|Introduction To Stock Scanning |
|Even if you've been using technical analysis for a while, you may have never scanned for stocks before. Below are some basic points to keep in mind when scanning the markets. |
Use One Indicator Type Per Scan
Typically you should only use one Indicator per Indicator Type in a scan. For example, the Market Strength indicators will generally give off similar signals so you should concentrate on using one Market Strength indicator as opposed to two or three. You can waste valuable time analysing the same signals from similar indicators.
To follow on from the previous point, if you are just starting out in Technical Analysis try and focus your learning on one or two indicators from each type. You will be able to generate better scans by understanding a handful of each type of indicator as opposed to understanding just the Momentum indicators.
The Holy Grail Fallacy
No one scan can ever be applied to every stock. Don't waste your time looking for that elusive holy grail that will predict every twist and turn in the market. Different scans are useful in different situations (is the stock trending or ranging) and those situations will be different again depending on the stock (stocks with low liquidity will behave a lot differently to stocks with high liquidity). Your scans should be created to identify a specific situation in the market. For example, you might look for ranging stocks with a market capitalisation of less than one billion dollars and about to breakout and start trending.
Once you have found a scan that works well you should not fall into the trap of taking the signals at face value. Always backtest your scans for potential candidates and analyse the stock in a graphing package before committing yourself.
Move With A Stocks Personality
Another pitfall to avoid is assuming once a stock has been successfully triggered by a scan, it will always give you good signals for that stock. Stocks change and the market changes, past successful trades with a stock do not guarantee future signals and trades will be successful also.
Finding The Balance
A balance needs to be established between the number and the reliability of rules in your scan. Too many rules could miss valuable entry or exit points but too few could give you too many false signals. By experimenting you will be able to find a good balance in your scans ensuring the signals you get can be relied upon.