Trader Mike

I was recently asked about how I determine my “universe” of stocks. That is the stocks that I consider fair game to be traded. I use different filters for swing trading and day trading but they do have similar criteria. In both cases I’m trying to find liquid, volatile stocks. Once the filter’s applied I then look for certain patterns / setups to trade.

For swing trade candidates I use the following criteria in TeleChart:

Price Per Share: about $5 to Max
5 Day Average Volume: 75th percentile & higher (right now that works out to about 466,000 shares per day)
Price Volatility: 25th percentile & higher
Volume (Dollars) 5-Day: 75th percentile & higher

Here’s a shot of the …

Earlier today I posted a link to Kirk’s lists of best & worst performing ETFs of Q1 2008. David just pointed me to a way to visualize the same data via a very nice tool / screener / map on FinViz.com.

As for the action today, the bulls couldn’t have asked for much more. It was a rout, with approx. 3.5% gains on the indices. When I wrote yesterday that the indices were poised for a pop I had no idea it would come so soon. I can’t even complain about relatively light volume because the price gains were accompanied by a volume surge. I’m sure this rally …

I thought I’d answer these questions on the site since I get asked some of these often…

Mike, if there is a better method for me to ask you these questions, please let me know. You may choose not to answer any or all of them or not reply to this email at all. That would be fine with me. I understand that some questions may be personal and that you are too busy to read every piece of email you receive. But, here goes:

This method is fine. I guess I need to make a master article that can point people to a lot of these answers, many of which are ‘buried’ in the archives.

I’ve had several people ask me for more details about my trading process and the software that I use. Hopefully this post will answer those questions. Please leave any other questions n the comments section. I’m going to run through the hardware and software that I use as well as how I manage the actual trades.

What I’m Trying to Accomplish

As you know on any given day there’s a ton of market data to process. I try to get the computers to do as much of that work as possible. My focus is first on identifying the ‘tone’ or direction of the day — bullish (up) or bearish (down). Once I’ve done that the computers help me to find the best setups for the market conditions.

I often get asked about how I find swing trade candidates. Hopefully this post will answer those questions. As I’ve written before, most of the stocks I track initially came up on one of my candlestick pattern scans. (Please feel free to search the archives and/or use the subject index) My process is no different today than it was in November 2004 when I wrote that post. My entry and exit rules are also the same as I’ve previously stated — for longs entries are typically above the previous day’s highs with a stop below the previous days low or some other support level on the chart. So instead of writing all of that again I’ll give a few examples here.

I mentioned a little about my stock scanning the other day. I just happened to come across an article by Alan Farley about his process of scanning for stocks. (You’ll need to save that article locally b/c that page changes every so often.) He also uses TC2000 and you’ll see a lot of similarities in what we do. The one major difference is that once I do my filtering, which gets me to my ‘universe of tradeable stocks’ I apply scans to that list instead of just sorting as Alan does. I scan for certain candlestick patterns, volume surges, new highs today, new highs within the last 10 days, I sort by %b …