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Training Video_43

 

Stock filtering & Swing Trading GCI week_10

This is a special video to show how I select a limited number of stocks for swing trading. We are also looking at the update of the life swing trading example using the stock GCI. Idea is that you follow the trade evolution systematically learning to apply technical analysis techniques.

For trading GCI, we are using a chart template of which the last version is presented HERE. You can look at this page to find out about the latest actions. Every weekend, there will be a video update like this one commenting the past week using a simulated account and some preview.

We will use a weekly, daily, hourly and 5 minute chart. On these charts we will use a number of indications as shown in the template and as explained in training video 034.

This is not an invitation to trade this stock, information given is to be used for training purposes only. Stocata.org will not accept liability for any loss or damage which may arise directly or indirectly from use of or reliance on this information.

Special offer: "Capturing Profit with technical Analysis"

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I regularly get the question of how I filter stocks that I want to trade with technical analysis. Reason for this special stocata video number 43, I will introduce you to my method of selecting stocks for trading based on technical analysis techniques. At the end I also include the GCI trading update. While visiting my website stocata dot org, buy my book “Capturing Profit with Technical Analysis”, a complete technical analysis reference inclusive a trading method called LOCKIT.

Trading based on technical analysis techniques is best done with stocks that make larger moves over longer periods of time. Depending of your portfolio size, you can make a selection of 10 up to 30 stocks. That is about the limit you can handle following up and trading based on technical analysis on a daily chart. This  stock selection is a manual process you probably need to review once or twice a year. If you end up with more stocks than you need for your portfolio, just look at the size of the daily price move and keep those that on average show the most and highest percentage value change. You can make a plot with this formula : (H-L)/(L+(H-L)/2)*100
A stock moving like in this chart is ideal, with moves spanning 50% change in price for almost every up or down move. Especially compared to a buy and hold that would not bring any profit here, while technical analysis trading will most certainly bring nice profits over the years.

So, we are looking for stocks that make larger price moves over longer periods while we want to avoid stocks that show a history of:

1. Little price change over a longer periods
2. Very high intraday volatility
3. Very high daily volatility
4. Regular big surprise moves

For this we will need to do a visual inspection of the historical price data. First we look at the line chart with weekly data for the long term. We want to see a steady moving price making large moves like in this sample chart.

Next we use a daily bar chart  to look at the shorter term. Here we pay attention to intraday and daily volatility and the absence of large surprise moves. This chart of United States Steel is an example. Here you can see that price makes larger short term moves, without extremes in volatility and without big surprise moves. Gaps and high intraday volatility are mostly  in the direction of the short term trend and as such not a surprise.

 

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Let's have a look at the kind of stocks we want to avoid. In this long term view chart, the moves during the years are much too small and when there is some action it is happening more as a surprise in a very short time period. Impossible to make any profit with technical analysis or probably any other method,  trading this stock.

Unless you are a penny stock trader, avoid penny stocks. It is not possible to do serious technical analysis on a penny stock. In general avoid stocks that are moving flat already during a number of years.

Avoid stocks with longer term flat moves while making only short term big moves eventually in both directions.

Looking at the daily bars chart, avoid trading stocks that make regular extreme gaps or big intra day bars.

Avoid using stocks that show big differences in the daily price range for longer periods of time. In other words avoid stocks with a large difference in daily volatility.

Avoid stocks that clearly show many days with a very limited price moves, most probably due to insufficient trade volume. Any big move here, will mostly come as a surprise.

This weekly chart of HOG is a good example what kind of moves we are looking for long term.

• Large price change over a longer periods of time
• Stable intraday volatility
• Stable daily volatility
• No big surprise move

A look at HOG on a daily chart. Again:

• Large enough price change over short periods of time
• Stable intraday volatility
• Stable daily volatility
• No big surprise moves

The next step is following up the selected charts on a daily basis. We talk about a price up move. Just turn this reasoning around for a down move. On the basic price chart you can use breaking a downtrend line to detect a price up reversal. Breaking a support line indicates a trend reversal. Price turning up on a support line, indicates a continuation of the previous up trend.  Breaking a resistance line is a buying signal. Price turning down against resistance is a selling signal. The 50, 100 and 200 days moving average can be used as support and resistance levels. The median line of a pitchfork is a price target. Fibonacci projections are price targets. And of course you can use sophisticated techniques like price patterns, candlestick chart patterns, Elliott wave counts and more.

Let's also have a look at trading GCI past week. We had already an open position based on the daily chart. This position is still open with a profit. Best guess is that price has started an Elliott wave 5 down.

There was a nice up move in the hourly chart. We did not trade this up move, because we think the down correction had not yet come to an end. May 13 11:30 ET price falls through the uptrend line and indicators are diverging. Looking at an Elliott count we probably have finished correction wave 4 and we expect impulse wave 5 down to a level below the previous wave 3. We open a short trade at $16.80. We set a target closing price at $14. This position is still open.

Also on the 5 minute chart, we did not trade the up move. May 13 09:35 ET, Price fell with a bigger move through the uptrend line with indicators diverging. We open a short trade at $16.98. We expect an impulse wave 3 down.

At 15:15 EST we can draw a downward pitchfork in line with the price move. A Fibonacci projection from the top gives a possible price target of $15.6 at 423.6% in the range of the next day. We set a closing order at $15.7.

This target was reached the next day at 11:25 ET and the position was closed at $14.70. This result is included in the next result table.

The 5 minute trading result of this trading week is added in the table. There is now a total profit for all trades of 85.9%, exclusive the paper profit on the open position based on the daily and hourly chart.

This is the end of how I filter stocks for trading based on technical analysis and the end of the update trading the stock GCI. I hope my way of filtering stocks will help you to find good stocks to trade. Tell your friends about these videos and while visiting my website order my book “Capturing Profit with Technical Analysis”. A complete technical analysis reference and a trading system called LOCKIT. See you in the next video.

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