over 3000 stocks!) running down the left side of your Notepad window, do a Save As- and here’s the tricky part: save the file in your TD AMERITRADE\StrategyDesk\Symbols\Stock Indexes directory, and save it with the extension “.sym“. It’s still just a text file, but this way the Screener will recognize it as a symbol list.

Voila, you now have the Comp at your disposal. Now that we’ve walked through how to do it, you can collect any variety of symbol lists you like, and as for the Comp, you can see I’ve been there and done that, so feel free to grab the .sym file from me.

The opportunity I saw with this crazy symbol-list stuff was that I could include my volume screens via a pre-screened symbol list. I fired up a different program (Advanced Analyzer, yes, another freebie) and set up a screen for all the stocks over $20 and with average volume over 200k. I exported the results of that screen (about 1000 stocks) using the method described above. If you want to grab that one too, here it is. And now, only 85 lines of html later, we’re ready to start writing formulas.

My apologies, but it’s late, I’ve installed a new stereo in my car today, wired HyperLites onto my motorcycle, grilled for the girls, watched a movie with them, and gotta get up at 0530 to go to work. Will do my best to finish this article tomorrow night.

Lloyd (Mr. Flatwallet), in a comment to a previous post, asked what tools I use for scanning/trading. I started replying, and the comment got so long (what, me, full of hot air?), I decided to put it up as a separate post. Here ’tis.

…as for tools, they fall under my personal rule that I won’t pay $10 for anything stock-related unless I’m nearly certain that it will be responsible for making me at least $11. This especially applies to newsletters- a friend wanted me to subscribe to one that was $1200/year.. I asked, “And you’re sure it’ll make me at least $1201/year? And if he’s that good, why’s he selling overpriced newsletters with hocus-pocus mystery inside secrets?” (I’m not talking about a legit case like Fallond, who’s completely open about how he bases his recommendations, as well as disclosing their performance; I’m talking about “Subscribe Now! And we’ll tell you about the stock of a company which participates globally in the commodity technology financial business, and is ready for a Big Move! So Subscribe Now!)

Ergo (I’m gettin’ tired of starting paragraphs with “So”), I use various tools which all have one thing in common- they’re FREE. Most are premium subscription services that are free because I use Ameritrade, so if you don’t use AMTD, I’d say explore any “perks” that your broker offers in addition to the freely-available stuff on the internet. Here goes my list:

• MedVed Quotetracker integrated with Ameritrade streaming data feed. I’ve never in my life touched a more customizable interface. How many million times have I thought, “If only I could do this with this chart…” Infinitely-variable bar frequency and chart periods (how about 13min bars on a 3hr 45min chart?), or setting the bar width in pixels so they’re not too skinny or fat for your visual preference, setting custom AUDIO alerts based on your hand-drawn trendlines, custom colors for every bar, line, trend, etc… Well, Quotetracker can pretty much do it all, it’s just a matter of knowing where to click. And even better, you can save the settings to use them later across a range of stocks. And unlimited real-time charts, just depends on how much monitor real-estate you have (I’m thinking of going from two 19-inchers to four).

• Ameritrade Streamer Suite — the charts I used before quotetracker. Not as customizable, but useful enough for daytrading (although limited to 5 open charts at at time). Also free Level II (useless for me), free time and sales (very useful at times), real-time actives lists by volume or trades for last 1,5,30min, etc (set to “volume” and “1min” catches some nice block trades), streaming quote portfolios with custom alerts (kinda clunky to set and change on-the-fly, though)

• Advanced Analyzer — this software used to be a premium piece called BigEasy Investor before AMTD bought them. It still very much has a 1998 feel to the interface, but it works great for end-of-day scanning on daily bars for potential swing-trade entries. After the data is updated (~1 hr after the close), you can scan the entire market for stocks that meet your criteria (RSI over 60, greater than but within 1.5% of 10ma which is less than 4% below 20ma, volume less than 70% of 30-day average, etc, etc, etc)[this is not an actual scan, just “for instances”]… you can start the next day with a very short list of stocks that you’re confident are good potential trades.

• ProphetScan from Prophet.net. This free scanner gives me exactly what I need for my crop of daytrade candidates, both long and short- Lucky for me, as the free version only allows two saved scans. My “Long Daytrade” scan goes as follows:

  • Last Price between 15 and 100
  • Average Volume at least 300,000 shares
  • Virtual Volume at least 20% greater than average (see their site for an explanation of this one, very very handy)
  • Today’s Open at least 1% higher than previous close (i.e. a gap); also note that this is NOT a gap above the previous high, but the previous close.

  This scan usually gives me a list of 20-40 stocks, which I then pare down manually. Note that you typically must wait 10-15 minutes after the open for the results to reflect today’s list, so this is not of use if you trade in the first few minutes after the open. If things go well, by 1015-1025 EST I’ll have a list of 8-15 stocks that I end up watching for actual trade entries.

I’m seriously considering subscribing to Prophet.net, since I’m all John Galt-ish with my money and I think they provide services that are well worth the subscription price. I’ve only hesitated because the scanner is the only tool of theirs I use.

Otherwise, I pay a grand total of Zilch for the trading tools I use, so every penny they make me is an undefined return on my investment (little division-by-zero joke for the 7th graders).

Cheers.

Skip The Takeovers

This morning OPEN (Open Solutions) is bid at over 37 from a previous close of 30.28. Put it on the watch list? Not so quick! Check the headlines: Open Solutions confirms deal to go private.

When a company is being taken over, you’ll see a big gap, but it’s not usually a tradeable gap. The price will open up and stay pegged (i.e. go sideways) for the entire day. The rare exception is when a company is being bought with another company’s stock, and the purchasing company begins falling precipitously during the day.

The upshot? We’ve got enough to worry about. When we see a big gap that’s due to a takeover, we should cross that stock off our list and move along to greener pastures.

(This one is old hat to experienced traders, or inexperienced ones if they’ve ever tried to trade a takeover, but it may save some frustration for someone who is just converting to daytrading.)