Learn How to Best Scan for Stocks | Podcast Episode #350

0:07
Hey, I’m Ryan Mallory and this is my Swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex, ever changing world of finance. Learn what it means to trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

0:25
You can succeed at the stock market, and I’m ready to show you how. Hey everybody, this is Ryan Mallory with Swing Trading the Stock Market. In today’s episode, we’re going to go back into talking about scanning for stocks. A lot of traders, they’re always looking for this magic formula when it comes to finding the right way to get stocks that can appear on their watch scans and they really have to do very little thereafter and be able to make some good money off of those trades.

0:50
They provide great trade setups, little effort, big return. And that’s probably a big misnomer about watch lists in general. That watch lists aren’t necessarily making it to where you get a lot of winning trades in return. They’re just cutting down the workload a little bit for you, but it still requires a lot of work.

1:10
Instead of maybe scanning a couple thousand stocks a week, you might be only scanning but you know a few 100 or 4 or 500 stocks. For me personally, I would say I scan on a given Week 2 to 3000 stocks. Now some of that might be repetitive. It might mean that on different days I’m looking at the same chart, just seeing how it develops.

1:26
But overall I’m looking at thousands of charts a week. I would probably say at least 7 or 800 different stocks throughout the course of a trading week. So to think that we can really get away from the hard work that it takes to be successful at swing trading really isn’t the case. It takes a lot of time, and even then, but even if you have good scans and even if you have a good strategy, it’s even implementing that strategy.

1:46
That also can become a real challenge too, because then we’re dealing with the psychology of the trades and we spend a lot of time on this podcast talking about the psychology of the trade. But for today, we’re talking about watch lists and today’s e-mail. The guy wants to be called Boomer, so I’m not using his real identity and Boomer rights.

2:02
Hey Ryan, I have a question about stock scans. I use Think or Swim and I usually scan for Bullish Engulfing candle patterns. Now, are there any parameters that are essential for yielding good results? That is volume, price, etc. Maybe you can mention how you conduct your scans.

2:18
Thank you for your continued guidance. God bless, Boomer. All right, Boomer, good question. Now, I would probably say this is on the high end of questions that I get oftentimes with stocks, because when we get frustrated with our trading or if we find that certain parameters aren’t working, we want to find some kind of new parameter like it’s a magic formula or it’s like a genie in the bottle.

2:38
These stock scans. And I know there’s products out there that offer these ideas that they’re going to give you just the best possible stock trade setups out there. And that’s probably not the case. I’ve yet to really see a software that just blows your mind with the kind of setups that it gets. And if that’s the case, if they’re giving you these really good trade setups, then everybody would be already using them.

2:58
And if everybody’s already using them, then that’s probably not going to yield the results that you’re looking for because it’s already too crowded to be able to capitalize on them. So that’s why I really do stress so much is not relying so much on a magic formula or a particular set of parameters.

3:13
They really give you the really good trade results, but to focus more on going through charts and being able to do them quickly and to get really good at pattern recognition. So the other thing I would say too about swing trading and finding good stocks from your watch list is that our watch list isn’t so much about getting us the good stocks to trade, but it’s also helping us.

3:33
And I think this is even more important trying to find the stocks that we should not be trading, that we don’t want to trade at all. And so you’ve heard me talk about, I have like do not trade list of stocks. I’m not willing to ever consider trading and there’s not a lot of stocks on there. But more importantly are there’s parameters that weed out a lot of stocks that I want nothing to do with.

3:54
I mean there’s 10s of thousands of stocks out there and I would say 90% of them I have no desire to trade. And you think about that, that you can actually dwindle down your list of tradable stocks by 90% by just defining what you’re not willing to trade. And that becomes a lot easier when you recognize the fact that risk is the most important aspect of a trade and being able to manage it successfully.

4:16
So there’s a lot of different classes of stocks that I won’t trade. One of them’s penny stocks right out of the gate trading under $10 a share. I’m not going to trade you. I know that probably to to a lot of you guys listening, it’s probably a deal breaker for you. And I think it’s a deal breaker for all the wrong reasons. We get caught up in how many shares that we can buy of a stock, and that’s really a stupid thing to get caught up in.

4:35
If you’re trading 3 shares of a stock versus 10,000 shares of a stock, it doesn’t make a difference. In the end, what’s going to make a difference is the return that you get on that trade. And a lot of people think that, well, if the stock, if I have 10,000 shares of the stock and it goes up a dollar, then I just made $10,000.

4:51
But if I buy a stock that’s, you know, trading at $1000 a share and it goes up a dollar, I’ve only made a dollar. Well, who cares? Because usually if a stock’s trading at $1000, a dollar move is kind of like a sneeze, not even a sneeze. It’s like a minor cough. It’s just not a big deal. So we get caught up on how many shares we’re trading.

5:08
That’s not what makes you the money, what makes you the money’s being able to manage the risk and being able to get into good trades that are going to offer good consistent results and having a strategy that backs that up. But getting into a stock that’s trading .0003 cents per share and you’re buying, you know, 100,000 shares of it and you think that somehow that’s really good.

