Finding high-potential trades starts with narrowing down your watchlist. With hundreds of stocks to choose from, the process can be overwhelming. But by applying a few key steps, you can focus on the most promising opportunities that align with current market conditions.
Stock Screening: Identifying Strong Candidates
The first step in narrowing down your watchlist is using a stock scanner. A scanner helps you quickly filter through stocks based on a set of criteria—like moving averages, volume, and price action. This tool allows you to focus on stocks that are outperforming the market, saving you time and effort.
I typically start by scanning for stocks that are outperforming the S&P 500 (SPY). The key is to filter out the weak performers and focus on the stocks that are showing strength. For example, if a stock is trending above its moving averages—such as the 50-day, 100-day, or 200-day moving average—it’s a good indicator that the stock is in an uptrend and may have more room to run.
In addition to moving averages, look for stocks that are showing clean breakouts. Breakouts occur when a stock moves above a resistance level or breaks out of a consolidation pattern. These are often signs that the stock is gaining momentum.
Evaluating Price Action
Once you’ve identified a list of stocks, the next step is to evaluate the price action. Pay attention to how the stock behaves in relation to its key moving averages and support/resistance levels.
For instance, when I’m watching a stock, I focus on its daily chart with the 200-day, 100-day, and 50-day moving averages as a baseline. If the stock is breaking above resistance and showing strong volume, it’s a good sign that it might continue its upward momentum.
Additionally, check the stock’s gap behavior. Stocks that fill in gaps nicely, like those moving above a previous high, can be good candidates for your watchlist. Gaps often represent significant price movements, and stocks that recover from gaps may offer great opportunities for traders who are paying attention.
By keeping these indicators in mind—moving averages, price action, and gap behavior—you can quickly eliminate weaker stocks and focus on the ones with the highest potential for growth. It’s important to avoid stocks that are flat, below key moving averages, or showing choppy price action.
In conclusion, narrowing down your watchlist doesn’t have to be complicated. With the right tools and a clear focus on key technical indicators, you can quickly identify the most promising stocks to trade. Make sure to apply this strategy consistently, and you’ll have a watchlist full of high-potential trades.
Roger Scott
Roger Scott Trading
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