Screening and Stock Selection

Narrowing Down Watchlists

With thousands of companies publicly traded how do you chose which stocks to trade? Let’s go over my process to narrow it down.

Universe List

Every weekend starts by building a universe list. This is my larger list of stocks that meet my initial screening criteria based on fundamentals and technicals.  I run about 13 different screens all with different criteria’s to make sure I don’t miss anything in Marketsmith, however you could create similar screens on FINVIZ or TradingView. I always start by looking at the weekly charts.

Here are two of the screens I run.

Favorite List

Now that I have my larger universe of stocks it is time to start narrowing down the selections. I’ll start by going through and adding anything that has created shaper base (cup, cup with handle, flat base, high tight flag, ascending base, coil) or looks 3 to 4 weeks into forming a shaper base into my favorite list. When looking at stocks that are 3 to 4 weeks into forming a shaper base, you will need to visualize what you expect the base to look like. (See my HALO trade walk through on how I do this, link below).

Once I have added all the potential candidates, I will go back through this list and do a bar by bar analysis of the weekly shaper base. If it is proper and showing the right characteristics it stays, if not it gets deleted from the favorites list. (See my post on the cup with handle to see how bar by bar analysis works, link below).

PFGC is an example of a stock that would make the cut and stay on the favorites list.

Focus List

Now that I have my favorite list, it is time to narrow it down even more to actionable ideas. I will go through the list looking at the daily charts now searching for stocks showing relative strength AND an actionable set up. Just because a stock has an actionable set up (trendline, breakouts, mini coil, pullback buy, whichever tactic you use to get positioned into a stock) does not mean it should be traded. If a stock isn’t showing relative strength compared to the market it most likely won’t be a big winner, and that is what I am looking for. 

PFGC could trigger an actionable buy breaking above the trendline

Once you have your list of stocks that are actionable, you must decide which ones to take. While most won’t trigger at the same time it is always a possibility. I will simply act on the set ups in the order that they trigger, however due to portfolio rules (won’t increase exposure by more than 30% in one day) and progressive exposure I may not take every set up even though they have all triggered entries.

If a stock triggers an entry, but I am unable to take the trade due to portfolio rules I make sure to keep a close eye on it for another actionable set up, so I can pounce when my rules allow.

References

Halozyme Therapeutics

The Cup With Handle

The content presented is for informational and educational purposes only. Nothing contained in this newsletter should be construed as financial advice or a recommendation to buy or sell any security. Please do your own due diligence or contact a licensed financial advisor as participating in the financial markets involves risk.