5:27
It’s not. I mean, what’s going to happen? Is that really going to go to a dollar a share and all of a sudden you’re going to be a quadrillionaire of some kind? No, Almost every one of your penny stocks ultimately goes bankrupt. They really do it. I mean, most of them do not survive. They suck. And so the other thing that we like to do is we like to get onto this hype train and this hype train of a stock that’s, you know, hitting new 52 week highs.

5:49
It got it upgraded and had great earnings and it’s up 400% today. I saw one just today, MF, the stock was like trading at like 50 or $0.60. A share goes all the way up to $2.50 on news. Like I don’t even get why that would cause it to go up to $2.50 a share.

6:04
Then it pulls back down into the one 90s. People who are chasing it in the two 50s, they’re already down 20% on their trade. But people do it because they see everybody else buying and they think, well, if I can’t be the last person to get in and everybody else keeps buying it thereafter and I can be on the little bit on the early side, then everything will be fine.

6:19
But even if you get in on the early side when the people who got in before the move ever happened, people have been back holding for a long time and they see that move, What do you think they’re going to do? They’re going to liquidate their shares. And when they start liquidating, all of a sudden they’ve got a lot that they’re liquidating because it’s just made a move from 50 to $2.50 a share.

6:36
And they’re going to drop that price down because there’s not enough buyers that are buying at 2:50 to be able to absorb all of those shares. So that’s one of the reasons why I don’t want to trade penny stocks is because it’s highly manipulated. It’s very difficult to succeed at. I do not think I’ve actually met a successful penny trader.

6:54
I know there’s a lot of self-proclaimed penny stock traders out there that talks about how they became a quadrillionaire trading, you know, off of just $500. I’m not impressed. I do not think that that’s actually true. So any case you got penny stocks, that’s something that I’m not going to touch. You also got biotechs. I’m not going to touch those either for the very reason that you can get an FDA announcement that can just completely destroy the entire company.

7:14
You go from being up 10% one day and all of a sudden you’re down 90% the next because especially with the smaller biotech plays, which is what a lot of people gravitate towards, the FDA announcements can completely ruin the company if it doesn’t turn out positive in their favor. Then you have high beta stocks.

7:30
You know, for those who don’t know what beta is, beta is basically the amount of movement that a stock has relative to the S&P 500. So if the S&P 500 has a beta of 1 and a stock has a beta of two, that means that that stock is moving twice as much in terms of volatility as the S&P 500.

7:46
So I don’t want stocks that have like betas of like 3-4 or five. I don’t want those. That’s too difficult to be able to contain the risk. So again, I’m going to go ahead and I’m going to filter those out of my results. I want something that’s gonna be somewhere around like 1 to 2 1/2. There’s also the earnings factors.

8:01
Does it report earnings in the next week? If it does, again, I don’t want nothing to do with it. I wanna get out of that. But it’s something I don’t wanna get out of and I don’t wanna see anybody else get out of it. Swing tradeinthestockmarket.com, that is the patron website that goes along with this podcast. With it, you’re gonna get all my stock market research each and every day.

8:18
So go to swingtradingthestockmarket.com and you’ll get updates throughout the week on the overall stock market on all the big tech stocks. But you’re gonna get my weekly bullish and bearish watch list that I’m looking to trade off of each day. Plus you’re going to get my daily watch lists of stocks that come from that list of the most intriguing and potentially powerful trade setups that I’m able to find, plus additional videos throughout the week that are really good.

8:40
So check that out. swingtradingthestockmarket.com. You won’t be disappointed. Now what’s the other factor that I want nothing to do with? That’s going to be volume stocks that are trading with like 50,000 shares. I want nothing to do with those even 100,000 shares not impressed. I usually want something that’s like three, $400,000 or more.

8:56
Another aspect that’s important is market cap. Most of my trades are mid to large cap stocks. Sometimes I’ll get into small cap stocks. I don’t mind it, but I really want all my trades to be over a billion dollars a share. So when you consider all those factors, you can grossly reduce the number of stocks that you’re watching down to four, 5-6 hundred stocks.

9:17
And it may not sound exciting. When you think about trading at Home Depot, or trading at eBay, or trading SQ or Apple or Microsoft, It may not sound exciting to you. But what trading’s not supposed to be is an exciting adventure where you’re getting this thriller, this adrenaline high, because then all of a sudden you’re not managing the risk.

9:35
You’re enjoying the moment far too much. And when you start enjoying the moment far too much, you become complacent and you’re not going to be aware of the risk that lies ahead. I want trading to be boring. I want it to be boring for you as well, because when it’s boring, it’s manageable and it’s it’s repeatable. It’s something that you can do over and over and over again.

9:52
It’s like pulling a lever. That’s what you want trading to be is like pulling a lever. And when I’m going through my skins, is every one of those making its way to a watch list? They’re not. Most of them are throwaways. Most of them are stocks that have no good merit to them. I would say about and just a handful of stocks are ones that are actually good.

10:10
And then he gets much, much less when you consider the ones that I’ll actually trade from on a particular week or throughout the course of a month. And remember, and I guess I probably made this pretty clear so far in this podcast episode, but scanning for stocks is not a sure thing.

10:25
You can put parameters in there. I want to buy stocks that are oversold on the RSI for a potential bounce, or on the Stochastics or on the MACD and you’ll get a list of stocks that are meeting those parameters. Is that in guarantee success? No, cuz you may be still caught in a falling knife.

10:42
You may be looking for stocks that you can short, stocks that are extremely overbought. Maybe they’ve been overbought for five or six weeks now and they’re just begging to be shorted. Well guess what? You can still be steamrolled with higher prices. So in the end pattern recognition becomes very important. Being able to see where the stock is starting to break down if you’re looking to short the stock where the stock is starting to break out of a base if you’re looking to play the bounce.

11:03
And being able to identify key support levels. Like for instance N EE for the about the past year and a half has had a consistent bounce at the $70.00 mark, but today it’s actually breaking below it, something that it hasn’t done in a very long time. So N EE for a couple of years has been a really good bounce candidate, but now it’s starting to break below it because the overall market weakness is driving it even further to the downside than what it normally finds its support at.

11:29
So that’s where risk management comes in. That’s why scanning stocks is not enough to be able to ensure success. It’s a very small piece of the equation to longterm success and swing trading. Now to boomers other question, he talked about the bullish engulfing candle pattern.

11:46
For those who don’t know what that is, it’s essentially when you have the body of a candle pattern that is so big and large that it engulfs the entire day’s entire price action just with the candle body, it engulfs the entire price action of the previous day’s candle. That includes the shadow, That includes the body, everything, the open, low, high, close.

12:03
Those can be powerful reversal indicators, but I’ve seen plenty of times where they don’t pan out. So one of the things that I would say about candle patterns and there’s a lot of good Candlestick patterns out there that can give you good feels for whether a stock might be getting a little bit more bullish or a little bit more bearish or whether to continue holding a swing trade or going ahead and cutting your losses.

12:24
But it’s even better when you do it in conjunction with bigger price patterns. So for instance, you have this bullish engulfing candle pattern. Would that be enough for me to want to go ahead and get long on it by itself? No, I would want to be able to see that in conjunction like in with another bigger price pattern. Maybe it’s a bull flag pattern, maybe it’s a breakout of an inverse head and shoulders pattern or maybe it’s a cup and handle or what else we got.

12:47
There’s tons of patterns out there. But in essence, what I want to be able to see is that it’s working with a much bigger price pattern, you know, breaking through a resistance level or something of that nature. Because candlesticks by themselves, they can be reversed very quickly. If there’s a change in sentiment in the overall market, if the market decides to sell off because of a really bad economic news piece, or if there’s industry news that impacts that stock, yes, it can.

13:10
It can fall apart really quick. That’s why it’s really good to be able to identify support levels underneath the stock to where even if that bullish engulfing candle pattern does work, you want to know underneath if it starts to turn against you, where do I want to get out at? What would be the line in the sand?

13:26
And you want to be able to do that by identifying key support levels. If I can’t find key levels that I can say the stock has gone wrong, if it crosses below that level, I want nothing to do with it. I think one of the craziest things right now with Apple, it’s had this incredible rising trend line off of the January lows.

13:42
It bounced off of it each and every time until this week. On Wednesday, it started breaking below it. Thursday it continued to downside and then that afternoon it had its earnings come out and it’s now down 4% below and there’s really no support level until you get down to the one 60s and right now it’s trading in the one 80s.

13:57
So it’s a very, very concerning situation and that’s the biggest stock out there. That’s a $3 trillion company. If they start to sell off, it’s going to take a lot with it. And so one of the main reasons why I would not buy the dip on Apple right now, not that it can’t get bought up and go right back to the all time highs, that’s very possible that it can.

14:15
I want to see something on the charts that gives me a sense of okay. The odds are my favorite to buy it right now instead of buying it at 169 or at 175 or a 178. I want to see something on the chart that says there’s some bounce at this support level and there’s really none there.

14:32
And so from a swing trading standpoint, even if it gave me a bullish engulfing candle pattern tomorrow, I wouldn’t buy it. No, because I need to see it in conjunction with a greater pattern of bullishness that says this is the time to get into it right now. If you enjoyed this podcast episode, I would encourage you to like and subscribe to my YouTube channel.

14:49
You can go to that youtube.com/sharePlanner or if you’re listening to me on Spotify or Apple, make sure you leave me a 5 star review. Those things really do help make sure that you’re sending me your questions. ryan@shareplanner.com I want to hear your stories. I want to hear your questions. Tell me what you’re all about when it comes to stocks.

15:06
I want to know what your struggles are. Let me hear it. Thank you guys and God bless. Thanks for listening to my podcast Swing Trading the Stock Market. I’d like to encourage you to join me in the SharePlanner trading block where I navigate the stock market each day with traders from around the world.

15:23
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15:44
If you have any questions, please feel free to e-mail me at ryan@shareplanner.com. All the best to you and I look forward to trading with you soon.